OREANDA-NEWS. June 29, 2009. Ukraine is one of the most energy-intensive countries in the world and is only one-third as energy efficient as the average European country. As such Ukraine has enormous potential for energy efficiency improvements in every sector of its economy: industrial production, power generation, households, transport and agriculture. Recent sharp increases in Russian gas prices (almost four-fold over the last three years) have led to substantial increases in energy tariffs, thus creating stronger incentives to address efficiency, particularly in the industrial sector, reported the press-centre of EBRD.

Under its Sustainable Energy Initiative (SEI), over the past three years the EBRD has developed a sustainable energy portfolio in Ukraine worth over EUR650 million. That is equivalent to 28 per cent of the total business done by the Bank in the country over that period. The portfolio includes energy efficiency projects in industrial manufacturing, power generation and municipal infrastructure. It covers large direct transactions as well as smaller deals funded through local commercial banks.

Building on this impressive record, the EBRD and the Ukrainian government agreed in February 2009 to develop a joint Sustainable Energy Action Plan (SEAP), similar to those already signed with Bulgaria and Kazakhstan. A corresponding Memorandum of Understanding was signed in Kiev on 10 June 2009.

Threefold increase
Sergiy Maslichenko, Principal Manager with the EBRD's Energy Efficiency and Climate Change Team, is based in Ukraine and was involved in preparing the SEAP. “In 2008, Ukraine generated more business under the SEI than any other country of operations. SEI investments in Ukraine amounted to about EUR 350 million – almost a threefold increase from the 2007 level. This figure accounts for about 40 per cent of Ukraine’s annual business volume and 40 per cent of the 2008 SEI volume.”

Mr Maslichenko adds: “This scale of activity under the SEI and its integration into the country’s operations lay a good foundation for further increases in energy efficiency lending and requires a special approach to be adopted by the Bank for Ukraine.”

The SEAP provides the scope to further expand EBRD activity in Ukraine’s energy sector by addressing policy barriers and identifying actions to be undertaken by either the Ukrainian government and the EBRD.

Areas to work on include a review of tariff methodology and legislation; the introduction of legal frameworks for renewable energy development; and the introduction of legal frameworks for energy efficiency in residential and public buildings. From the EBRD’s perspective, apart from renewable energy, the SEAP calls for investments in such priority areas as industrial energy efficiency, credit lines to small and medium-sized enterprises, clean power and energy supply, municipal infrastructure and buildings and carbon finance.

Closer links
According to Josue Tanaka, Head of the EBRD's Energy Efficiency and Climate Change team, the SEAP “is a great opportunity for the EBRD to extend its policy dialogue in Ukraine on the back of its solid project record. We will be able to use the closer links that are created with the SEAP to enable finance in sectors that are currently closed to us, such as the residential buildings sector, where legislation is not supporting our involvement.”

Energy efficiency offers a powerful tool for achieving the EBRD's transition goals in Ukraine. First of all, improved energy efficiency helps cut fuel costs, thereby increasing competitiveness for businesses and directly enhancing welfare for Ukrainian consumers, especially in the context of energy price increases for households. Secondly, lower demand for energy helps tackle energy security concerns by reducing Ukraine’s dependence on imported fuels. Thirdly, energy efficiency generates environmental benefits and stimulates new services and jobs, which are especially important in Ukraine now that the financial and economic crisis has escalated.

“There is a significant potential for EBRD investments in renewable energy, especially in small hydro and wind energy installations,” says Mr Maslichenko. “The EBRD is keen to finance renewable energy projects both directly and through its Ukraine Sustainable Energy Direct Lending Facility (targeting small projects), which is currently under preparation."

He adds: “There are also grant resources from the Global Environmental Facility (GEF), and potentially from the Clean Technology Fund available for developing this sector.”