Ukraine is currently undergoing an energy sector revolution. Geopolitical considerations have forced the country to urgently reduce dependency on Russian energy imports, creating the need for greater fuel efficiency and more reliable sources. The move away from heavily subsidized domestic energy markets – a key element of the broader economic reform program - is also driving the search for alternative energy options, creating new demand in what was once a relatively moribund sector of the Ukrainian economy.
This dynamic environment is attracting growing interest from international investors specializing in alternative and renewable energy. American energy company Renewable Assets has recently confirmed plans to enter the Ukrainian market in 2016. The Virginia-based company already operates in Africa, Asia and the Caucasus region, and is involved in the full spectrum of sustainable, renewable energy spheres including solar, thermal, wind, waste-to-energy and water resource projects. Initial plans for Ukraine focus on developing the country’s solar power capacity. Business Ukraine magazine spoke to Renewable Assets President and CEO Michael Page about the potential of the Ukrainian renewable energy sector and the opportunities it represents for international investment.
What attracts you to the Ukrainian energy market?
In today’s geopolitical climate and with all the issues currently facing Ukraine, the need for inexpensive and sustainable energy has never been greater. The recent power outages in certain regions of the country and the limited supply of natural gas have made the necessity of identifying alternative energy sources abundantly clear. Thanks to these factors, the Ukrainian market is perfectly poised for the infusion of clean, renewable energy sources, especially with the additional introduction of energy storage solutions.
Which geographical regions of Ukraine offer the greatest potential for solar energy development?
While Ukraine is geographically located a little bit above 45 degrees latitude, it is still well within the necessary parameters for solar insolation. Central and southern Ukraine are the primary regions, however some of the regions closer to the Donbas in the east of the country are also key areas for consideration. Another important factor, especially for large ground-mounted solar power systems, is the availability of suitable land. Reclaimed land, brownfields, sites that once housed large industrial complexes, and capped landfills are all very good potential sites for consideration. These types of properties generally have little commercial value but can serve as great locations for certain types of solar facilities.
What role can you see solar energy playing in the development of the Ukrainian energy market?
I believe that solar power, and not just solar but all forms of renewable energy including wind and bio-mass systems, can play a crucial role in Ukraine’s ability to achieve energy independence from other countries. Today, Ukraine is still dependent on costly imports of fossil fuels in order to generate the country’s required energy supplies. In the short term, solar power is a stepping-stone towards achieving this independence. As renewable energy solutions gain more acceptance, and as the government of Ukraine truly embraces the need for these sustainable sources of energy and starts to adapt more policies that support such developments, solar power can eventually become the principal source of energy for the entire country.
What are the key regulatory issues affecting your Ukraine market entry and future activities?
A lack of political stabilization in the energy market has posed some of the biggest challenges to the successful development and implementation of solar and other forms of renewable energy. The Ukrainian parliament has made some important progress in this regard by removing certain requirements that had previously limited the appeal of the Ukrainian solar market for foreign investors. Requirements relating to local content, or the limiting of materials and equipment for projects to materials produced in Ukraine, had a negative effect on the market. Nobody in our industry wants to limit the ability of Ukrainian companies to manufacture equipment for renewable energy projects. However, at the moment the availability of such ‘Made in Ukraine’ products is very limited and, to a certain extent, below the standards required by our investors and funding sources. I hope local companies will eventually be able to re-engage in the manufacturing of certain products for the renewable energy sector and there will be equal benefits for all parties.
How does the Ukrainian energy market compare to other emerging energy markets where you are active?
To a certain extent, Ukraine is not particularly different from other emerging markets. Upon entry into any new energy market, there is always the need to engage with local government and institutions in order to educate them on the benefits of solar energy. There is also the need to assist the authorities in establishing the appropriate rules and regulations that can succeed in making investors interested and comfortable with entering the market. Ukraine is actually a fairly advanced country in terms of the understanding and knowledge of what it takes to make this a successful market place for renewables. The biggest challenge – and this is not limited to Ukraine - is the stabilization of the government. While Ukraine is a very exciting and viable market, investors who are currently looking to enter the Ukrainian market still want to receive the necessary assurances. They need to know their money is safe. They want to feel confident that their involvement is seen as a long-term relationship and not just a one-off investment.
What is your approach to the security challenges currently facing Ukraine and how have you integrated this into your market entry strategy?
Naturally, security is a concern. While most of the areas with the highest levels of risk and tension are in the east of the country and the Crimea region, there are still heightened concerns about the security situation in the rest of Ukraine. For the most part, the areas of interest to us are relatively stable. This includes the central and western regions of the country. Nevertheless, the potential risk remains of foreign intervention in Ukraine’s affairs. This risk must be mitigated with certain instruments including political risk insurance from institutions such as EX-IM Bank or OPIC for American investors.
In regards to personal security concerns for employees, I am not overly concerned about security risks facing installation crews. Renewable Assets has a very specific method of conducting business in foreign countries that includes the use of local labor and suppliers for all our projects. We are not here to reap all of the financial benefits from our projects for ourselves. We are here to bring value to the country and to the local communities where our projects are constructed. This is a partnership between Renewable Assets and the local communities. I believe this approach helps to mitigate certain risk considerations.
About the interviewee: Michael Page is President and CEO of Renewable Assets