At the Ukraine Recovery Conference held in London at the end of June, our government presented a vision for Ukraine’s economic development after the victory over Russia. One of the pillars of this recovery was the concept of Ukraine as an energy hub for Europe.
What markers do government officials put in the concept of an energy hub (indicators – by 2050):
- Electricity generation should increase by 7 times to 791 TWh.
- The capacity of solar and wind power plants has increased by 30 times (up to 230 GW).
- The capacity of nuclear power plants will be doubled (up to 30 GW). Ukraine will localise 90% of the production of small modular reactors (SMRs) and will produce nuclear fuel on its own.
- Gas production will increase by 4 times (to 80 billion cubic metres per year), and gas exports will amount to 66 billion cubic metres. Oil production will increase by 6.7 times to 15 million tonnes.
- Coal-fired power plants will be closed by 2035. 69 GW of hydrogen production capacity will be built. 60% of the car fleet in Ukraine (or 13.4 million cars) will be electric vehicles.
- The plan envisages attracting $400 billion in investments, and its implementation is expected to result in GDP growth of 9% per annum over the next 10 years, and 3% per annum over the next 20 years.
Ambitious? Very ambitious. Of course, many commentators on this presentation either expressed scepticism about this prospect or immediately – without studying the details – said that it was impossible and that the government was imagining things.
But in fact, all the goals set out in the plan are quite achievable. However, the government and business have to work hard to achieve them, and they should start without waiting for the war to end.
Firstly, the energy strategy presented by the Ministry of Energy on the eve of Russia’s full-scale invasion needs to be adjusted now. That energy strategy envisages the construction of 20.5 GW of nuclear generation, 29.1 GW of wind power and 12.8 GW of solar generation by 2050. This is being cancelled by the new plan from the government and the President’s Office. In addition, the implementation of this ambitious plan requires the establishment of energy equipment production in Ukraine, which is not envisaged by the current strategy.
The second thing to do is to prepare the Ukrainian oil and gas industry to attract investment. The task of increasing gas production by four times and oil production by almost seven times requires large investments, technology imports, investments in exploration activities and changes in the regulatory framework. Of course, the success of this plan directly depends on the liberation of Crimea from Russian occupation, as well as – obviously – ensuring the security of the Black Sea shelf. In addition, we must again return to the issue of state and oligarchic monopolies in this industry. The more private production and processing there is, the better for the long-term prospects of the industry. Of course, only global or national giants can “pull” offshore production. But onshore production can be carried out by medium and small companies.
The third step – although it applies to the entire economy – is to reboot the Antimonopoly Committee and antimonopoly legislation, as they are currently not fulfilling their role of ensuring competition. Without overcoming national and regional monopolisation in the entire energy and utilities sectors, it is difficult to expect growth in both energy efficiency and significant investment. There is a lot of talk about monopolies in the electricity market, but the existence of state monopolies (or companies with very significant market power) in the gas and oil markets also hinder the development of the respective markets.
The fourth step – not the least important – is investment in energy education and research. To localise equipment production, to build new plants, to design and manufacture reactors and turbines – as stated in London – we need specialists. From scientists and engineers to those who will do it all with pens. The reform of vocational and higher education, as well as investment in science, is long overdue.
The fifth step is to pursue a comprehensive policy of investment attractiveness and investment protection. The energy sector does not exist in a vacuum. Before the war, investments were not coming to Ukraine well, primarily because of the lack of normal investment protection procedures, the absence of state guarantees, bad courts and many obstacles from local authorities. These fundamental problems have not disappeared to this day. Therefore, it is impossible to attract $400 billion over 25 years in the energy sector alone without addressing the problems of Ukraine’s attractiveness as a country for investors.
The sixth step is industrial policy. The Ukrainian energy sector needs not only external consumers but also domestic ones. Metallurgy, machine building, and the chemical industry. In addition, such an “energy breakthrough” will consume a huge amount of goods and services, which should be localised as much as possible, creating high-quality and skilled jobs for Ukrainians.
The seventh step is to expand the energy sector’s export potential by improving the energy efficiency of the economy, utilities and households of Ukrainians. We need to rebuild what has been destroyed using the latest technologies that minimise energy consumption.
The eighth step is to complete harmonisation with the European market in order to become part of it. We have to work according to EU standards and build our “energy” and “economic” miracle according to European standards and rules, because this is the only way to open the door to cheap European loans, investments and development programmes from the European Union.
If these 8 steps are implemented, the dream that Ukraine announced in London can become a reality. And then the Ukrainian energy sector, from being a problematic industry, will become one of the engines of our development and Ukrainian success. But there is a lot of work to be done.
Owner of the gas business Alfagaz— Alexander Katsuba
