Energy saving market in Ukraine: trends and prospects

Energy is the basic industry, the foundation of the national economy, the major factor of its development. Today the fate of reforms and the future of Ukraine depends on a steady work and development of the fuel and energy complex. According to data of the State Energy Saving Committee Ukraine consumes annually about 210 million of tons of standard coal of fuel and energy resources (FER) and is among countries with deficit of energy resources. Nowadays the state covers its needs in energy consumption approximately for 53% and imports 75% of necessary volume of natural gas and 85% of raw oil and oil products. Such a structure of fuel-energy resources is economically unfounded. It generates dependence of the Ukrainian economy on the countries-exporters of oil and gas and shows itself a threat for its power and national safety. Proceeding from the state policy of energy saving, it is necessary to decrease the fuel-energy resources consumption by 108 million of tons of standard coal (comparing with 1990 year) till 2015 year in Ukraine.

For the purpose of the realization of energy saving potential “Complex Government program of energy saving” , “Program of the state support of the development of untraditional and renewable energy sources” and others have been adopted. These programs are to realize the predictable economically expedient indices of the energy saving potential in 2005: 58.7-65.7 million of tons of standard coal, in 2010 saving of energy resources will make up 77.7-93.3 million of tons of standard coal, in 2015 : 108 million of tons of standard coal. In 2005 capital costs for the realization of measures are to make up UAH 33.1-36.5 billion, in 2010: UAH 46.5-52.7 billion, in 2015: UAH 52.4-64.8 billion.

The government’s program “Oil and gas of Ukraine till 2010 year” defined the main task to provide the country’s power safety: maximal providing of the state needs in fuel-energy resources due to own extraction. In Ukraine the volumes of consumption of natural gas (mainly imported) 1.7 times more than volumes of coal consumption (mainly own extraction) and almost twice exceed its part in the world fuel and energy balance (FEB). The comparative analysis of the structure of the energy consumption in the industrially developed countries of the world shows that the FEB structure in Ukraine is economically inexpedient and, moreover, threatening for its power and national safety. Hence the urgent necessity of the development of power strategy flows out. For providing the use of the energy saving potential, first of all, the improvement of regulatory and legal base and state policy in the field of energy saving, which would impel energy consumers to the proper consideration of the saving FER consumption, application of energy saving technologies, usage of alternative and renewable energy sources are necessary.

Forming of financing sources of energy saving projects is the basis of the successful realization of the energy saving state policy. Financing of such projects can be carried out from a few sources, namely: due to own funds of enterprises, due to state funds, and also due to attraction of investments.

Absence of authoritative energy saving companies, providing a reliable project management, is a basic barrier to attraction of investments, guaranteeing the level of future economy and terms of investments return to the investor. Such structures are practically absent in Ukraine, as well as in existing financial-industrial groups. Nevertheless, hundreds of small companies conducting bitter competitive activity were created in the tiny services market of energy effectiveness.

Presently the principle of “self-investment” of energy saving projects remains a main and unsolved problem. Energy saving projects are weakly financed on the residual principle from budgets of different levels : from an enterprise to the state instead of increasing financing volumes of energy saving projects from the actually received economy.

Today, with the transition to the market economy, there are serious problems with the budgetary financing of social sphere. The realization of concrete «self-investment energy saving projects» is actual in this connection for the implementation of which special funds are being created. Their basic aim is the economic use of state funds for payment of public utilities in social sphere.

Now it is clear that specialized (energy service) management companies for the realization of energy saving projects are necessary: in fact there are no structural subdivisions providing at enterprises and organizations:

  • development of projects’ business plans, holding of energy audits;
  • preparation, concordance and confirmation of organizational-active and regulatory documents at the level of Government, State regional administration, municipality and, actually, enterprises;
  • creation of comparison base of the energy resources spending;
  • creation of new counting and accounting;
  • creation of monitoring system of economy on the address basis;
  • creation of stimulation systems of personnel for an actual economy of energy saving on a systematic basis etc.

Ukrainian energy saving business is on the infant stage. At present consulting and service firms appear in this sphere. More than 100 energy saving firms having proper certificates are registered only by the central group of energy audit of the Energy Saving State Committee. Carrying out the energy audit of enterprises to expose backlogs, preparation of feasibility studies of measures for energy costs cutting are one of the basic ways of finding necessary funds for application of energy saving projects.

Not the last role is carried out by energy management in the development and application of non-costs energy saving measures. And for this reason Ukrainian enterprises, for example, such as Krivorozhye South Ore Mining and Processing Combine, capital Kievvodokanal, Mariupol Azovmash, Zaporozhian Motor Sіch and others, began to create services of energy management with the help of domestic consulting companies.

Although Ukrainian energy service companies (ESCO) are on the infant stage, and forming of services market in the field of energy effectiveness just begins, from the side of the Ukrainian enterprises on this stage the serious personal interest for holding of energy saving measures is already felt. The highest interest shows up to the creation of such sources of energy generation as:

  • Energy plants working on gas and liquid fuel;
  • Energy plants working on wastes of enterprise;
  • Energy plants working on bio wastes;
  • Cogeneration;
  • etc.

Taking into account the indices of the industrial growth in the nearest prospect the demand for projects on creation of sources of energy generation will be increasing.

But the majority of middle companies cannot afford the realization of energy saving projects neither at the expense of their own funds as the majority of them have serious lack of circulating assets, nor at the expense of credits for the reason of their too high cost for such projects. Such a situation could be solved, allotting to the enterprises cheap direct credits under the realization of the given projects. Creation of a new industry that is ESCO industry is the effective method of solving this problem. Energy service companies appear where changes are in process, these companies arise up in the period of modernizations and reconstructions, it is a business of development. It is not by a chance that the European Bank for Reconstruction and Development (EBRD) shows permanent interest in ESCO activity. Occupying an active position in the market of energy saving in Ukraine it has become the only bank working with a target structure: UKRESCO. UKRESCO Joint-Stock COMPANY is in charge of credit funds of EBRD for financing of energy saving projects in Ukraine. As for September, 2002 UKRESCO Joint-Stock COMPANY gave credits for the realization of energy saving projects in Ukraine in a volume of more than $10 million, including in May-September 2002 $3.4 million. Nowadays EBRR prepares the package of new investments in Ukraine to support reforms of the President Victor Yuschenko. First project at the amount of $25 million concerns the improvement of water system in Dnepropetrovsk. $20 million more is planned to give for the development of the Ilyichevsk port and $20 million for the investment of energy saving projects, which are carried out by UKRESCO Company. Not only the European Bank for Reconstruction and Development participates in financing of projects in the market of energy saving of Ukraine but also the World Bank, the European Economic Commission of the UNO, the Institute of Power Technologies (Oslo), the Ministry of the USA Energy, a series of research institutes of Norway do.

The majority of low costs and short terms payback period projects in the field of industry, energy and communal economies have been already realized in Ukraine. Few such projects were realized both in the budgetary and housing spheres.

Systems Consulting Stock Company invested about $15 million in energy saving of Ukraine. In particular, in the “Burshtinskiy energy island”: about $4 million, in Rovenkiantratsyt State Enterprise : $ 6 million, in the Chervonograd Ore Mining and Processing Combine: about $5 million, and plans to invest more than EUR 200 million in the alternative hydro energy of Zakarpatye.

It is possible to emphasize among numerous applied in Ukraine energy saving projects the following:

Rise of energy effectiveness in the industry of Ukraine – the project was carried out at such plants: Avdeyevskiy Chemical Recovery Combine – energy saving measures with a total costs of $250, 000 were implemented.; the Gostomelskiy Glass Plant Joint Stock Company, the Kostopolskiy Factory of Glass-Makings Closed Joint-Stock Company– energy effective projects at a rate of $750,000 were applied of own funds and $3.88 million of external investments from the Western NIS Enterprise Fund and UKRESCO; Stalkanat: at the sum of about $3 million.; the Zaporozhian Abrasive Combine Closed Stock Company: at a rate of $232,500.; Rosava tyre plant: $75 million.; the Zaporozhian Factory of Ferro-Alloys Stock Company: at a level of $2.9 million, implementation of these measures will provide an annual economy of 39.6 million of kW year of active electric power and 545 million of kvar year of reactive electric power (3% of a consumed volume in 2000г.), 32,4 000 Gcal of thermal energy, and also 1480,000 m3 of natural gas (11% of a consumed volume in 2000), that is equivalently to the decline of annual spending on energy resources at a rate of $1.59 million.; the investment program “Increase of energy effectiveness of compressor stations of Ukrainian gas-transport system ” : investments made up $464.4 million. Due to the equipping of gas-transfer aggregates with modern turbines of high coefficient of efficiency (31-37.5% depending upon capacity) an annual decline of consumption of fuel gas is expected by 850 million of m3 or almost by one thirds comparatively with today’s consumption of gas by these gas pipelines; the application of cogeneration in the system of centralized heat supply of Ivano-Francovsk: investments made up $668,800.; the project on the rise of energy effectiveness of the system of centralized heat supply of Kharkov: general volume of investments made up $173 million., a rate of profitability: 20.2%., the program (provided for installation of six steam-turbines of total capacity 84 MW for the combined production of heat and electric power in existing power caldrons, that increased an efficiency of fuel usage, replacement of 443 old ineffective caldrons with high effective (coefficient of efficiency: 92%), establishment of 3870 individual thermal points in place of ineffective powerful heat distributive stations. The project was realized at Kharkovteploenergo and Kharkov thermal networks enterprises. The economy of fuel made up 203,400 tons of standard coal per year. This project also contributed to the improvement of ecological situation, namely, to reduction of emission: NOx : 895.6 ton per year, CO2 -334100 ton per year, CO:179.6 ton per year.

The program “Light for each street and side-street” has been worked out and realized in Lutsk. In 2000, on the initiative of the Lutsk Executive Committee, a city electrical engineering enterprise worked out the business plan of energy saving modernization of street illumination. The total sum of the project: UAH 35 million. Payback period: about 2 years. A project was supported by the State Energy Saving Committe. Financing was carried out from three sources: the state budget, the local budget and due to the attracted funds of enterprises and organizations. Applying the energy saving program for two last years about 2,500 lamps were replaced. Due to application of the project it was succeeded to attain the economy of costs of electric power within the limits of UAH 0.5 million annually.

The building of the station of the combined generation of electric and thermal energy at VOZKO Closed Joint-Stock Company is already the second realized at this enterprise project of UKRESCO. The purpose of the UKRESCO’s project was costs cutting of enterprise for energy resources. The cogeneration station is intended for simultaneous production of electric power and heat at the enterprise. For implementation of this project “turnkey” the opened international tender was held, ELTECO Slovak Company became the winner. The cogeneration station is built on the base of two plants “PETRA 1250 IZI”, completed with gas engines and generators, systems of heat exchange, distributing of electric power, automation and auxiliary equipment. The mode of operations is fully automated. The cogeneration station is built as a container. Electric capacity of the cogeneration station: 2 MW, heat capacity: 2.4MW. Work of the cogeneration station is foreseen in parallel with the network of 10 kW, the island mode of operations is also possible. The station covers the basic electric load of the plant. Heat is used in the networks of technical water for technological needs. Putting into operation of the station allows the enterprise depending on the modes of operations to lower costs of one kW- hour of electric power 1.5 – 1.8 times, and also to lower charges of heat used for technological needs. The cogeneration station was put into operation in October, 2003.

Undoubtedly, the future of Ukraine, integrated in the world economy, cannot be imagined without energy saving. Competitiveness and safety, life-support and steady development are unthinkable without turning to energy effectiveness. Many companies work successfully in the Ukrainian market of energy saving: Arena-Eko Company; the Energetic Alliance; UKRESCO; ESCO-CENTER Central Energy Service Ltd; Termo Closed Joint-Stock Company; the International Centre of Energy Effective Technologies (State Enterprise); Uralinvestenergo Industrial Group; Servis-Invest Company; Donetskgormash Joint-stock Company; VOZKO Closed Joint-Stock Company; VZLET-PREMIER firm; Energy Saving Technologies LTD , ESCO -Vostok, ESCO Ecological Systems, ESCO -Resurs, ESCO -Zaporozhie, Komunenergo LTD., NIPO-Rubicon Association, UKRPROMENERGO NTP Joint-Stock Company, UKRNIIELEKTROTERM Institute Ltd, SATORI Private Enterprise, Leader-Service LTD, AGROFORS LTD Joint Enterprise, IMEPOWER Investment Group, INTEK Company, the consulting laboratory TERMA, Energotehprom Interindustry Enterprise, Demo LTD, Nokian Capacitors Ltd., SIDA Swedish Agency for the Development. There is also a number of companies, going to enter into Ukrainian energy saving market, among them are such, as OGUP “Energy Saving”, FININVEST Company (Russia), ENSI – Energy Saving International AS (Norway), Center of Economics of Energy Saving LTD, Petro-Energo-Audit” (Russia), “Energopromtehservis” (Russia), RAUTARUUKKI Concern (Finland).

In 21 century Ukraine is waited with the fundamental reconstruction of industry, energy, communal economy, budgetary and housing spheres, foremost in energy saving. Now the country is on the very beginning of this way, and the potential of energy saving market of Ukraine is measured annually by many milliards of UAN during the nearest 30 years. According to data of the Institute of General Energy of NAS of Ukraine the potential of energy saving of the country is estimated at the level of 42-48%. The basic FER economy can be attained according to the estimations of experts in the industry at the level of 38%, in the communal-industrial sphere: almost 30%, and directly in the fuel and energy sector: 17%. Hence it is possible absolutely confidently to say that in 2005 and in the further years the questions of energy saving and economy consumption of natural resources will be the priority for Ukraine.