Ukraine Has a Chance to Build a New Post-War Energy System and Attract Large Investments in Electric Power Industry

16/ 12/ 2022

SERGIY OBERKOVYCH. Senior Partner at GOLAW, Attorney at law The challenges the Ukrainian energy system faces now and will face in the future are unprecedented. It refers to the destruction of the energy infrastructure and individual sectors of the energy system, which occurs along with no less important factors, such as the general economic decline in the country, diminishing of the world economy, labor crisis, investments, etc. Nowadays, our primary goal is to survive and be ready for reconstruction in the future. It is important to concentrate on building an entirely new structure of the Ukrainian post-war energy system rather than trying to rebuild the destroyed one unsystematically. This is a unique case in modern history, and we should turn it to our advantage. The main difficulty we are dealing with is the lack of a clear understanding and proper assessment of the destruction and damages that will be caused as a result of the war. Despite all, we should already start to develop a reconstruction plan, keeping its basic principles and goals, which we can outline, in particular, based on global trends in the industry. Also, we would like to emphasize that the legal component of reconstruction should be started now. It is related to our goal to create the proper conditions and regulations to implement these trends in our country. Moreover, even improve them relative to other jurisdictions as part of the fight for investments. Firstly, the reconstruction of the Ukrainian energy system should be based on the industrys latest technologies, focusing on energy efficiency, perspective, reliability, and sustainability. In addition, Ukraine should develop the legislation in four key areas in particular: carbon-neutral and self-sufficient energy system; renewable energy; building of microgrids and implementation of smart energy systems for decentralization and ensuring stability; long-term energy storage systems. These areas are related to innovation and efficiency. Suppose these aspects are properly designed and implemented. In that case, the future Ukrainian energy system will set a positive precedent, demonstrating that even a country with the most severe challenges can build a clean, energy-efficient, and sustainable system almost from scratch. The mentioned areas are new for Ukraine, but we should focus on developing the legislative framework and practice to introduce these technologies into our daily lives. Effective legal work will contribute to their rapid development and implementation in the future. Secondly, during the prevailing decarbonization global trend, focusing on this direction in the reconstruction of the Ukrainian energy system, in the long run, can become an energy incentive for attracting investments. Thus, the issue of development is already relevant. In particular, the fourth energy package of the EU, Clean energy for all Europeans is a legislative initiative, which is one of the stages for implementation of the Strategy to build the Energy Union. It can become an important guide in reconstructing and reforming the Ukrainian energy system. Work on its implementation in Ukrainian realities should begin now. Among the specific actions to be taken in this direction, we would like to emphasize the following: To create a legislative framework for the functioning of household energy communities following the example of those in the EU – an association of citizens that produces electricity for its own needs; To create a legislative framework for the full functioning of aggregators in Ukraine –individuals or legal entities that unite RES producers, with the aim of further joint sale of the electricity produced by them; To ensure the possibility of horizontal trade – direct sale of electricity from the producer to the consumer. The consequence of the fourth energy package implementation will be to ensure the building of a decentralized, stable, and more autonomous energy system. In addition, the reform will contribute to the general development of the market, which also should attract new investors. As part of the fourth energy package implementation, we should not forget about the Ukrainian commitments to support the European Green Agreement to achieve zero emissions by 2050. Thus, Ukraine should restructure its coal sector and consider better regulation of the energy market as well as taxation of carbon emissions. It is also possible to introduce an emissions trading system synchronized with the European Emissions Trading System, as envisaged in the Energy Community Decarbonisation Roadmap. Thirdly, an important element is the integration of the Ukrainian Unified Energy System (UUES) into the pan-European energy system ENTSO-E, which is provided by the Association Agreement between the EU and Ukraine. The approved plan of integration has been amended due to the war and, unfortunately, continues to be amended now. Nevertheless, the work is ongoing and should take the following factors. It is necessary to carry out further work to ensure the possibility of free electricity purchase and sale between the EU and Ukraine. Especially in terms of work on the following obstacles that still keep existing: the need to go through the procedure of obtaining access to the interstate crossing of electricity through the relevant auctions; technical limitations of import-export capacities as well as limitations caused by the method of calculating the free pass capacities of the interstate crossing, which are subject to distribution (auction);charging fees for the transmission of electricity for export, which also contradicts the Association Agreement with the EU, the Treaty establishing Energy Community and some other European documents. Building a unified energy market still requires much technical and regulatory (legislative) work. Nowadays, this issue is actual, and the processes should be completed soon. Also, electricity integration complements the general strategy of the effective mechanism of Ukrainian export activity, which will become an important element of Ukrainian development after the war. In conclusion, we would like to emphasize that reconstruction will be the primary goal of Ukraine after its victory in the war. Moreover, we assume that having the proper strategic approach, Ukraine will acquire a good opportunity to rebuild its energy system. In practice, it will be related to the presence of an investing trend in Ukraine. However, this trend cannot become effective by itself. Thus, we already need to carry out reforms that are supported by the high legal level and the presence of a complex, analytical, critical, and global approach to the building of the new Ukrainian post-war energy system.

SERGIY OBERKOVYCH

Senior Partner at GOLAW, Attorney at law

The challenges the Ukrainian energy system faces now and will face in the future are unprecedented. It refers to the destruction of the energy infrastructure and individual sectors of the energy system, which occurs along with no less important factors, such as the general economic decline in the country, diminishing of the world economy, labor crisis, investments, etc.

Nowadays, our primary goal is to survive and be ready for reconstruction in the future. It is important to concentrate on building an entirely new structure of the Ukrainian post-war energy system rather than trying to rebuild the destroyed one unsystematically. This is a unique case in modern history, and we should turn it to our advantage.

The main difficulty we are dealing with is the lack of a clear understanding and proper assessment of the destruction and damages that will be caused as a result of the war. Despite all, we should already start to develop a reconstruction plan, keeping its basic principles and goals, which we can outline, in particular, based on global trends in the industry.

Also, we would like to emphasize that the legal component of reconstruction should be started now. It is related to our goal to create the proper conditions and regulations to implement these trends in our country. Moreover, even improve them relative to other jurisdictions as part of the fight for investments.

Firstly, the reconstruction of the Ukrainian energy system should be based on the industry’s latest technologies, focusing on energy efficiency, perspective, reliability, and sustainability. In addition, Ukraine should develop the legislation in four key areas in particular:

carbon-neutral and self-sufficient energy system;
renewable energy;
building of microgrids and implementation of smart energy systems for decentralization and ensuring stability;
long-term energy storage systems.

These areas are related to innovation and efficiency. Suppose these aspects are properly designed and implemented. In that case, the future Ukrainian energy system will set a positive precedent, demonstrating that even a country with the most severe challenges can build a clean, energy-efficient, and sustainable system almost from scratch. The mentioned areas are new for Ukraine, but we should focus on developing the legislative framework and practice to introduce these technologies into our daily lives. Effective legal work will contribute to their rapid development and implementation in the future.

Secondly, during the prevailing decarbonization global trend, focusing on this direction in the reconstruction of the Ukrainian energy system, in the long run, can become an energy incentive for attracting investments.

Thus, the issue of development is already relevant. In particular, the fourth energy package of the EU, “Clean energy for all Europeans” is a legislative initiative, which is one of the stages for implementation of the Strategy to build the Energy Union. It can become an important guide in reconstructing and reforming the Ukrainian energy system. Work on its implementation in Ukrainian realities should begin now.

Among the specific actions to be taken in this direction, we would like to emphasize the following:

To create a legislative framework for the functioning of household energy communities following the example of those in the EU – an association of citizens that produces electricity for its own needs;
To create a legislative framework for the full functioning of aggregators in Ukraine –individuals or legal entities that unite RES producers, with the aim of further joint sale of the electricity produced by them;
To ensure the possibility of horizontal trade – direct sale of electricity from the producer to the consumer.

The consequence of the fourth energy package implementation will be to ensure the building of a decentralized, stable, and more autonomous energy system. In addition, the reform will contribute to the general development of the market, which also should attract new investors.

As part of the fourth energy package implementation, we should not forget about the Ukrainian commitments to support the European Green Agreement to achieve zero emissions by 2050. Thus, Ukraine should restructure its coal sector and consider better regulation of the energy market as well as taxation of carbon emissions. It is also possible to introduce an emissions trading system synchronized with the European Emissions Trading System, as envisaged in the Energy Community Decarbonisation Roadmap.

Thirdly, an important element is the integration of the Ukrainian Unified Energy System (UUES) into the pan-European energy system ENTSO-E, which is provided by the Association Agreement between the EU and Ukraine. The approved plan of integration has been amended due to the war and, unfortunately, continues to be amended now. Nevertheless, the work is ongoing and should take the following factors.

It is necessary to carry out further work to ensure the possibility of free electricity purchase and sale between the EU and Ukraine. Especially in terms of work on the following obstacles that still keep existing: the need to go through the procedure of obtaining access to the interstate crossing of electricity through the relevant auctions; technical limitations of import-export capacities as well as limitations caused by the method of calculating the free pass capacities of the interstate crossing, which are subject to distribution (auction);charging fees for the transmission of electricity for export, which also contradicts the Association Agreement with the EU, the Treaty establishing Energy Community and some other European documents.

Building a unified energy market still requires much technical and regulatory (legislative) work. Nowadays, this issue is actual, and the processes should be completed soon. Also, electricity integration complements the general strategy of the effective mechanism of Ukrainian export activity, which will become an important element of Ukrainian development after the war.

In conclusion, we would like to emphasize that reconstruction will be the primary goal of Ukraine after its victory in the war. Moreover, we assume that having the proper strategic approach, Ukraine will acquire a good opportunity to rebuild its energy system. In practice, it will be related to the presence of an investing trend in Ukraine. However, this trend cannot become effective by itself. Thus, we already need to carry out reforms that are supported by the high legal level and the presence of a complex, analytical, critical, and global approach to the building of the new Ukrainian post-war energy system.