The development of Ukraine's renewable energy sector has been rapid over the past few years. This is supported by Renewables in Ukraine, which reveals that investments (in this energy sector) amounting to USD 1.4 billion have been made between 2009 and 2018. In 2018 alone, there was an 87% growth in solar power capacity. This growth continued throughout 2019 and 2020, despite challenges brought by the pandemic.
Investors who would like to participate in the Solar power business in Ukraine may have a lot to gain. According to analysts, its growth is expected to continue up to 2035. While this is excellent news, investors should, however, carefully weigh the impact of the auction scheme that was recently introduced.
WHY INVEST IN UKRAINE'S ENERGY SECTOR?
The political climate of Ukraine is favorable for both local and foreign renewable energy investments. The lawmakers are eager to improve this sector as part of the solution to curb global warming. Following the 2015 Paris Climate Agreement, the State is determined to minimize gas emissions by 40% by 2030.
It doesn't take much time to get started. An investor with a ready-to-build solar project can begin to operate, i.e., to generate power within six months in Ukraine.
Ukraine makes a convenient destination for the solar energy business because of its preparedness concerning infrastructure, industrial assets, etc. Also, Ukraine has a learned and well-trained workforce. Investors will not struggle to find a skilled labor force.
Ukraine has joined hands with several EU countries to make the renewable energy business a success. Investors can certainly benefit from the bilateral agreements between Ukraine and their home countrifas
How fast is the renewable energy sector growing?
Today, renewable energy contributes about 4% of the total Ukrainian energy supply. The government, however, hopes to grow its capacity to 25% by the year 2035. How is this possible?
The data for the past seven years shows that the Ukrainian solar power business has been growing continuously. Capacities of over 2,169 MW of renewable energy were built through a global investment of close to EUR 2 billion. This was also made possible through the integration of Ukraine's energy system into the European jurisdiction.
Taking a closer look at the data for 2019, Ukraine obtained over 862 MW of renewable energy in the first quarter of that year. This was more than the 848 MW acquired in 2018. The solar energy capacity of that figure was 684 MW. Solar energy contributed a great deal of renewable energy that year.
The renewable energy industry played a part in the 3.3% growth of Ukraine's economy in 2019. Although the coronavirus pandemic was a setback in 2020, Ukraine still pushed to modernize and transform its green energy industry. This was essential to keep in track with its vision for 2030, i.e., to reduce gas emissions by 40%.
The profitability of solar energy investments in Ukraine
The solar energy business in Ukraine is highly profitable. A single investment can attract about 18-20% in profits annually. Solar energy is in rising demand because of its affordability among other things. A solar energy provider can supply solar power to farms, manufacturers, and a variety of projects.
Ukraine also employs the Feed-in Tariff (FiT) criteria to promote investment in renewable energy. FiT is a policy mechanism that provides cost-based compensation to producers of renewable energy. It gives long-term contracts and promises price certainty for investors in the renewable energy sector to have more stability and confidence in their investments.
The green tariff values in Ukraine between 2019-2020 stood at EUR 0.15/ kWh for a solar plant installed on the ground and EUR 0.16/ kWh for a solar plant installed on a rooftop. In July 2020, the law on FiT was restructured. Under the new law, the FiT rates for Solar Power Plants (SPPs) have been reduced as follows:
■ 15% reduction for SPPs with 1MW capacity (commissioned between July of 2015 & December of 2019);
■ 7.5% reduction for SPPs with less than 1MW capacity (commissioned between July of 2015 and December of 2019;
■ 2.5 reduction for SPPs with less than 1MW capacity (commissioned from January of 2020);
■ 2.5% reduction for SPPs of more than 1MW capacity (commissioned from January to October of 2020);
■ 30% reduction for SPPs with capacity in the range of 1MW to 75MW (commissioned between November of 2020 and March of 2021);
■ 60% reduction for SPPs with 1MW to 75MW capacity installed from April of 2021;
■ 60% reduction for SPPs with more than 75MW capacity installed from November of 2020.
The decrease in FiT is undesirable to investors but has little impact on the profitability of the renewable energy business in Ukraine. Foreign investors still have a lot to benefit from this industry. The State of Ukraine guarantees that the new FiT rates will not be modified. The reduced coefficients will not be applied in any manner that causes damage, loss, or non-receipt of the producer's legitimately anticipated revenues up to December of 2029. Over a dozen SPPs have been built to date, and these are using some of the incentives brought by the new law.
The market for renewable energy in Ukraine is quite extensive. The country has a population of over 44.2 million, and more SPPs could help balance the energy demand. And also, the State's renewable energy market is promoted outside of Ukraine. The government introduced an auction system that became active beginning in January of 2020. This system allows facilities that generate power to participate in e-auctions and compete to sell energy to Ukraine. However, before engaging in this auction, investors should understand how it works.
Ukraine is open for business. If you are interested, the solar power business is among the most attractive FDIs, together with the IT and agriculture sectors. Opening a company or a subsidiary in Ukraine is not complicated. You can visit the State to do it personally or hire a company formation firm such as SIGTAX. SIGTAX in Ukraine understands the laws and procedures in opening any business type in Ukraine.