Read in Ukrainian
Maksym Bielawski
Candidate of Technical Sciences,
Razumkov Center expert
The full-scale war unleashed by Russia against Ukraine has brought an unprecedented social and humanitarian catastrophe to our people, which has undoubtedly affected the state's economy.
It is still difficult to fully assess the consequences of this Russian war crime, but the dramatic drop in electricity consumption (Fig. 1) indicates at least a 30% drop in our nation's gross domestic product.
It is worth mentioning that since 2000 Ukraine's GDP has been constantly growing and as of December 2008 it reached 74.2% of its 1990 level. After that, against the background of the financial crisis, the rate (2009) of growth of the national economy slowed down, and since 2013. Ukraine's GDP starts to fall and following the annexation of the Autonomous Republic of the Crimea, as well as the occupation of certain regions of the Donetsk and Lugansk regions, it plunges by 20% and thus reaches 59.9% of its 1990 level in 2016[2]. The situation managed to stabilize at the expense of support from international financial organizations and, as a consequence, in 2019 to return the welfare of the citizens of our state to the level of indicators of the pre-crisis period of 2008. After this reversal of the trend, the Center for Economic and Business Research predicted that between 2021 and 2036, Ukraine will climb from 55th to 53rd place in the rating of world economies[4].
Obviously, it will be possible to return to optimistic forecasts of Ukraine's GDP growth only after the development and implementation of an effective strategy for the economic recovery of our state. The concept of such a document should be based on the best provisions of the Marshall Plan[5], which demonstrated quite a tangible effect (Fig. 2), as well as the experience of other countries.
The success of post-war reconstruction in European countries was determined not only by financial aid and a focus on market relations,[6] but also by the liberated nations' own motivation, which manifested itself in particular in zero tolerance for corruption and the consolidation of the rule of law through the development of an independent judiciary.
This approach was not shared by all states on the path of post-war reconstruction. For example, Japan, which lost more than 70 percent of its industrial assets, initially focused on consolidating and studying the best available technologies, which were later included in a report titled "Major Problems of Economic Reconstruction in Japan. Notably, the main authors of this document were electrical engineers Saburo Okito and Yonosuke Guo, who proposed a priority production policy that involved concentrating scarce resources in a few strategically important industries and was supposed to multiply the effect on related economic sectors[8]. The first thing Japan began its path of recovery from was an increase in coal production, which, from 1948 onward, was the basis for the development of several industries at once and an increase in revenues from steel exports.
Later, in 1951, this experience was adopted by France, Germany, Italy, Belgium, the Netherlands and Luxembourg, which created the European Coal and Steel Community. In fact, this organization was later transformed into the current economic model of the EU.
Taking into account the above-mentioned experience, for the economic recovery of Ukraine we should choose the course of carbon neutrality[9] in the energy sector to achieve an annual GDP growth of 4% by overcoming the import dependence through the availability of better technologies, diversification, decentralization and digitalization.
Preliminary studies of existing decarbonization policies[10] allow us to identify five benchmarks of the proposed course of Ukraine's postwar renewal: primary energy supply; infrastructure; markets; consumers; methodological and human resources for the industry
These benchmarks were also chosen taking into account the current problems of the energy industry of Ukraine, which should include a high level of import dependence[11]; low energy efficiency[12] and financial liquidity of markets due to incomplete reforms. All this leads to imbalance in Ukrainian society, for which the first challenge is the high prices of energy resources and utilities, which are not comparable with the incomes of consumers. The main reason for this is the imbalance of pricing[13] of primary resources for the production of necessary goods or services for the markets of electricity, gas, solid waste disposal, heat and water supply.
Additional reasons affecting the state of the industry are monopolization of certain segments of the energy market, non-transparent system of tariff setting and subsidies, insufficient level of diversification and production of resources, high energy intensity of GDP, shortage of anthracite group of coal and oil products of own production.
The imperfect technical condition of the energy infrastructure[14], inefficient state subsidies and high level of debt for consumed resources[15] only contribute to the deepening of the social crisis[16] and generally reduce the level of energy security of Ukraine.
The main purpose of this article is to develop a new profile of the energy sector of Ukraine in the conditions of post-war reconstruction to provide the economy in fuel and energy resources in a technically reliable, safe, economically efficient and environmentally acceptable way in the interests of consumers and society as a whole.
To achieve such a goal, the following tasks should be solved.
1. Primary energy supply
It is proposed in the new structure of the primary energy supply (Table 2) to provide for a reduction of imports with a simultaneous increase in production and exports. Thus, the total import dependence in the structure of primary energy supply will not exceed 8% instead of 36% in 2020 (Table 1).
The proposed structure of primary energy supply (Table 2) will ensure that in 2030 the energy intensity of GDP will be reduced by 25% compared with 2015 to the level of 0.18 tons of oil equivalent/thousand USD. GDP.
In addition, the developed proposals suggest reducing the share of fossil fuels in the structure of primary energy supply from 70% to 53%.
Table 1. Structure of Ukraine's primary energy supply in 2020. [17], thousand tons of oil equivalent
Table 2. Proposed structure of Ukraine's primary energy supply in 2030, thousand tons of oil equivalent
1.1 Coal, peat. It is recommended to merge promising state mines into a single enterprise. Ensure transparent privatization of unprofitable mines. Upgrade infrastructure to increase the production of scarce anthracite coals. Improve the safe operation of mines, in particular by introducing mine methane utilization systems. State-owned peat mines are retooled to produce composite high-calorie solid fuel in the form of pellets/briquettes based on mixtures of peat and biomass. On the basis of lignite mining enterprises start the production of water-coal fuel[18], as well as place capacities for the production of hydrogen[19] and pyrolysis gas[20] by hydrothermal conversion.
1.2 Crude oil and petroleum products. This paragraph of the proposals includes doubling of oil production, as well as full coverage of current oil product imports by producing them at domestic facilities. This should happen due to state incentives through revision of the tax policy and the mechanism of permissive procedures.
1.3. Natural gas. First of all, it is necessary to simplify the regulatory regime of gas production, - to reduce rent payments, especially for deep and ultra-deep wells[21]. In order to reduce carbon dioxide emissions during production, it is proposed to introduce the best available technologies for utilization of associated petroleum gas and to mothball depleted and/or unpromising wells. In addition, state enterprises should conduct a comprehensive audit[22] of the implementation of the program to increase gas production until 2023. To ensure the financial and managerial autonomy of Ukrgazdobycha JSC by separating this company from the corporate governance structure of Naftogaz of Ukraine.
1.4 Nuclear fuel. The construction of Khmelnitsky power units 3 and 4 should be completed, and the practice of operating small modular reactors should begin. Generally, it is recommended to continue diversification of sources of power resources supply, in particular nuclear fuel for nuclear power plants, by expanding its own resource base of uranium, mastering production of zirconium alloys and creation of capacities for its fabrication in cooperation with world producers.
1.5 Geothermal energy. According to the baseline scenario [23] geothermal heat power plants may produce 400 MW of electric power and 2.2 GW of heat, which is equivalent to 12 mln tons of fuel equivalent or 10 bcm of natural gas (Table 2). This will reduce about 6 million tons of carbon dioxide emissions. It is reasonable to place geothermal stations on the basis of depleted oil and gas wells, as well as in coal regions through the mechanism of their reconversion. This approach will significantly reduce the capital costs of construction. In addition, on the basis of geothermal power plants should be created combined power units with the possibility of connecting other types of generation.
In general, geothermal TPPs should be considered as an element of decentralization of energy systems and renewal of heat supply infrastructure in cities and settlements. Given that the cost of thermal energy of the subsurface is 20 times cheaper than the current quotations of natural gas[24] - this will certainly affect the reduction of payments for heat supply of the population.
1.6. Solar, wind and hydro generation. Basic scenario of alternative energy development in Ukraine was developed by the author in work [25], which envisages covering peak load of 25 GW at the expense of 11 GW - nuclear power generation; 4 GW - HPP and HPS; 4 GW - RES; 5 GW - TPP and CHP [26]; 2.5 GW - power storage system.
2. infrastructure
2.1 Coal sector and thermal generation. It is recommended to implement a program of social reconversion of regions and settlements where coal mines and other low-promising facilities of the energy sector are closed.
The rigidity of climate policy and the rising cost of carbon dioxide emissions leads to the fact that the construction of even the most advanced coal generation becomes unprofitable without additional special measures to capture CO₂ in the flue gases of thermal power plants, which then accumulate and used in related sectors of the economy. Consequently, it is proposed to modernize the existing coal-fired generation facilities by implementing a combined process of power generation, which will additionally include the objects of "green" generation and the system of carbon dioxide capture.
In this regard, it is proposed to place on the territory of the coal-fired power plant a system of carbon dioxide capture and solar power plant, the energy from which will be collected and placed in the liquid melt salt, and carbon dioxide will be converted into dry ice. When there is a need for additional power, the molten salt will heat the dry ice to a state called "supercritical fluid,"[27] triggering a turbine that generates electricity. This approach will simultaneously reduce the greenhouse gas emissions of coal-fired generation and increase its maneuverability. An additional practical value of this technology is the possibility of integrating it into the hydrogen energy infrastructure. It is assumed that the reaction of H2 and CO2 under conditions of elevated temperature, pressure and a catalyst (Sabotier reaction)[28] will produce water and methane, which will be used to generate electricity.
2.2 Oil and Refining. It is necessary to stimulate the development of automobile networks for refueling vehicles with fuels and electricity that are safer for the consumer and the environment. Provide conditions for creation of a strategic stock of oil and oil products at a level equivalent to at least 90 days average daily imports to Ukraine or 61 days average consumption volume according to the EU Council Directive 2009/119/EC.
2.3. The gas sector. The creation of an Eastern European gas hub on the basis of Ukrainian UGS facilities should be assessed, as well as the feasibility of organizing reverse gas flows from Romania and Bulgaria. Begin the implementation of the practical part of the project: "Interconnector Ukraine-Poland" for additional loading of Ukrainian gas storage facilities. It is also advisable to consider transferring natural gas receiving-transfer hubs from the western border to the eastern border, as well as transferring one gas storage facility to the fixed assets of Ukrgazdobycha. In addition, RAB regulation should be introduced to attract investment in the modernization of gas distribution systems.
2.4 Power engineering complex. Since 88% of main power transmission lines have been in operation for more than 30 years, they should be replaced through the construction of multi-purpose lines with different classes of rated voltage, which are laid on the same support structures[29] with the possibility of remote cable temperature monitoring. Further development of the alternative energy sector is impossible without the reconstruction of substations[30] and the evolution of the power system as a whole is impossible without digitalization, so it is proposed first of all to move to the operation of modular and unified substation designs[31] as well as to equip switching equipment with electric drives with the function of monitoring their technical condition.
Given the emphasis on decentralization of the domestic power system, it is important to implement a distributed energy management system that includes a virtual model; active networks and microgrids. This approach can be used in the aggregation of the resource and participants in the balancing segment of the electricity market. In addition, when reconstructing low-voltage networks, a load balancer should be applied, which will reduce higher voltage harmonics and losses in the windings of distribution network transformers.
The above-mentioned measures will make it possible to eliminate capacity limitations of generating companies, as well as to introduce the concepts of "smart" power grids (Smart Grids)[32], "smart" metering of electricity consumption by consumers (Smart metering) and create a reliable infrastructure for electric transport, in particular municipal transport.
The criterion for successful post-war modernization of the Ukrainian energy system should be a reduction in the share of losses in power grids from 14% to 7% (Table 3).
2.5. renewable energy sector. The first phase of large-scale installation of electricity storage systems should be based on the facilities of JSC "Ukrhydroenergo" in combination with the installation of solar power plants - a total of 200 MW and 35 MW, respectively. For example, Kyivska Hydroelectric Power Plant (40 MW of accumulation and 10 MW of solar power plant); Kanevska Hydroelectric Power Plant (60 MW of accumulation and 13 MW of solar power plant); Kremenchukska Hydroelectric Power Plant (60 MW of accumulation and 6 MW of solar power plant); Sredniprovska Hydroelectric Power Plant (25 MW of accumulation and 5 MW of solar power plant). In addition to this it is necessary to develop a unified infrastructure network for collection, transportation and processing of biomass for production of biofuel, as well as generation of heat and electricity.
2.6 Utility sector. It is proposed to revise centralized heating norms and to ensure commercial metering of heat consumption in the housing sector, at least at the level of apartment buildings. To complete the process of decentralization of the energy system, local programs for modernization of the heat energy infrastructure should be developed and implemented, in particular, local energy systems should be optimized by considering the potential of local fuels, supply logistics, local and national energy infrastructure.
3. Markets
3.1 Coal sector. Two priorities have been identified in this segment. The first is to create a market for coal products. The second is an audit of state enterprises and determination of the real value of coal products through their sale on the state exchange.
3.2 Oil sector. The complex of measures consists of demonopolizing the market of oil products, introducing supervision of the quality of motor fuels, increasing the competitiveness of suppliers through an optimal tariff policy, and integrating the domestic oil transport system with the oil refining capacities of other countries. The criterion for successful post-war recovery of the sector should be the coverage of at least 50% of the domestic market demand with domestic petroleum products of the ecological class not lower than Euro-5 quality (Table 3).
3.3. Gas sector. The Action Plan envisages the abolition of the model of assigning special responsibilities; abandoning the principle of import parity due to the creation of a price index of Ukrainian gas based on exchange trade in the domestic market; establishing a unified state register of consumers; excluding Naftogaz Ukrainy from the gas sales chain; transferring the duties of supplier of last resort from Naftogaz Ukrainy to Ukrgazdobycha and allowing the latter to sell surplus natural gas in the free market.
3.4. the electric power sector. It is proposed to urgently develop a set of measures for the post-war rehabilitation of the electricity market that would eliminate high concentration, limited competition and manipulation. Also in the same context, it is recommended to envisage measures for the implementation of an ancillary services market and the introduction of an effective monitoring and penalty mechanism in accordance with Regulation 2011/1227/EC[33].
3.5. Money services. It is recommended to open a national greenhouse gas emissions trading system, as well as its integration with the EU platform (EU ETS). Secondly, the instrument of climate finance should be introduced, in particular, increasing the share of "green" bonds. Thirdly, oblige business entities registered in Ukraine to provide non-financial reporting on measures taken to combat climate change.
3.6 Investments. For a more sustainable post-war recovery it is proposed to develop and implement measures[34] to ensure protection of investments and encourage international investors, including those who practice the use of modern technologies and equipment when implementing new capital-intensive projects in the energy sector. In addition, it is necessary to ensure the formation of clear and understandable mechanisms of public-private partnership and the application of transparent European-style regulation in the field of investment. The share of direct investments from the state budget of Ukraine in the development of energy infrastructure should not exceed 5-10%, at the same time, direct investments from one foreign country should not reach a critical level, which will lead to compliance with the principle of diversification of investments.
The criterion for completion of post-war renovation of energy markets should be an increase in the share of exchange trade in energy resources (electricity, coal, oil, gas and other fuels) in total consumption to at least 50%. At the same time the level of integration of domestic electricity and gas markets with European markets should increase several times, up to 15% and 40% respectively (Table 3).
4. Consumer
4.1 Energy Efficient Consumption. It is proposed at the national level to oblige medium and large industrial enterprises to undergo a certification audit for "Energy Management" according to ISO 50001 standard; increase public spending on financial support of the Energy Efficiency Fund and the "Warm Loans" program; introduce compensation for consumers who have installed gas, heat and electricity meters themselves. In addition, it is necessary to begin the implementation of a comprehensive program of waste recycling and start building new waste processing plants, which will not only bring order to the disposal of household waste, but also to increase the capacity of electricity and heat generation from renewable energy sources. Create a legal framework for the functioning of a transparent and competitive biofuel market for heat and electricity utilities.
4.2 Improve the quality of services. Create an energy ombudsman institution to ensure European standards of service, expanding opportunities for out-of-court dispute resolution, advocating for consumer rights, and proactively influencing the development and enforcement of regulations in the energy sector.
4.3 Environmental Management. It is recommended to develop and supervise implementation of the state program for introduction of environmental management and audit system (EMAS) in enterprises of all forms of ownership; encourage consumers to introduce the latest technologies for waste disposal; introduce measures to limit the impact of energy on the environment. In addition, it is proposed to halve the number of state controlling bodies in the field of ecology and environmental protection, and to create a unified environmental permit with a clear system for monitoring compliance with standards and laws.
Summarizing all of the proposed initiatives, the target criteria for the post-war recovery of Ukraine's energy sector have been established and are compiled in the table below.
Table 3. Target criteria for post-war energy restoration in Ukraine
5. Methodological and staffing support for the industry
Firstly, it is recommended to adjust the technical glossary according to the IEC-60070 standard[35]. Secondly, it is recommended to develop a state policy of human capital in the energy industry[36], which would include new methods of training and retraining of vocational and technical specialists and engineers. Thirdly, it is recommended to conduct a complete audit of state-owned energy companies and change personnel policies (remuneration system), in particular this applies to the Supervisory Boards of state-owned companies.
Conclusions
- We propose a model for post-war reconstruction of Ukraine, which consists in structural reforms of the energy industry in order to provide the national economy in fuel and energy resources in a technically reliable, safe, economically efficient and environmentally acceptable way in the interests of consumers and society as a whole.
- The presented recommendations will be useful for the relevant central executive authorities when drafting a proposal to the State Target Program for post-war rehabilitation of Ukraine.
- In further studies, feasibility studies will be developed for individual projects to implement the initiatives developed in this article.
[2] Khayetskaya O.P., Verteletskiy M.V. Analysis of GDP dynamics of Ukraine / Electronic scientific professional publication "Effective Economy" №1, 2008 / http://www.economy.nayka.com.ua/pdf/1_2018/60.pdf
[3] Ivanov S.V. Economic recovery and development of countries after armed conflicts and wars: untapped opportunities for Ukraine / Economy of Ukraine / Economy of Ukraine, 2019, №1 (686).
[4] Center for Economics and Business Research (CEBR). Source - https://cebr.com/service/macroeconomic-forecasting/
[5] For example, a company in France ordered equipment from the United States, but the supplier received money from the "Marshall Plan" fund. The applicant paid a percentage of the cost of the order to European funds, which lent to local entrepreneurs.
[6] The German Minister of Economics, Erhard, carried out a comprehensive reform called the "Concept of the Social Market Economy," which restricted monopolies, but encouraged private competition while creating a commodity condition, and through a legislatively defined "supply-demand" model, created market relations. while protecting socially vulnerable populations. Overall, this concept liberalized the economy of postwar Germany and balanced the interaction between the state and business.
[7] Saburo Okita, ed, Postwar Reconstruction of Japanese Economy, University of Tokyo Press, 1992.
[8] Kenichi Ohno, The Path Traveled Japan as a Developing Country: Economic Growth from Edo to Heisei / Yuhikaku Publishing Co. Ltd., Tokyo, 2005. Source - https://www.grips.ac.jp/forum/pdf06/EDJ.pdf
[9] Until now, the reduction of emissions (in 2018 - 64% compared to 1990) has unfortunately contributed to the reduction of industrial production, rather than effective government policies including modernization of technological processes with a focus on environmental friendliness. One of the main reasons for the erroneous climate course is the multifaceted legislation and insufficient integration of the climate agenda of strategic documents into the direct activities of all sectors of the economy.
[10] Bielawski M.L. Ukraine and the global policy of decarbonization / Razumkov Center, 2021. Source - https://razumkov.org.ua/statti/ukraina-i-globalna-polityka-dekarbonizatsii
[11] The share of imports in the supply of primary energy is up to 38%. The average indicator for the EU countries is no more than 30%.
[12] Energy intensity of Ukrainian GDP (generalizing macroeconomic indicator, characterizing the level of consumption of fuel and energy resources per unit of produced gross domestic product. One of fundamental characteristics for economy of each country) is 0,390 kg of oil equivalent/$, which is twice higher than weighted average index of the world countries.
[13] Different pricing models for input/output products or services are used.
[14] More than 70% of fixed production assets have been in operation for more than 30 years and are obsolete today.
[15] Only in the natural gas market the level of debt of all categories of consumers exceeds 70 billion UAH. Debt portfolio in the electricity market is about 32 billion UAH.
[16] The social and political sentiments of the population can be resuscitated only by increasing the average wage/pension and reducing tariffs for energy resources and public utilities.
[17] According to the State Statistics Service of Ukraine. Source - http://www.ukrstat.gov.ua/
[18] Water-coal fuel is a liquid fuel obtained by mixing crushed coal, water and plasticizer. It is used at heat generating facilities, mainly as an alternative to natural gas and fuel oil. Allows to significantly reduce costs in the production of heat and electricity.
[19] Hydrogen production cost using this technology is 1.5 times cheaper than electrolysis.
[20] The share of methane in the pyrolysis gas will be up to 40%, which will correspond to a caloric value of 4000 kcal/cu.m.
[21] Bielawski M., Kukhar M., Kukuruza G., Dovgal S., Pantyukhov A. Impact of rent size on gas production in Ukraine and the world / Analytical study - Ukraine Economic Outlook / 2022. Source - https://www.ukraine-economic-outlook.com/researches
[22] Including energy efficiency audit.
[23] Attracting 4% of the total geothermal potential.
[24] As of 20.05.2022, the average cost of natural gas on European gas markets is $1100 per thousand cubic meters. Source - https://www.eex.com/en/market-data/natural-gas
[25] Bielawski M.L. Guidelines for the development of alternative energy until 2030 - Razumkov Center, 2020. Source - https://razumkov.org.ua/statti/oriientyry-rozvytku-alternatyvnoi-energetyky-ukrainy-do-2030r
[26] It is suggested to use only 2 GW of thermal generation capacity in the daily balance, and to upgrade the remaining up to 3 GW to be able to work in "fast start" mode and keep in reserve to cover consumption irregularities operatively.
[27] A supercritical fluid is a state of matter in which it has no specific liquid or gas characteristic
[28] Bolbas, IA Sabatier's reaction for obtaining synthetic natural gas / IA Bolbas; scientific hands. AA Matyavin // Actual problems of energy [Electronic resource]: material of the 75th step and technical conference of students and graduate students: section Heat power engineering / comp. TE Zhukovskaya. - Minsk: BNTU, 2019. - P. 163-164.Mode of access - http://rep.bntu.by/handle/data/61443
[29] For example, 2 lines of 380 and 170 kV, respectively. This approach has a number of advantages, in particular increasing the capacity of the infrastructure corridor and increasing opportunities for network development with minimal capital investment. The savings will be especially noticeable in areas with a difficult natural landscape, for example, in Lviv, Ivano-Frankivsk and Zakarpattia regions.
[30] The total number of substations is 140, of which 15% have been in operation for more than 40 years. At the same time, 66% of all relay protection equipment has exhausted its service life. 101 substations (750-330 kV) are to be reconstructed with mandatory implementation of ACSPS.
[31] The concept of hybrid modules implies integration of different functions of high-voltage equipment in a substation cell - a single module with gas-insulated gas as insulation.
[32] The concept of smart grids includes capacity stabilization, failure forecasting and operational optimization of the grid operation mode, as well as two-way interaction with consumers.
[33] Ukraine committed to implement this regulation in accordance with the Association Agreement with the European Union, the European Atomic Energy Community and their member states. This Agreement was ratified by the Law of Ukraine No. 1678-VII of September 16, 2014.
[34] To improve the tax legislation and other regulatory acts stimulating investments in the fuel and energy complex, in particular in renewable energy sources and energy efficiency.
[35] Source - https://www.electropedia.org/
[36] Determine the need for specialists for the energy industry until 2030; introduce a dual training program; ensure cooperation between universities and industry leaders; support cooperation projects of Ukrainian universities with leading research centers in the EU and the United States to improve training programs, etc.