Energy challenges of winter – what should be expected by Ukraine and the EU?

20/ 10/ 2022

Svitlana Mykhailovska. Deputy Executive Director of the European Business Association. Winter is coming, along with new challenges for the energy systems of Ukraine and Europe. The main threat for Ukraine is the persistent attacks on the critical infrastructure, while for Europe it is the energy crisis hitting the wallets of people and companies. How serious is this challenge for the economy of Ukraine and European countries? The more we know about energy challenges and the scale of threats, the better people, businesses, and countries can get prepared. The European response to energy blackmail. Russian blackmail exacerbates the situation in the European energy sector. Although the probability of total blackouts in Europe is out of the question, there is still the risk of electricity shortages. Surely, local authorities and operators are preparing for different scenarios, but both individual consumers and businesses should plan the reduction of electricity consumption, which in fact is already taking place gradually. Sky-high prices also force Europeans to voluntarily save energy resources. The consequences of the price rise can be felt already as companies are forced to reduce their activities in response to current challenges. Moreover, some of them are under threat of a complete shutdown. The recession is looming for European economies, and almost all European citizens and businesses will feel the direct and indirect impact of this energy crisis. Particularly, the most vulnerable industries to the current energy situation will be agriculture, food, automotive, cosmetics, hygiene, construction, pharmaceuticals, and electronics. In turn, consumers may experience price increases or even shortages of such products soon. It is worth remembering that this crisis is not exclusively an energy one. By artificially inflating prices, first, Russia seeks to stir up discontent in European societies and to change the power in the EU countries into pro-Russian for the sake of its political goals. It seems to me that European society is mostly aware of this fact, but it is necessary to continue explaining what and who is behind the soaring energy prices. Lets hope that the EU countries will stand strong and firm against energy blackmail. At the same time, this situation can be a good impetus for the EU to further restructure its energy system, diversify energy sources, develop energy-efficient and energy-saving technologies, and foster the development of renewable energy sources in a strategic perspective. To resolve the problem of high prices and availability of energy resources in the short term – national governments, international regulators, and businesses need to coordinate their efforts to strengthen the energy security of the region. The Ukrainian power system holds the blow. Ukraine is obviously facing the most difficult winter in the last 30 years. It is currently hard to predict the scale of damage that may be caused to our energy infrastructure on the eve and during the heating season. Although we could get a partial idea of what to expect due to the recent massive missile shelling of Ukraine. Therefore, the respective services, the state, businesses, and every Ukrainian should prepare for the winter now. On October 10-12, dozens of Russian missiles hit energy infrastructure in 11 regions and the city of Kyiv. The power supply was disrupted almost in the whole country. As estimated by representatives of the Energy Committee of the European Business Association, 3.9 thousand settlements were cut from power due to these terrorist attacks on October 10. To balance the power system and prevent large-scale outages, the state energy company NPC Ukrenergo has introduced emergency power outage schedules. A significant part of industrial and household customers, including those in Kyiv and the Kyiv region, was featured in it. Such consumption restrictions are related to the need to carry out restoration works. Russia is using the same energy blackmail on Ukraine in the vain hope of breaking the will of its people. Needless to say, they will not succeed. Ukrainian defenders are holding out, and so do power engineers, who are now heroically maintaining the energy front. All Ukrainians will hold out. What should Ukraine prepare for?. The way the Ukrainian energy sector is preparing in general for winter is encouraging. According to the Cabinet of Ministers, Ukraine is 88% ready for the start of the heating season. Currently, we have accumulated energy resources of almost 14 billion cubic meters of gas and 2.2 million tons of coal. However, there is already an understanding that repairs and restoration of damaged facilities are the only way to get through the difficult heating season of 2022-2023. Energy companies are preparing for increased risks, developing plans, and strengthening power grids. At the same time, Ukrainian consumers should be reasonable in their consumption – not overload power grids, and not turn on all energy-intensive appliances at once. The energy-efficient heating should be used only if there is an acute need for it. It is worth noting that in some frontline areas, electricity remains the only source of energy. And business notes that it will be impossible to repair power systems without a source of funding in the form of a RAB tariff. Therefore, the EBA Energy Committee experts consider inappropriate the recent proposals to abolish the reform of incentive tariff setting (RAB-tariff), which is the main source of funding for the restoration of grids. With the current inflation and a 30% reduction in consumption, it is the RAB tariff that ensures the functioning of companies – the purchase of materials, repairs, and salaries. Electricity exports have a significant potential to become one of the important items of the state budget. After all, in March the power system of Ukraine was synchronized with the ENTSO-E, the European Network of Transmission System Operators for Electricity. This enabled commercial electricity exports from Ukraine to the EU countries from June 30. In September this year, it was recorded that the electricity export ranks second as the source of export revenues for the state during the war. However, since October 11, Ukraine had to suspend electricity exports to the EU to stabilize its own energy system damaged by missile attacks on Ukraines infrastructure. It should be noted that the technical possibilities of synchronized networks can also operate in reverse if Ukraine will need to import electricity from the EU. At the same time, Ukraine has its own energy potential, which can be used additionally. Thus, the construction of some renewable generation facilities stopped since the beginning of the war. If the state decided to support investors willing to complete wind power plants, Ukraine would receive at least 500 MW of additional capacity within a fairly short period. Every 100 MW of built green capacities means UAH 1 billion of revenues for the state. Currently, in order to complete these stations, it is necessary to adopt legislative changes. It is worth remembering that Russia will continue its energy terror against Ukraine and will increase energy pressure on the European Union. Obviously, this pressure will lead to difficulties in everyday life and disruptions in the work of companies and will create an additional financial burden. Therefore, it depends on our resilience and preparedness how we will survive this winter. Everything will be Ukraine!

Svitlana Mykhailovska Deputy Executive Director of the European Business Association

Winter is coming, along with new challenges for the energy systems of Ukraine and Europe. The main threat for Ukraine is the persistent attacks on the critical infrastructure, while for Europe it is the energy crisis hitting the wallets of people and companies.

How serious is this challenge for the economy of Ukraine and European countries? The more we know about energy challenges and the scale of threats, the better people, businesses, and countries can get prepared.

The European response to energy blackmail

Russian blackmail exacerbates the situation in the European energy sector. Although the probability of total blackouts in Europe is out of the question, there is still the risk of electricity shortages. Surely, local authorities and operators are preparing for different scenarios, but both individual consumers and businesses should plan the reduction of electricity consumption, which in fact is already taking place gradually.

Sky-high prices also force Europeans to voluntarily save energy resources. The consequences of the price rise can be felt already as companies are forced to reduce their activities in response to current challenges. Moreover, some of them are under threat of a complete shutdown. The recession is looming for European economies, and almost all European citizens and businesses will feel the direct and indirect impact of this energy crisis. Particularly, the most vulnerable industries to the current energy situation will be agriculture, food, automotive, cosmetics, hygiene, construction, pharmaceuticals, and electronics. In turn, consumers may experience price increases or even shortages of such products soon.

It is worth remembering that this crisis is not exclusively an energy one. By artificially inflating prices, first, Russia seeks to stir up discontent in European societies and to change the power in the EU countries into pro-Russian for the sake of its political goals. It seems to me that European society is mostly aware of this fact, but it is necessary to continue explaining what and who is behind the soaring energy prices. Let’s hope that the EU countries will stand strong and firm against energy blackmail.

At the same time, this situation can be a good impetus for the EU to further restructure its energy system, diversify energy sources, develop energy-efficient and energy-saving technologies, and foster the development of renewable energy sources in a strategic perspective. To resolve the problem of high prices and availability of energy resources in the short term – national governments, international regulators, and businesses need to coordinate their efforts to strengthen the energy security of the region.

The Ukrainian power system holds the blow

Ukraine is obviously facing the most difficult winter in the last 30 years. It is currently hard to predict the scale of damage that may be caused to our energy infrastructure on the eve and during the heating season. Although we could get a partial idea of what to expect due to the recent massive missile shelling of Ukraine. Therefore, the respective services, the state, businesses, and every Ukrainian should prepare for the winter now.

On October 10-12, dozens of Russian missiles hit energy infrastructure in 11 regions and the city of Kyiv. The power supply was disrupted almost in the whole country. As estimated by representatives of the Energy Committee of the European Business Association, 3.9 thousand settlements were cut from power due to these terrorist attacks on October 10.

To balance the power system and prevent large-scale outages, the state energy company NPC Ukrenergo has introduced emergency power outage schedules. A significant part of industrial and household customers, including those in Kyiv and the Kyiv region, was featured in it. Such consumption restrictions are related to the need to carry out restoration works.

Russia is using the same energy blackmail on Ukraine in the vain hope of breaking the will of its people. Needless to say, they will not succeed. Ukrainian defenders are holding out, and so do power engineers, who are now heroically maintaining the energy front. All Ukrainians will hold out.

What should Ukraine prepare for?

The way the Ukrainian energy sector is preparing in general for winter is encouraging. According to the Cabinet of Ministers, Ukraine is 88% ready for the start of the heating season. Currently, we have accumulated energy resources of almost 14 billion cubic meters of gas and 2.2 million tons of coal. However, there is already an understanding that repairs and restoration of damaged facilities are the only way to get through the difficult heating season of 2022-2023.

Energy companies are preparing for increased risks, developing plans, and strengthening power grids. At the same time, Ukrainian consumers should be reasonable in their consumption – not overload power grids, and not turn on all energy-intensive appliances at once. The energy-efficient heating should be used only if there is an acute need for it.

It is worth noting that in some frontline areas, electricity remains the only source of energy. And business notes that it will be impossible to repair power systems without a source of funding in the form of a RAB tariff. Therefore, the EBA Energy Committee experts consider inappropriate the recent proposals to abolish the reform of incentive tariff setting (RAB-tariff), which is the main source of funding for the restoration of grids. With the current inflation and a 30% reduction in consumption, it is the RAB tariff that ensures the functioning of companies – the purchase of materials, repairs, and salaries.

Electricity exports have a significant potential to become one of the important items of the state budget. After all, in March the power system of Ukraine was synchronized with the ENTSO-E, the European Network of Transmission System Operators for Electricity. This enabled commercial electricity exports from Ukraine to the EU countries from June 30. In September this year, it was recorded that the electricity export ranks second as the source of export revenues for the state during the war.

However, since October 11, Ukraine had to suspend electricity exports to the EU to stabilize its own energy system damaged by missile attacks on Ukraine’s infrastructure. It should be noted that the technical possibilities of synchronized networks can also operate in reverse if Ukraine will need to import electricity from the EU.

At the same time, Ukraine has its own energy potential, which can be used additionally. Thus, the construction of some renewable generation facilities stopped since the beginning of the war. If the state decided to support investors willing to complete wind power plants, Ukraine would receive at least 500 MW of additional capacity within a fairly short period. Every 100 MW of built “green” capacities means UAH 1 billion of revenues for the state. Currently, in order to complete these stations, it is necessary to adopt legislative changes.

It is worth remembering that Russia will continue its energy terror against Ukraine and will increase energy pressure on the European Union. Obviously, this pressure will lead to difficulties in everyday life and disruptions in the work of companies and will create an additional financial burden. Therefore, it depends on our resilience and preparedness how we will survive this winter. Everything will be Ukraine!