The rapid growth of investments in “green energy” gives the rise to the fear of financial distortion on the electricity market. Should the strategy be adjusted?
Chairman of the supervisory board of MT-invest company, honored economist of Ukraine
Ukraine has joined ambitious European goals in increasing production of alternative energy and introduced a powerful incentive for investments in “green” energy in the form of a “green” tariff.
As a result, more than 1 billion euros were invested in renewable energy projects (REP) for the last years. This is more than any other industry.
The rapid growth of interest in REP investments gives the rise to an objective financial fear distortion in the electricity market, because already today the generation of 2% of electricity takes 9% of money from the market.
In order not to abandon the set goals, it is necessary to adjust the strategy. This was partly done as a result of the adoption in the first reading of the draft law, which the auction principle of using the “green” tariff is introduced.
The decision is correct and necessary. But in order for it to be effective and the auctions started to work, but not become a brake on the REP market, it is necessary to act, not in words, but significantly simplify the rules of the game and improve the investment environment in Ukraine.
In addition, the transition to auctions involves maintaining of the current “green” tariff for projects being implemented.
How many are there, what is their capacity, if they all will be put into operation, how much it will cost the market?
Forecasts and calculations must be made now, in order not to look for a belated exit again later. It is important to prevent the risk of a new default in 2-3 years on the one hand, and on the other – failure in the market due to the fact that the auctions will not work.
How should the discussions end, whether it is necessary to financially support the development of REP and whether is the society ready to pay for it?
What should be the regulatory environment for the creation and development of REP?
What are the ways and opportunities for investors who have decided to invest in the construction of solar power stations in renewable energy projects (REP)?
Questions that require careful analysis and answers from state authorities.
Altruism is present in philanthropy and charity. And for investors, the main motivation is profit. And when there are discussions that the main problem in Ukraine is corruption or ineffectiveness of the judicial system in protecting property rights or the inevitability of punishment, I can bet that the main problem is the lack of economic growth which should ensure the profitability of investment projects.
Only thanks to the action of the “green” tariff in Ukraine, REP might be paid off in 4-6 years depending on the capacity.
Yes, this is costly for the energy market and carries certain risks of financial overload, but this is what exactly created such an interest in projects among investors.
Now, when the cost of construction of 1 MW has decreased significantly, the “green” tariff can be adjusted by creating competition when selling the tariff through an auction.
At the same time, it is important to ensure a loyal transition to auctions, not to lose the investment attractiveness of the REP industry and to prevent the new rules from being applied retroactively.
I spent almost a year developing a 1 MW solar power plant project.
Having gone through a difficult path from scratch to obtaining a building permit, I can rightfully say that buying a ready-made renewable energy project is more economically profitable than to start a business with a clean paper.
What it’s worth just only one procedure for obtaining technical conditions for joining!
The sales market of ready-made REP is just beginning to take shape in Ukraine, but I am convinced that it will develop very rapidly.
The regulatory environment for the implementation of REP in Ukraine is not the best, but the interest in high profitability of projects due to the high “green” tariff is leveling off obstacles that must be overcome at all stages of project implementation.
Therefore, it is much easier for an investor to either purchase a ready-made, already operating plant and continue its operation, or buy the corporate rights of a company with a ready-made maximum project readiness, build a station, receive a “green” tariff and continue to operate it.
Experience is the best teacher, it explains things clearly, but it is expensive.
Having created a solar power plant project, as an investor, I can say that in addition to the introduction of auctions for the sale of the “green” tariff, it is necessary to simplify both the time and procedures for obtaining land leases.
It is also necessary to regulate and standardize the cost and procedure of joining of the power plants to networks.
The procedure for commissioning and obtaining a “green” tariff should also be simplified. The goal and end result of such changes should be to reduce the bribe-taking capacity of the industry, because high profitability attracts corruption schemes and produces certain “activists”.
Unfortunately, today investors and developers are busy looking for attractive land plots with grid connections. And when they find it, they go through complicated and time-consuming procedures. Interest should generate confidence of the investor.
Therefore, it would be useful for local authorities not to wait for the investor to knock on the door by himself, but to be active in analyzing investment opportunities of the territories and popularize them, inviting investors to create projects. And not only in the REP sector.
