Studies prepared under the project “Promoting Green Economy in GUAM Countries: Promotion of Renewable Energy Sources”

Azerbaijan, Georgia, Moldova, Ukraine

February 2014

The project was implemented with the support of the Government of Japan through the Japan Special Fund (JSF), managed by the Regional Environmental Center for Central and Eastern Europe.

Introduction

The project “Promoting Green Economy in GUAM Countries: Promotion of Renewable Energy Sources” is supported by the Government of Japan through the Japan Special Fund (JSF) managed by the Regional Environmental Center for Central and Eastern Europe (REC). The JSF programme focuses on building capacities in the countries of Central and Eastern Europe (CEE) and beyond to develop climate policy and to support the implementation of the United Nations Framework Convention on Climate Change (UNFCCC).

The project targets Georgia, Ukraine, and Moldova, focusing on how to increase the share of renewable energy sources (RES) at national level.

Information for this analysis of the RES situation in the GUAM countries was gathered at a seminar held in cooperation with the GUAM Secretariat in Kiev on October 17–18, 2013, by representatives of the GUAM countries. Further information was subsequently obtained via desk research. The country studies describe the general situation and role of RES, including the institutional context; relevant national policies and legislation; the current share of RES in energy production; the technical possibilities for its enhancement; fiscal initiatives; RES potential in terms of biomass, solar, wind and hydro; and RES-related projections and targets. At the end of each study, gaps are identified and recommendations made for further action.

1 Summary

Azerbaijan assumed the position of a major hydrocarbon exporter in the mid- 2000s, when the large Caspian oil and gas fields came online. Export revenues have driven significant economic growth, including in the non-hydrocarbon sectors of the economy. With its current hydrocarbon production levels and available reserves, the country does not have pressing energy security concerns. However, there are other good reasons for the development of renewable energy sources (RES): substituting natural gas, which would help to increase its exports; meeting the energy demand of Autonomous Republic, a landlocked exclave, and remote areas; and reducing the country’s carbon footprint. Hydropower plants (HPPs) can play a role in flood control and as part of irrigation systems. In 2011, RES (mainly large hydro and biomass) accounted for 2.6 percent of the country’s total primary energy supply (TPES) and 12.8 percent of its power generation.

Azerbaijan has a renewable energy agency (SAARES) and a state company tasked with the implementation of renewable energy projects. The country does not have a renewable energy law, but a renewable energy strategy was adopted in 2004 and a new strategy for the period up to 2020 is being developed. The country has renewable energy targets for the year 2020:

• a 20 percent share of RES in power generation; • a 9.7 percent share of RES in total final energy consumption; and • installed capacity of renewable-based generation facilities of 2,500 MW.

There is a feed-in tariff for wind-based electricity (some 10 percent higher than the regular tariff). Regular tariffs apply to all other RES-based plants (for private small HPPs the tariff is even lower). Imported wind energy equipment is exempt from customs duties.

Azerbaijan is actively building medium-sized and small HPPs in Nakhchivan and other regions. Projects using other renewables are currently at the pilot level, with an installed capacity of several megawatts or less. The renewable energy agency SAARES has built a hybrid pilot site combining solar, wind and biogas installations at and is currently considering the construction of other hybrid plants. The decentralised use of small-scale solar power systems to produce electricity and heat for public buildings is also promoted. At the same time, larger wind-based projects are under consideration; some of them may be implemented by the state and financed by loans from international financial institutions (such as the German development bank KfW, which recently approved such a loan).

The country needs to finalise and adopt a new renewable energy strategy, as requested by the president of Azerbaijan, and the possibility of adopting a dedicated renewable energy law can also be considered.

2 Attracting significant private investment in the renewable energy sector would probably require additional measures, including larger feed-in tariffs and fiscal incentives, as well as streamlining and simplifying administrative procedures. Further detailed studies of the country’s renewable energy potential, as well as the creation of a dedicated information resource providing one-stop-shop access to information on renewable energy in Azerbaijan, would be helpful.

Georgia’s energy sector, in its current form, has been largely shaped by a series of reforms undertaken in the aftermath of the Rose Revolution (2003). The reforms, which prioritised the enhancement of the legal and regulatory framework for doing business and deregulation, succeeded in ensuring strong economic growth and many problems that plagued the energy sector in the early 2000s have been addressed.

Renewable energy sources (mainly hydropower and biomass, but also a smaller fraction of geothermal energy) provide 28 percent of the country’s TPES — the highest value among the GUAM countries. Almost all fossil fuel resources consumed by Georgia are imported, thus the development of RES is the key way to enhance the country’s energy security. A distinct feature of Georgia’s electricity sector, which is dominated by HPPs (80– 90 percent of the total power output), is the seasonal generation pattern. Due to a limited reservoir capacity, hydropower output declines in the winter months, when electricity demand peaks. Gas-fired thermal power plants (TPPs) help balance demand and supply, but some imports are still necessary, even though the country may be a net electricity exporter.

Georgia does not have a dedicated renewable energy agency (there is a second-level division at the Ministry of Energy). There is no renewable energy law or a strategy that would cover the entire range of RES, and there are no renewable energy targets. The country has applied for full membership in the Energy Community and will have to adopt a mandatory renewable energy target and develop a renewable energy action plan when its application is granted.

Georgia has implemented a programme for facilitating private investments in the construction of greenfield HPPs, which relies on the deregulation and simplification of procedures to attract investors. During the winter months, HPPs are required to sell their output within the country (optionally under a guaranteed power purchase agreement), but they are free to choose the market and the price during the rest of the year. They are offered access to a transmission line to Turkey, an attractive export market. Overall, the programme has been effective: there are 16 ongoing construction projects; and MoUs for over 60 plants with a total installed capacity of over 2,400 MW and an estimated cost of over USD 3 billion have been signed. In the coming years, Georgia plans to become a significant regional electricity exporter.

There are no major national initiatives for the promotion of other RES, although the latter can play a role in meeting the country’s energy demand. In particular, wind farms can contribute to addressing the issue of the “winter generation gap”. Plans to build a 20 MW wind farm financed by a state-owned company have

3 recently been announced. Modern biomass and solar solutions are currently being used in pilot mode on a small scale.

Among the country’s needs are the development of a consistent renewable energy strategy and/or action plan that would cover the entire range of RES. The adoption of a renewable energy law and the creation of a dedicated agency should also be considered. Existing electricity tariffs may be insufficient to attract significant private investment in renewable-based generation, thus some additional incentives (e.g. feed-in tariffs and/or fiscal incentives) may be needed. Detailed studies of the available renewable energy potential are necessary.

The Republic of Moldova is a landlocked country located between Romania and Ukraine and European integration is high on the nation’s agenda. The country does not have its own fossil fuel resources. Over 80 percent of the installed power generation capacity available in Moldova is situated in the breakaway region of Transnistria, thus 76–79 percent of the electricity consumed in Moldova is either imported or sourced from areas outside the control of the central government. Energy security concerns make the development of RES an important national priority. In 2011, RES (biomass and hydropower) represented some 3.4 percent of the country’s TPES.

In 2007, the country adopted a renewable energy law. National development strategies include provisions on promoting the use of RES. Moldova has a dedicated energy efficiency agency responsible for the promotion of energy efficiency and the use of RES. Its Energy Efficiency Fund was created to identify and support energy efficiency and renewable energy projects.

The country has a system of feed-in tariffs for renewable-based electricity producers, which are calculated on an individual basis. The system has not so far been very effective in attracting private investment to the sector.

Save for a medium-sized HPP, the country has only small-scale renewable-based installations. Given the country’s significant agricultural sector and predominantly rural population, the decentralised use of biomass for heating is an efficient approach, which is being promoted by several initiatives.

Moldova is a contracting party to the Energy Community Treaty and in 2012 it adopted a mandatory target of 17 percent for the share of renewable-based energy in gross final energy supply by 2020. At the same time, national policies define a higher target (20 percent) for 2020. Other targets include a 10 percent share of biofuels in total fuel consumption; and a 10 percent share of electricity produced from RES.

The National Renewable Energy Action Plan, adopted in 2013, envisions the construction of significant renewable-based generation capacities (mainly wind based) financed by private investment. It is planned to rely on a revised system of feed-in tariffs. To facilitate the most cost-efficient solutions, the plan envisions auctions for the rights to build a pre-defined amount of renewable-based capacities supported by preferential tariffs and obligation to purchase. An estimated EUR 250 million will be required for the construction of the

4 minimum capacity consistent with the 10 percent target. Attracting the necessary funds can be a serious challenge for the country, given the current level of direct foreign investment.

The country needs to finalise and adopt the recently drafted Law on the Promotion of the Use of Renewable Energy Sources; simplify and streamline administrative procedures; carefully design a revised system of feed- in tariffs; further promote the efficient decentralised use of biomass; and create a one-stop-shop information resource on renewable energy in Moldova.

Ukraine is the largest GUAM country in terms of area, population and the size of its economy. Ukraine’s economy is one of the most energy intensive in the world, and enhancing demand-side efficiency in both industrial and residential sectors is one of the key imperatives of the country’s energy policy. Although Ukraine has some fossil fuel resources, its energy supply is highly dependent on imports from . This makes energy security another important concern, which can be addressed through expanding the use of RES, among other measures.

The country is well endowed with various types of RES, which currently (mainly in the form of large hydro and biomass) account for about 2 percent of the TPES and 6–7 percent of gross domestic electricity consumption.

Ukraine has a dedicated energy efficiency and renewable energy agency, as well as a law on alternative energy sources. Probably the most significant factor driving the development of RES in Ukraine has been the adoption of generous feed-in tariffs for renewable-based electricity in 2009, which boosted private investment in major solar and wind projects. At the end of 2013, the total installed capacity of power plants using new renewables was approaching 1 GW, and their output from the beginning of the year exceeded 1 TWh. Further growth in installed capacity is expected in the coming years. Later amendments have made the system more friendly to biomass-based generation, and a growth is also expected in this sector. There is also a system of fiscal incentives for activities related to RES. Some other policy measures, including local content requirements and a mandatory level of biofuels in produced and sold fuel, have caused controversy among stakeholders.

Ukraine is a contracting party to the Energy Community Treaty; in 2012 it adopted a mandatory target of 11 percent for the share of renewable-based energy in the gross final energy supply in 2020. A national renewable energy action plan, intended to define a pathway towards achieving this target, is being developed and a public draft was presented in November 2013. The plan envisions far more ambitious targets than the recently updated Energy Strategy up to 2030.

The country needs a consistent and coordinated strategy for the development of RES, and to streamline and simplify administrative procedures, in particular by providing the possibility to have feed-in tariffs pre-

5 approved before construction and making the procedure for obtaining grid access simpler and more transparent. Further measures to promote the use of biomass can also be helpful.

6 Azerbaijan

Key country data (2011)1

Population (millions): 9.17

GDP: USD 65.95 billion

GDP per capita: USD 7,190

TPES: 12.56 Mtoe

Share of renewable energy in TPES: 2.6 percent

Country overview

From the late 19th century, Azerbaijan was a key oil-producing region in the Russian Empire, and then in the Soviet Union. Its significance somewhat decreased during the last Soviet decades, when Siberian oil and gas fields came online. In the first half of the 1990s, the production of energy resources in the Republic of Azerbaijan, which gained independence in 1991, declined (Figure 1). The situation stabilised and somewhat improved closer to the end of the decade, after which oil and gas production remained at approximately the same level until 2005. In that year, Azeri–Chirag–Guneshli (ACG), a major oil field in the developed by a BP-led international consortium, came online. Together with the opening of the BTC pipeline, this has made Azerbaijan a major player in the global energy sector and has led to a surge in export revenues. The start of gas production at Shah Deniz, another Caspian field, in 2007, further strengthened the country’s position as a hydrocarbon producer, allowing Azerbaijan to become a net exporter of natural gas. (Prior to this the country had imported gas from Russia.)2. It is estimated that Azerbaijan’s hydrocarbon reserves will be able to support at least 100 years of production3.

7

Figure 1. Total primary energy production in Azerbaijan (Source: IEA Statistics)

Figure 2. Total primary energy supply in Azerbaijan (Source: IEA Statistics)

Driven by expanding hydrocarbon exports, in the 2000s the national economy experienced a period of sustained rapid growth. Between 2000 and 2009, the annual GDP growth rate was never below 9 percent.

8 Between 2005 and 2007, when the two major fields came online, the average GDP growth rate was 28.6 percent4. Non-extractive sectors of the economy also demonstrated high growth rates, driven by expansion in the construction, banking and real estate industries, although most of this increase was ultimately attributable to the growth in the oil and gas sector5. From 2009, the growth slowed to a rate of 4.9 percent in 2010, to almost zero (although still positive) in 2011, and to 6.6 percent in 2012. According to Azerbaijan’s State Statistical Committee, the nation’s GDP in the first eleven months of 2013 grew 5.7 percent year-on-year, whereas non-oil GDP grew by 9.7 percent over the same period.6

The growth in GDP was not accompanied by a similar increase in the total primary energy supply (TPES), which grew only 11 percent between 2000 and 2011 (Figure 2). This means that the energy intensity of the country’s GDP (TPES per dollar of GDP) has decreased substantially over the decade (and has decreased even more compared to 1990).

Figure 3. Sources of electricity generation in Azerbaijan (Source: IEA Statistics)

Electricity production also increased only slightly, whereas gross domestic electricity consumption even decreased somewhat, as the country became a net exporter of electricity. The 2000s saw an important development in the country’s power sector — that is, a switch from oil to gas in the thermal generation sector (Figure 3).

9

Figure 4. Percentage of renewable energy sources in the total primary energy supply in Azerbaijan (Source: IEA Statistics)

In 2011, renewable energy sources (RES) accounted for about 2.6 percent of the nation’s TPES, including 1.9 percent hydro energy and 0.8 percent biomass (Figure 4). The contribution of other renewable sources was insignificant. Renewable energy sources (almost exclusively large hydro) accounted for 12.8 percent of power generation, although a year before their share had been larger (18.4 percent).

Although there are no pressing energy security concerns that would make RES development a vital priority for the country, there are other good reasons for their development:

• Renewable sources can substitute natural gas as an energy source for electricity generation, helping the country to expand its gas exports.

• One of the challenges faced by Azerbaijan is providing an energy supply to Nakhchivan Autonomous Republic, a landlocked exclave of Azerbaijan. The government currently relies on the construction of hydropower plants (HPPs) to meet electricity demand in Nakhchivan, but the region also has significant wind and solar energy potential.

• Small and medium-sized HPPs, in addition to producing electricity, can provide other services, playing a role in flood control and irrigation systems.

• Renewable energy sources can provide energy supply to remote and difficult-to-access locations, particularly in mountainous areas.

10 • The development of RES can help reduce the country’s carbon footprint.

Institutional setting

Government agencies and ministries

Azerbaijan has a dedicated government body responsible for the development of RES: the State Agency for Alternative and Renewable Energy Sources (SAARES, or ABEMDA in Azerbaijani). The agency, which originally had a staff of 25, was created by a presidential decree in 2009 under the aegis of the national Ministry of Industry and Energy. In 2012, the agency was reorganised into the State Company for Alternative and Renewable Energy Sources, with a staff of 75. On February 1, 2013, the president of Azerbaijan signed Decree No. 810 on Additional Measures in the Field of Alternative and Renewable Energy, re-establishing the agency with a staff of up to 100. The same decree created the state company Azalternativenerji LLC. This company, which is controlled by SAARES, is tasked with activities in the field of the design, production, construction and operation of equipment, installations, facilities and infrastructure related to RES. Azalternativenerji has a staff of 270 7 . Both SAARES and Azalternativenerji play a key role in the implementation of all state renewable energy projects in Azerbaijan (with the exception of hydropower projects).

Azerbaijan’s Ministry of Industry and Energy (MIE) is responsible for the implementation of state policy and for the regulation of activities in the country’s energy sector, including energy production, supply and distribution.8

The key function of the state company Azerenerji JSC is the management of electric power production and transmission in Azerbaijan. The company operates all thermal and hydro power plants in the country (with the exception of some smaller HPPs) and the national transmission grid. Grid access for renewable-based power producers therefore depends on this company, which is also responsible for power distribution across most of the country.9

The Tariff Council is the collegial executive body responsible for the regulation of prices and service fees regulated by the Azerbaijani state.10 The council is chaired by the minister of economic development and includes representatives of other ministries, including the Ministry of Industry and Energy. Among other tariffs, the council establishes rates for electric power for both producers and consumers, as well as power transmission tariffs. If it is decided to use preferential feed-in tariffs for renewable-based electricity, it is the Tariff Council that will approve specific rates. To date, the council has established preferential tariffs for electricity produced by wind farms.

11 The Ministry of Environment and Natural Resources is responsible for the implementation of the nation’s environmental policy, which has the development of renewable sources among its priorities.11 Among other activities, the ministry participates in the implementation of the State Programme for the Utilisation of Alternative and Renewable Energy Sources for 2004–2013 (see below).

Centres of expertise and training centres

The Azerbaijan Technical University has offered a course on renewable energy since 199312, with a focus on wind and solar energy. The Institute of Geography of the National Academy of Sciences is involved in the study of the country’s wind and solar energy potential.13 At its Gobustan pilot site, SAARES operates a training centre for renewable energy specialists. Another training centre focusing on wind energy is run by the private Caspian Technology Company.

The International Eco-Energy Academy14 is a non-governmental research organisation that participates in the implementation of a number of international and national programmes and conducts its own RES- related research projects.

Private companies

Private companies such as the Caspian Technology Company15 and Alten Group16 play a role in the development of the national renewable energy sector. They have implemented pilot projects, offer renewable energy equipment, and are involved in the implementation of larger-scale projects.

International organisations and programmes

There are a number of international organisations providing technical assistance and funding for the development of RES in Azerbaijan (some of these programmes are discussed in a later section).

Renewable energy policies

Legislation

The Law on the Utilisation of Energy Resources (of May 30, 1996) contains several general provisions regarding RES:

• Economic leverage and incentives shall be used for, among other purposes, directing administrative, research and development, and economic activities towards the rational use of energy resources, including RES (wind, solar, wave energy etc.).

12 • The State Fund for Rational Energy Use shall be created for the purpose of financing activities in this area. Its funds can be used, among other purposes, to finance the use of RES and to provide subsidies to organisations for research and forecasting in the field of RES. • State standards in the field of energy should define, among other requirements, those related to RES.

The Law on the Energy Industry (of November 24, 1998) lists “the use of renewable energy sources” among the objectives of state energy policy.

The Law on Power and Heat Plants (of December 28, 1999) introduced the notion of small power plants, the construction and operation of which, under certain conditions, do not require a special permit. Most types of small power plants are based on renewables:

• solar power plants that produce electricity and heat; • wind power plants with a capacity between 10 and 100 kW, provided their distance from the property of any third party conforms to the respective norms and standards; • HPPs with a capacity between 50 and 10,000 kW, which are situated at a steady stream and immediately return used water to the watercourse; and • power plants that produce electricity and heat from gas or other fuel, at least 80 percent of which comes from biomass, excluding natural firewood.

According to the law, the unlimited purchase of energy produced at small plants is guaranteed. The construction of renewable-based plants can be subsidised by the state.

Draft legislation

Within the framework of the United Nations Environment Programme (UNEP) project Promoting Development of Sustainable Energy in Azerbaijan (see below), the draft Law on the Promotion of the Use of Energy from Renewable Sources has been developed by project experts.17 The document establishes the legal, organisational, economic and financial foundations for the development of RES in Azerbaijan. It regulates relations between the government and producers, distributors and consumers of renewable-based energy.

The draft law contains specific provisions in the following areas:

• state policy, programmes and approaches with regard to promoting the use of RES; • state guarantees for producers of energy using RES; • national targets with regard to the use RES; • incentives for the planning, construction and operation of installations using RES; • priority grid connection for installations producing electricity from RES;

13 • the priority purchase, transmission, distribution of and payment for renewable-based electricity by the grid company; • special feed-in tariffs for renewable-based electricity; • economic incentives for the use of RES; and • the implementation of organisational, research, planning and regulatory measures aimed at increasing the use of energy produced from renewable sources.

International agreements and commitments

Azerbaijan is a party to the United Nations Framework Convention on Climate Change and its Kyoto Protocol. Although, as a non-Annex 1 country, it does not have binding emission reduction targets, it is still committed to reducing its greenhouse gas emissions, and the development of RES can be one of the means towards that end. Azerbaijan has access to the Clean Development Mechanism (CDM) — one of the Kyoto flexibility mechanisms — which allows the country to receive financing from Annex I countries for achieved emissions reductions. As of the end of 2013, there were five registered CDM projects in Azerbaijan, including a wind farm project, a waste-to-energy project and a landfill gas project. Another wind farm project was at the validation stage.18

The European Union views Azerbaijan as an important partner in the field of energy. On November 7, 2006, the Memorandum of Understanding on a Strategic Partnership between the European Union and the Republic of Azerbaijan in the Field of Energy was signed. Both sides recognised the need for the gradual harmonisation of Azerbaijani legislation with EU legislation in the field of energy. This implies the gradual implementation of several areas of the acquis communautaire, including the renewable energy acquis (defined by the respective directive) in line with a timetable to be agreed upon by both parties. The sides attached particular importance to setting in place a sustainable energy policy that would include, among other things, the development of RES and alternative fuels. The parties agreed to facilitate the implementation of Azerbaijan’s Programme for the Utilisation of Alternative and Renewable Energy Sources for 2004–2013, to take steps to develop an action plan for its implementation, and to reinforce national institutions dealing with RES and energy efficiency.

Azerbaijan has participated in a number of EU initiatives, including the European Neighbourhood and Partnership Instrument and the Eastern Partnership.

Since 2009, Azerbaijan has been a member of the International Renewable Energy Agency (IRENA), the key objective of which is to promote the widespread and increased adoption and the sustainable use of all forms of renewable energy.

14 Programmes, strategies and plans

The key policy document specifically dedicated to RES is the State Programme for the Utilisation of Alternative and Renewable Energy Sources for 2004–201319, which was approved by the president of Azerbaijan on October 21, 2004 (Order No. 462). The goal of the programme is to promote energy production from renewable and environmentally sound sources and to utilise hydrocarbon resources more efficiently. The key objectives of the programme include:

• determining the potential of alternative (renewable) energy sources for electric power generation; • increasing the efficiency of the utilisation of the country’s energy resources by means of developing RES; • ensuring the creation of additional jobs in the energy sector; and • achieving a growth in the overall energy-generating capacity of Azerbaijan through the utilisation of alternative energy sources, thus increasing the country’s energy security.

The document discusses the available potential of RES but does not define specific targets for renewable energy use. It defines a total of 20 measures aimed at expanding the use of RES. These measures include:

• drafting legislation to facilitate the development of RES; • various research and development activities (RES potential, specific technologies, study of international best practices); • training specialists and raising awareness among energy consumers; • projects in the hydropower sector (including small hydro); and • utilising other RES (solar, wind, biomass and geothermal energy).

Originally the implementation of the programme was constrained by lack of funding. Although in the second half of the programme period the country has achieved some progress in the field of small hydro (see below) and has specific plans in that area, no broad use of other RES has been achieved so far.

The State Programme for the Development of the Fuel and Energy Sector in the Republic of Azerbaijan for 2005–201520 (approved by a presidential decree on February 14, 2005) defines priorities and targets for the development of the nation’s energy sector. It does not contain significant provisions about the use of RES. It mentions that the growth of the overall energy supply will be achieved by, among other means, the expansion of the use of RES: the share of RES (including large hydro) in total power generation is expected to reach 15 percent by 2015. The list of specific actions includes several hydropower projects, one small and one medium- sized among others.

The State Programme for the Socio-Economic Development of Regions of the Republic of Azerbaijan for 2009–201321 (approved by a presidential decree on April 14, 2009) was designed to address specific

15 development needs at the regional level. Small hydro, as a “local” energy source, fits well with the purpose of the document, which includes provisions for the construction of small HPPs in each economic region of the country. For the landlocked exclave Nakhchivan, which faces an energy deficit, it also contains provisions for the installation of wind and solar power plants. Although a number of hydropower projects have been implemented in the region in line with the programme, no significant progress with regard to solar and wind energy has been made so far in Nakhchivan.

At the end of 2012, the president of Azerbaijan approved the document Azerbaijan 2020: A Look into the Future, a development concept intended to provide a vision for the new stage of the country’s development.22 The development priorities include building a diverse, efficient and innovative economy. The concept views the expansion of the use of RES as a means to improve the structure of the national economy (particularly by expanding the non-hydrocarbon sector). The main approaches in this area include:

• providing incentives to accelerate the development of alternative and renewable energy sources; • creating a favourable institutional environment; • strengthening research and development potential in the field; • training specialists and raising public awareness; and • providing incentives for private sector involvement, in particular through flexible tariffs for renewable-based energy products.

On December 29, 2011, President of Azerbaijan Ilham Aliyev issued an order requesting the development of a national strategy on the use of alternative and renewable energy sources in the Republic of Azerbaijan for 2012–2020.23 The document was to be developed by SAARES in collaboration with relevant central and local authorities in the country, as well as domestic and international companies. The document was to:

• identify key areas for the production of electricity and heat from alternative and renewable energy sources in 2012–2020; • create a legal framework for the field of alternative and renewable energy sources; • provide incentives for the use of alternative and renewable energy sources; and • promote the use of alternative and renewable energy sources in all economic sectors on the basis of the domestic and international scientific and technology potential.

An amount of AZN 1 million (about EUR 1 million) was allocated for the development of the strategy. At the end of 2013, the final document had not yet been approved.

In connection with the strategy development process, the following targets in the field of renewable energy were adopted, to be achieved by Azerbaijan by 202024:

• a 20 percent share of RES in power generation;

16 • a 9.7 percent share of RES in total final energy consumption; • 2,500 MW installed capacity of renewable-based generation facilities; • a 20 percent improvement in energy efficiency; and • a 20 percent reduction in greenhouse gas emissions.

* * *

No major policy documents (laws, strategies or plans) dealing specifically with renewable sources have been adopted since 2004. However, in recent years the number of renewable energy–related decrees, orders and resolutions signed by the Azerbaijani authorities has increased substantially25 (Figure 5), demonstrating the growing interest of the Government of Azerbaijan in RES.

* First nine months

Figure 5. Number of official documents signed by the president and the Cabinet of Ministers of Azerbaijan and related to renewable energy (Source: SAARES)

Policy instruments

Feed-in tariffs for renewable-based electricity

A preferential tariff rate (approximately 10 percent higher than the standard rate) has been established in Azerbaijan for electricity produced from wind (Table 1).26 The existing rate for small HPPs is significantly lower than the standard rate. Standard rates apply to solar and biomass-based installations.

17 Table 1. Tariff rates for electricity producers and customers in Azerbaijan (Source: SAARES)

Producer/customer category AZN/kWh EUR/kWh*

Small hydro 0.026 0.023

Wind plants 0.045 0.042

All other producers (including solar plants) 0.041 0.038

All customers 0.060 0.056

* At the official exchange rate as of December 30, 2013.

These rates may not be high enough to attract private investors to the sector. According to a 2008 study by the Organisation for Economic Co-operation and Development (OECD)/International Energy Agency (IEA)27, for example, by 2005 no country with a rate for wind-based electricity below USD 0.07/kWh (or about AZN 0.055kWh28) witnessed substantial deployment of the onshore wind sector. Typical rates in countries with a favourable investment climate, low administrative and regulatory barriers, and relatively favourable grid access conditions were USD 0.09–0.11/kWh (or AZN 0.07–0.085/kWh). Solar installations are typically more costly, and feed-in tariffs for them are higher.

Estimates made within the framework of a United Nations Development Programme (UNDP) project for specific proposed facilities in Azerbaijan provide much higher values.29 To ensure a favourable return on equity (ROE), the rate for the wind farm considered by the analysts should be AZN 0.27/kWh; the rate for the solar installation should be 0.65/kWh; and the rate for biomass plants using animal waste AZN 0.16– 0.19/kWh.

It is evident from the concept Azerbaijan 2020: A Look into the Future that the government realises the importance of flexible tariffs for attracting private investments to the renewable sector.

Exemption from customs duties

According to a 2007 decision, imported wind power generators are exempt from customs duties.30 There are no similar provisions for any other equipment related to renewable energy.

* * *

There are no regulations specifically addressing the issue of grid access for renewable-based power producers, or the grid company’s obligation to purchase electricity from them, although such arrangements can be made on an ad hoc basis for individual projects.

18 Renewable energy potential

Significant renewable energy potential is available in Azerbaijan. According to estimates by SAARES31, the total potential of RES in terms of capacity is above 12 GW (Table 2).

Table 2. Estimated potential of RES in Azerbaijan (Source: SAARES) Type Potential capacity, MW Solar > 5,000 Wind > 4,500 Bioenergy > 1,500 Geothermal > 800 Small hydro > 350 Total > 12,150

Wind

Estimates cited in the State Programme for the Utilisation of Alternative and Renewable Energy Sources for 2004–2013 suggest that Azerbaijan has economically feasible potential of about 800 MW of wind power, which is approximately equivalent to 2.4 TWh/year of electricity. This would allow for annual savings of about 0.7 Mtoe of primary fuels. According to SAARES, the potential of wind energy in Azerbaijan is 4,500 MW or higher.32 The areas of Azerbaijan with the highest wind energy potential include the Absheron peninsula, Caspian Sea coastal areas, and islands in the northwest of the Caspian Sea. The average annual wind speed in the Absheron peninsula is 5–8 m/s; and the number of windy days on the peninsula varies between 245 and 28033. Areas with a significant, albeit lower, wind energy potential include the Ganja- area in the west of the country and the -Julfa region in Nakhchivan Autonomous Republic. The annual average wind speed of 3–5 m/sec makes them suitable for siting medium-sized wind installations.

With the help of international organisations, national experts are making further efforts to collect more accurate and detailed data on the country’s wind energy potential. A “wind energy inventory” was recently carried out in Azerbaijan, and based on its results the Wind Energy Atlas of Azerbaijan was published in 2012.

19 Solar

Due to its climatic and geographical conditions, Azerbaijan has significant solar energy potential. The annual number of hours of sunshine in the Absheron peninsula and -Araz lowland is between 2,200 and 2,400; and in Nakhchivan Autonomous Republic between 2,600 and 2,800.34 The amount of solar energy available in these areas is estimated as 0.8–1.2 kW/m2. The available potential of solar energy in the country is estimated as 5,000 MW of installed capacity or higher. It is planned to develop a solar energy inventory similar to the recently prepared wind energy inventory.

Bioenergy

Although Azerbaijan’s agricultural sector is not particularly significant in terms of its contribution to the nation’s GDP (5 percent in 2011), it still plays an important role in the national economy. The sector employs 38 percent of the total employed workforce in the country. Agricultural lands constitute 57.7 percent of the total land area, while 11.3 percent of the total land area is used for forestry.35 Sources of biomass in Azerbaijan include36:

• agricultural products, waste and residues; • waste from agro-processing operations; • forestry and wood processing waste; and • municipal waste.

The amount of potentially available biomass is 2 million tons/year or more. According to estimates by SAARES, the potential of bioenergy in terms of installed capacity is above 1.5 GW. The State Programme for the Utilisation of Alternative and Renewable Energy Sources for 2004–2013 suggests that it is feasible to produce biogas, as well as liquid and solid biofuel, for power generation.

According to estimates, between 24 and 27 million m3 of methane from animal manure can be collected in the country’s agricultural sector.37

Solid waste generated in the country can also be an important energy source. The following amounts of municipal waste are generated annually by Azerbaijan’s major cities:

• – 30,400 tons (42.8 million m3); • Ganja – 5,100 tons (7.2 million m3); • Sumgayit – 4,900 tons (6.9 million m3); • – 1,600 tons (2.3 million m3); • Nakchivan – 1,200 tons (1.7 million m3); and • Shirvan – 1,200 tons (1.7 million m3).

20 There are over 200 landfills with a total area of 900 hectares in the country38, providing potential for power generation projects using landfill gas.

Hydro

According to available studies, Azerbaijan’s overall potential for hydropower generation is about 40 TWh. The technically achievable potential is about 16 TWh, including 5 TWh in the small hydro sector. The main hydropower resources of Azerbaijan are located in the following areas39:

• the lower reaches of the Kura River with its multiple tributaries; • the River (Kura tributary); • a group of creeks flowing into the Caspian Sea; and • the reservoirs and canals of irrigation systems.

The country currently has three HPPs, the largest of them Mingachevir HPP with an installed capacity of 418 MW, situated on the Kura River. The total installed capacity of Azerbaijan’s HPPs is about 1 GW, and in 2011 they produced about 13 percent of the electricity in the country. No new major HPPs are being built at the moment, although plans for the construction of the Tovuz HPP, with an installed capacity of 380 MW, have been discussed for some time.

Between 2007 and 2009, the country’s hydropower potential and specific sites suitable for the construction of small HPPs were studied within the framework of a UNDP project (see the section “International organisations, projects and programmes” below).

Other renewable energy sources

Azerbaijan is rich in thermal waters, which are available in various parts of the country, such as the Greater and Lesser Caucasus, the Absheron peninsula, the Talysh Mountains, the Kura lowland and the Caspian- Guba region.40 The production capacity of geothermal resources in Lenkoran, Massally and Astara districts has been estimated at about 25,000 m3 per day. Wells produce waters with wellhead temperatures of about 40°C and rates of 40 l/s.41 The use of thermal waters in these areas can meet the needs for heating in the household sector and, to some extent, in other sectors. Some geothermal resources are characterised by a high mineral content (up to 40 g/l). According to SAARES estimates, the overall geothermal energy potential is 800 MW or more.

21

Current use of renewable energy sources, projections and targets

At present, renewable energy installations in Azerbaijan, with the exception of several large and medium-sized HPPs and a large waste-to-energy plant in Baku, are represented by pilot plants with a capacity of several megawatts, and small-scale solar installations on individual public and residential buildings. However, there are a number of much larger projects in the pipeline, which will be discussed below in the context of individual RES.

The projected breakdown of the renewable- based component of energy supply by source is shown in Figure 6. Azerbaijan’s 2020 targets in the field of renewable energy can be found above (in the section “Programmes, strategies and plans”).

Hybrid power plants

Implementing its own renewable energy projects, SAARES relies on the construction of so-called hybrid power plants that combine several types of renewable-based generation facilities. The first such plant is Figure 6. Projected breakdown of renewable- based energy supply by source in 2020 the Gobustan Pilot Site and Training Centre, (Source: SAARES) which was launched in September 2011. With a total installed capacity of 5.5 MW, the site includes a wind farm (2.7 MW), a solar installation (1.8 MW) and a biogas plant (1 MW).42 In addition to power generation, the site has a number of other functions ultimately aimed at strengthening national capacity in the field of RES. These functions include training specialists, testing new technology, promoting RES use in the country, and research activities. It is expected that by 2015 the installed capacity of the site will reach 8 MW, and that it will be able to fully meet the power demand of the whole of .43

At present, SAARES is considering the construction of another hybrid plant, the Samukh Agro-Energy Complex, which would combine a solar plant (15 MW), a wind farm (7 MW), a geothermal plant (3 MW),

22 and a biomass plant (5 MW) using animal waste from a nearby farm.44 According to Akim Badalov, head of SAARES, the agency is currently working on feasibility studies for 10 more hybrid power plants, each with a total capacity of up to 30 MW, which will be built in different regions of the country.45

Wind

There are currently several relatively small wind energy installations in the country46:

• a wind farm with an installed capacity of 2.7 MW, which is part of the hybrid power plant at the Gobustan pilot site; • a pilot wind farm with an installed capacity of 1.7 MW, built by the private Caspian Technology Company; • a wind farm with an installed capacity of 8 MW, built by the company Alten Group; and • Sitalcaj wind farm, built by the company Trans-T.S., with an installed capacity of 3.6 MW.

At the same time, there are several larger wind-based projects in the pipeline, which are expected to come online in the next few years47:

• Yeni Yashma wind farm, with a total installed capacity of 50 MW, which is being developed by the Azerbaijani-based company General Construction. The project has been registered as a CDM project, which means that it will be allowed to issue and sell certified emission reduction units. • Shurabad wind farm, with a total installed capacity of 48 MW48, which will be commissioned in three stages. The project was submitted for CDM registration and is currently at the validation stage. The farm is owned and developed by the Caspian Technology Company. • Pirakushkul wind farm, with a total installed capacity of 80 MW. Most of the project, which is worth EUR 165 million, will be financed by the German development bank KfW, which will extend a EUR 130 million loan to the Azerbaijani government49. The latter will provide the remaining funds, and SAARES will play an important role in project implementation.

All these facilities will be situated relatively close to the Caspian shore of Azerbaijan and the Absheron peninsula, where the largest wind energy potential is available.

According to estimates by SAARES, it is expected that by 2020 wind energy will account for 25 percent of the renewable-based component of the energy supply.

Solar

Despite the huge potential, no large-scale solar energy projects have been implemented so far due to the cost of the technology. The country’s solar energy sector is currently represented by pilot and small-scale

23 installations. The Gobustan Pilot Site and Training Centre includes a photovoltaic installation with a total installed capacity of 1.8 MW. Other initiatives being planned or implemented in Azerbaijan include:

• the programme 1,000 Houses – 1,000 Power Plants (2012–2015) for the installation of solar panels in the residential sector; • a programme for the installation of PV panels to provide street and park lighting (2013–2015), with a total capacity of up to 1 MW; • Samukh Agro-Energy Complex, with a 15 MW solar component; and • small-scale projects for the installation of PV panels and solar heating systems at schools, hospitals and sports facilities, with a total installed capacity of up to 1 MW.

Typical projects of this kind include the installation of 25 kW of solar capacity and 40 kW of heat capacity at a school, or 70 kW of solar and 90 kW of heat capacity at a sports centre. In December 2013, it was reported that the first sports complex in the country able to fully meet its power demand with solar energy was commissioned in the village of Boradigah in the south of Azerbaijan. The facility is even able to supply excess energy to the power network.50

In 2012, it was reported that discussions had been held regarding the possiblity of a loan from the Japan International Cooperation Agency to the Azerbaijani government for the construction of the Absheron Solar Park, with an installed capacity of 25 MW.51 The project was worth an estimated EUR 87.5 million, but to date no loan agreement has been signed.

Azerbaijan is also building its capacity for the production of solar installations. In April 2012, the Azguntex solar panel factory, built by SAARES, was launched at the site of the Sumgayit hi-tech park. The factory produces panels with a capacity of 250 W, which are used in small-scale solar installations across the country (including those built under the programme 1,000 Houses – 1,000 Power Plants). The factory’s first stage produces panels with a total capacity of 30 MW annually; the second stage will produce panels with a capacity of 60 MW annually.

According to the estimates of SAARES, it is expected that by 2020 solar energy will account for 44 percent of the renewable-based component of the energy supply, comprising 40 percent solar-based electricity, and 4 percent heat.

Bioenergy

As of 2011, biomass accounted for 0.8 percent of the TPES in Azerbaijan, and about 30 percent of the renewable component of the TPES. Almost all biomass was consumed in the residential and commercial sector. There are no significant biomass-based power generation facilities.

24 A number of small-scale activities have taken place in recent years. Within the framework of the State Programme for the Utilisation of Alternative and Renewable Energy Sources for 2004–2013, the Ministry of Environment and Natural Resources purchased 10 units for biogas production and installed them in remote rural communities. Alten Group installed a pilot biogas plant in cooperation with Georgian and Ukrainian specialists52, and the company later started producing biogas reactors with a volume of 5–20 m3.

The Gobustan Pilot Site and Training Centre includes a biogas plant with an installed capacity of 1 MW.

At present, SAARES is implementing, or plans to implement, a number of larger-scale biomass projects, including:

• a biomass-based component of the Samukh Agro-Energy Complex (5 MW), for which a large-scale livestock complex will be established nearby to provide the plant with the necessary biological raw materials53; • a plant (15 MW) in District; and • biomass plants (15 MW) in Oghuz District.

Several smaller projects with an installed capacity of 2–3 MW will also be implemented in other regions of the country.

In 2012, a waste-to-energy plant with an installed capacity of 35 MW was launched in Baku.

In May 2013, the Asian Development Bank (ADB), an international financial institution with a long history of financing projects in Azerbaijan, released a project document according to which it was considering a USD 40 million loan to the country’s government for the construction of two pilot biomass-based cogeneration plants with a total installed capacity of 16 MW in Oghuz and Agjabedi districts.54

The project would not only contribute to efficient power and heat supply in the two districts, but also demonstrate the viability of biomass-based cogeneration plants. To date, ADB has provided a grant worth USD 1 million from the multi-donor Clean Energy Fund to finance project preparatory technical assistance (PPTA) by contracted consultants.55

According to SAARES, in 2020 waste and biomass will account for 16 percent of the renewable-based component of the energy supply in the country.

Hydro

In Azerbaijan, as in many other former Soviet republics, small HPPs (so called rural HPPs) were widely constructed to supply power to remote areas. As large plants and new transmission lines were built, these plants were decommissioned or fell into disrepair. A UNDP project report lists 11 small HPPs, with a total installed capacity of 27.7 MW, in existence in the country at the beginning of the 2000s. According to this report, all of them were in poor condition, and all but one out of operation.56 At the beginning of the 2000s,

25 with no resources for the modernisation of these plants, the government decided to privatise nine of them: at least eight had been privatised by the end of the decade.

Towards the end of the 2000s, the government began to consider programmes for building new small HPPs. In 2009, the president of Azerbaijan requested the national power company Azerenerji to develop programmes for the construction of small HPPs in the country. 57 The Regional Socio-Economic Development Programme for 2009–2013, approved in April 2009, envisioned the construction of small HPPs in all economic regions of the country. According to the national Ministry of Industry and Energy, as of September 2013 the country was implementing a programme for the construction of 15 small HPPs with a total installed capacity of 77.2 MW.58 Broader plans include the construction of 34 small HPPs with a total installed capacity of 239.9 MW in the long and short term. It is expected that collectively they will generate 1.2 TWh annually, which is about 5 percent of the total national power output in 2012. Of the planned plants, 23 will be built on derivation channels, thus no construction of reservoirs and dams will be necessary. The remaining plants will be built on canals or irrigational reservoirs, integrated with irrigation systems. The broader intentions of the ministry include the construction of a total of 61 small HPPs.

The construction of new HPPs is also intended to supply remote areas and facilities with power and flood control. Azerbaijan’s Second National Communication to the UNFCCC59 mentions the construction of small HPPs among possible climate change adaptation measures. In addition, the country has extensive irrigation systems with reservoirs and canals, and plans to build new such systems. The construction of small HPPs integrated with these water management features can be a capital-efficient way of expanding generating capacities at local level.

On December 20, 2012, Urva-1 (Gusar-1), with an installed capacity of 3 MW, was commissioned in the northeast of Azerbaijan. On August 14, 2013, -1, a small HPP with an installed capacity of 3.2 MW, was inaugurated. Ismayilli-2, which will have the same capacity, is being constructed downstream. It is expected that the new plant, operated by Azerenerji, will produce 8 GWh of power annually.60

Azerbaijan is also building medium-sized HPPs (with a capacity of between 10 and 40 MW). Plants of this type are being constructed in Nakhchivan in accordance with the regional development programme in order to meet the energy demand of the exclave. At the end of 2010, Bilav HPP, with an installed capacity of 20 MW, was commissioned in the autonomous republic. On September 9, 2013, Arpachay HPP (20.5 MW) was commissioned, and it is reported that two more medium-sized plants — Arpachay-2 and — are currently under construction in Nakhchivan. Once they are completed, most of the region’s power demand will be met by HPPs.61

Medium-sized hydropower projects are also being implemented in other regions of Azerbaijan. On December 15, 2012, the Fizuli HPP, with a total installed capacity of 25.2 MW, was inaugurated. On September 28, 2013, the Takhtakorpu HPP, with an installed capacity of 25 MW, was inaugurated, together with the

26 Takhtakorpu reservoir and the Takhtakorpu-Jeyranbatan canal. The facilities were built in in the northeast of the country as part of the broader programme for the modernisation of the Samur– Absheron irrigation system, which was originally built in the 1940s. The project was financed by the State Oil Fund, which accumulates a part of revenues from hydrocarbon resource extraction and uses these funds, among other purposes, to finance major socio-economic development projects. Unlike most other power plants, which are operated by Azerenerji, the new plant, as part of an irrigation system, is operated by the state irrigation and water management company. In his speech at the inauguration ceremony, President of Azerbaijan Ilham Aliyev noted that several HPPs with a capacity between 1 and 5 MW were being constructed on the country’s small rivers. He also mentioned another project under construction, combining the goals of irrigation, public water supply and power generation: the Shamkirchay reservoir and 25 MW HPP.62

Other renewable sources

At present, geothermal energy in Azerbaijan is used only as a source of heat and not for power generation. In some regions of the country thermal waters are used for greenhouse heating.

One project for the use of geothermal energy in Azerbaijan is the planned Samukh Agro-Energy Complex, where the planned capacity of the geothermal component is 3 MW.

According to SAARES, a number of projects for the installation of heat pumps in public buildings are being implemented.63

International organisations, programmes and projects

A number of international organisations have been active in Azerbaijan, supporting the development of the renewable energy sector by providing technical assistance and funding for renewable energy projects.

Between 2007 and 2009, the UNDP project Technical Assistance for Promoting Development of Small Hydropower in Azerbaijan64 was implemented. The project partners were the Ministry of Industry and Energy of Azerbaijan and the Government of Norway, the latter providing project financing. Among other project activities, the country’s hydropower potential was explored. Project consultants identified the most promising areas and specific sites in terms of small hydropower development.

Building on the results of the hydropower project, from 2011 to 2013 UNDP implemented another project in cooperation with the State Company for Alternative and Renewable Energy Sources (later SAARES). The project Promoting Development of Sustainable Energy in Azerbaijan65 received financing totalling EUR 1.44 million from the European Commission and the Government of Norway. The project resulted in:

• the drafting of the Law on Renewable Energy in Azerbaijan;

27 • the completion of a feasibility study for one small HPP; • the economic assessment of solar, wind and biomass projects in Azerbaijan and the development of a financial model template; • an awareness-raising campaign on RES; and • the completion of a pre-feasibility study for three pilot projects using solar, wind and biomass energy.

In 2007, the European Commission approved the Energy Reform Support Programme for Azerbaijan with a total cost of up to EUR 14 million. One of the programme objectives was the development of an action plan for promoting energy efficiency and renewable energy in the country, which would cover legislative and institutional aspects, economic instruments and awareness-raising activities. Several technical assistance projects were financed within the framework of the programme.

In 2013, it was reported that the United Nations Educational, Scientific and Cultural Organization (UNESCO), a longstanding partner of the National Academy of Sciences of Azerbaijan, had provided a grant of USD 30,000 to the Institute of Geography for an in-depth study of solar and wind energy potential in the country.66

In June 2013, IFC, a member of the World Bank Group, signed an agreement with Azerbaijani Bank Respublika to provide a loan worth USD 15 million in order to expand the bank’s lending to SMEs involved in sustainable energy in Azerbaijan and thus to encourage private-sector investment in renewable energy and energy efficiency projects. The loan included USD 1 million from the IFC–Canada Climate Change Program.67

As mentioned above, other development banks financing renewable energy projects in Azerbaijan, or considering financing them, include the German development bank KfW and the Asian Development Bank.

Gaps and recommendations

Azerbaijan’s current renewable energy programme was adopted 10 years ago, when the state of the economy in general, and the state of the energy sector in particular, were very different from today. There is no dedicated renewable energy law. It is therefore recommended to:

• finalise and adopt the National Strategy on the Use of Alternative and Renewable Energy Sources for the Period until 2020, as requested by the presidential decree of December 29, 2011; • adopt the national law on RES (the draft law developed under the UNEP project can be used in this process); and • develop and adopt a system of secondary legislation and state standards in the field of renewable energy.

28 Detailed information on the distribution of renewable energy potential is essential for the planning of specific projects. An inventory of wind energy potential has already been carried out, and a wind energy atlas has been produced. Reportedly, a similar solar energy inventory is planned, and a project for an in-depth study of solar and wind resources is ongoing. It is recommended to carry out inventories of solar and biomass potential, making the information available to potential investors and project developers.

The government recognises the importance of providing incentives for private investors in renewable energy projects. However, there are no such incentives in place at present (with the exception of a relatively low preferential tariff for wind installations and import duty exemption for wind power equipment). To provide a favourable and predictable environment for private investment in renewable energy projects, it is recommended to:

• introduce a system of feed-in tariffs for all types of RES, either universal or determined on an individual basis depending on the economic parameters of the project. In the latter case, the procedure for determining the rates should be clear and transparent; • develop a specific mechanism for subsidising feed-in tariffs for renewable-based power producers; • provide fiscal incentives (exemption from or reduction of VAT and/or customs duties) for renewable energy projects and related equipment; • provide clear and transparent arrangements for granting grid access to renewable-based power producers; and • simplify the overall permitting process for renewable energy projects. One option might be to provide a building permit, feed-in tariff and grid access rights in the framework of a single integrated procedure. The right to issue some types of permits or licences for renewable energy projects can be handed over to SAARES from other agencies.

The various information on RES in Azerbaijan that can be of interest to potential investors and project developers is currently scattered and difficult to access. It is recommended to create a dedicated information resource, providing a “one-stop-shop” for various types of information, including legal documents, inventories of renewable energy potential, project reports and lessons learned from pilot projects.

Notes

1 Sources: World Bank Data (data.worldbank.org/), IEA Statistics (www.iea.org/statistics/). 2 Energy Charter Secretariat. In-depth review of the energy efficiency policy of Azerbaijan. 2013. 3 Official website of the president of Azerbaijan. Speech by Ilham Aliyev at the opening of the Gobustan pilot test site and training centre. en.president.az/articles/3099 (accessed on January 5, 2014).

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4 World Bank Data. 5 Energy Charter Secretariat. In-depth review of the energy efficiency policy of Azerbaijan. 2013. 6 State Statistical Committee of the Republic of Azerbaijan. www.stat.gov.az/macroeconomy/indexen.php (accessed on January 9, 2014). 7 J. Malikov. “Alternative and renewable energy sources in Azerbaijan. The legal framework, investments and prospects.” Presentation. Kiev, October 17, 2013. 8 Energy Charter Secretariat. In-depth review of the energy efficiency policy of Azerbaijan. 2013. 9 Energy Charter Secretariat. In-depth review of the energy efficiency policy of Azerbaijan. 2013. 10 www.tariffcouncil.gov.az/?/en (accessed on January 7, 2014). 11 www.eco.gov.az/en/ (accessed on January 7, 2014). 12 Energy Charter Secretariat. In-depth review of the energy efficiency policy of Azerbaijan. 2013. 13 AzerNews. www.azernews.az/azerbaijan/58333.html (accessed on January 5, 2014). 14 www.ieacademy.org (accessed on January 12, 2014). 15 www.ctc.az/en/ (accessed on January 10, 2014). 16 www.alten-group.com/en/site/projects/17 (accessed on January 10, 2014). 17 UNDP. Promoting development of sustainable energy in Azerbaijan. Report on Component 4 – Legal and regulatory analysis of sustainable energy in Azerbaijan. Executive summary. 2012. greenazerbaijan.org/wp- content/uploads/2013/06/Report-of-Component-4-Legal-and-Regulatory-Analysis-of-Sustainable-Energy- in-Azerbaijan.pdf (accessed on January 9, 2014). 18 CDM/JI Pipeline Analysis and Database. www.cdmpipeline.org/ (accessed on January 18, 2014). 19 www.carecprogram.org/uploads/docs/AZE-Renewable-Energy-Strategy-en.pdf (accessed on January 2, 2014). 20 www.carecprogram.org/uploads/docs/AZE-Fuel-and-Energy-Strategy-en.pdf (accessed on January 2, 2014). 21 www.cled.az/pdf/others/Azerbaijan%20Regional%20Development%20Programe%20for%202009- 2013.pdf (accessed on January 2, 2014). 22 www.president.az/files/future_en.pdf (accessed on January 3, 2014). 23 1NEWS.AZ. www.1news.az/chronicle/20111229091215924.html (accessed on December 28, 2013). 24 J. Malikov. “Main challenges for proliferation of the use of renewable energy in Azerbaijan.” Presentation. Kiev, October 18, 2013. 25 J. Malikov. “Alternative and renewable energy sources in Azerbaijan. The legal framework, investments and prospects.” Presentation. Kiev, October 17, 2013. 26 J. Malikov. “Alternative and renewable energy sources in Azerbaijan. The legal framework, investments and prospects.” Presentation. Kiev, October 17, 2013. 27 OECD/IEA. Deploying renewables: principles for effective policies. 2008. 28 At the official exchange rate as of December 30, 2012. 29 UNDP. Promoting development of sustainable energy in Azerbaijan. Report on Component 3 – Economic and financial analysis of renewable energy projects in Azerbaijan. Executive summary. 2012. greenazerbaijan.org/wp-content/uploads/2013/06/Report-of-Component-3-Economic-and-Financial- Analysis-of-Renewable-Energy-Projects-in-Azerbaijan.pdf (accessed on January 9, 2014). 30 J. Malikov. “Alternative and renewable energy sources in Azerbaijan. The legal framework, investments and prospects.” Presentation. Kiev, October 17, 2013. 31 J. Malikov. “Alternative and renewable energy sources in Azerbaijan. The legal framework, investments and prospects.” Presentation. Kiev, October 17, 2013. 32 J. Malikov. “Alternative and renewable energy sources in Azerbaijan. The legal framework, investments and prospects.” Presentation. Kiev, October 17, 2013. 33 Energy Charter Secretariat. In-depth review of the energy efficiency policy of Azerbaijan. 2013. 34 E. Nuriyev. “Alternative and renewable energy sources in Azerbaijan: Solar energy.” Presentation. Kiev, October 17, 2013. 35 World Bank Data.

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36 R. Gurbanov. “Alternative and renewable energy sources in Azerbaijan: Biomass energy.” Presentation. Kiev, October 18, 2013. 37 I. Ahmadov. “Energy sector of the Republic of Azerbaijan.” Presentation. Kiev, October 18, 2013. 38 Energy Charter Secretariat. In-depth review of the energy efficiency policy of Azerbaijan. 2013. 39 Energy Charter Secretariat. In-depth review of the energy efficiency policy of Azerbaijan. 2013. 40 State Programme for the Utilisation of Alternative and Renewable Energy Sources for 2004–2013. 41 Energy Charter Secretariat. In-depth review of the energy efficiency policy of Azerbaijan. 2013. 42 J. Malikov. “Main challenges for proliferation of the use of renewable energy in Azerbaijan.” Presentation. Kiev, October 18, 2013. 43 Interfax Azerbaijan. interfax.az/view/573597 (accessed on January 6, 2014). 44 J. Malikov. “Current status in sphere of use of alternative and renewable energy sources in the Republic of Azerbaijan: achievements and goals.” Presentation. Baku, November 5, 2013. 45 Navigator.az. www.navigator.az/news/2/236303.html (accessed on January 7, 2014). 46 Energy Charter Secretariat. In-depth review of the energy efficiency policy of Azerbaijan. 2013. 47 R. Gurbanov. “Alternative and renewable energy sources in Azerbaijan: Wind energy.” Presentation. Kiev, October 17, 2013. 48 Capacity according to the CDM project description document. SAARES (October, 2013) cited a much smaller value (5.3 MW). The project could have been downscaled in the process, or the smaller number could apply only to its first stage. 49 As part of a larger EUR 380 million loan. The loan agreement was signed on November 28, 2013. www.baku.diplo.de/Vertretung/baku/de/03/Aktuelles/FZ2013.html (accessed on January 2, 2014). 50 Interfax Azerbaijan. interfax.az/view/596450 (accessed on January 6, 2014). 51 Trend. en.trend.az/capital/energy/2052029.html (accessed on January 9, 2014). 52 www.alten-group.com/en/goto/23 (accessed on January 8, 2014). 53 AzerNews. www.azernews.az/business/48030.html (accessed on January 7, 2014). 54 According to a later CDM document, the total installed capacity would reach 20 MW and the projects would be implemented in Oghuz and districts. 55 www.adb.org/projects/47008-001/main (accessed on January 6, 2014). 56 UNDP. Technical assistance for promoting small hydropower in Azerbaijan. Final report. Baku, 2009. greenazerbaijan.org/wp-content/uploads/2011/03/Small-hydropower-potential-in-Azerbaijan-2009.pdf (accessed on January 2, 2014). 57 Rossiyskaya Gazeta – Azerbaijan. “Small but brave. Best resource for electricity generation.” October 10, 2012. 58 AzerNews. www.azernews.az/azerbaijan/59484.html (accessed on January 5, 2014). 59 Ministry of Ecology and Natural Resources of the Republic of Azerbaijan. Second National Communication to the United Nations Framework Convention on Climate Change. Baku, 2010. 60 Official website of the president of Azerbaijan. “Ilham Aliyev attended the opening of hydroelectric power station ‘Ismayilli-1’ built near Sumagalli village of .” August 14, 2013. en.president.az/articles/8979 (accessed on January 5, 2014). 61 1NEWS.AZ. www.1news.az/economy/20130913023500799.html (accessed on January 6, 2014). 62 Official website of the president of Azerbaijan. “Ilham Aliyev attended the opening of the Takhtakorpu water reservoir, the Takhtakorpu hydro power plant and the Takhtakorpu-Jeyranbatan water canal built in Shabran District.” September 28, 2013. en.president.az/articles/9441 (accessed on January 5, 2014). 63 J. Malikov. “Alternative and renewable energy sources in Azerbaijan. The legal framework, investments and prospects.” Presentation. Kiev, October 17, 2013. 64 UNDP. Technical assistance for promoting small hydropower in Azerbaijan. Final report. Baku, 2009. 65 greenazerbaijan.org/ (accessed on January 11, 2014). 66 PV Magazine. “Azerbaijan to map out its solar and wind capacity.” August 30, 2013. www.pv- magazine.com/news/details/beitrag/azerbaijan-to-map-out-its-solar-and-wind-capacity_100012563 (accessed on January 11, 2014).

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67 ifcext.ifc.org/IFCExt/pressroom/IFCPressRoom.nsf/0/76B0A3E5960D8CAD85257B86005097BB (accessed on January 9, 2014).

Units of measurement ktoe thousand tons of oil equivalent Mtoe million tons of oil equivalent W watt kW kilowatt MW megawatt GW gigawatt kWh kilowatt-hour MWh megawatt-hour GWh gigawatt-hour TWh terawatt-hour TJ terajoule PJ petajoule

32 Georgia

Key country data (2011)1

Population (millions): 4.48

GDP: USD 14.43 billion

GDP per capita: USD 3,220

TPES: 3.54 Mtoe

Share of renewable energy in TPES: 28.3 percent

Country overview

Georgia faced serious political and economic difficulties during the first decade after it declared its independence in 1991. In 2003, the country was characterised by a weak economy (real GDP was at about 40 percent of the 1989 level), poor governance and weak public finances2. The Rose Revolution, which took place in November 2003, prompted a series of ambitious reforms that were implemented by successive governments. In the economic sphere, the reforms were focused on improving the legal and regulatory framework for doing business, reducing administrative burdens, combating corruption, simplifying the tax system, and completing major privatisation initiatives. The resulting improvements led to a substantial inflow of foreign investments (Figure 1), which became a driver of strong economic growth.

In 2008, Georgia faced two serious external shocks: the Russian–Georgian conflict in August; and the effects of the global financial crisis. Figure 1. Foreign direct investment in Georgia, However, the country’s economy demonstrated net inflows, USD million (Source: World Bank Data) remarkable resilience, which was a result of the reforms and substantial aid from foreign partners3. After some economic contraction in 2009, Georgia had already returned to a growth track in 2010, when GDP grew 6.3 percent.

33 As a result of the reforms, at the end of 2012 Georgia entered the top 10 in the World Bank’s Ease of Doing Business ranking: from ninth globally in 2012, it is currently eighth in the ranking.4

The situation in the energy sector at the beginning of the 2000s reflected the overall state of the economy. Many power plants were idle due to lack of maintenance and a significant proportion of the installed capacity was not being used. The country was facing serious energy shortages and frequent blackouts. The electricity sector experienced substantial “non-technical” transmission and distribution losses due to theft and bad administration practices. Bill collection rates were at a level of 15 to 20 percent. Companies in the energy sector had no financial resources for investments, and sometimes not even for day-to-day operations. District heating systems in cities stopped functioning, forcing residents to turn to local heating solutions based on electricity, firewood, kerosene or gas. This led to an increased burden on the already overstretched electricity system and the unsustainable use of the country’s forest resources.5

Measures taken since then in the context of broader reforms have helped to address these problems. The bill collection rate, for example, had increased to 95 percent by 2008, and distribution losses decreased substantially.6 A number of rehabilitation projects have been implemented at power plants, although further rehabilitation and upgrading remains an important objective. The reliability of power and heat supply has been restored.

Georgia’s power sector has been unbundled into generation, transmission and distribution. At present, an independent regulator establishes tariffs for power transmission, distribution and generation (for regulated producers). Small power plants (with an installed capacity below 13 MW) and power plants built after 2008 are able to sell electricity at deregulated prices.

34

Figure 2. Total primary energy supply in Georgia (Source: IEA Statistics)

According to International Energy Agency (IEA) statistics, in 2011 Georgia’s total primary energy supply (TPES) amounted to 3,543 ktoe. Of that amount, 1,117 ktoe , or about 32 percent, was sourced domestically. Since the country has almost no fossil fuel resources, 89 percent of the domestic component, or 28 percent of the TPES, was produced from renewable energy sources (RES) — mainly hydropower and biomass, but also geothermal energy. Hydropower accounted for 19 percent of TPES, while biomass, used mainly for heating in the residential and commercial sector, accounted for 8 percent. Geothermal energy, also used for heating, accounted for 0.25 percent of TPES, or 0.9 percent of its renewable-based component. Almost all fossil fuel resources consumed within the country are imported. Serious import dependence makes energy security a pressing concern for the country, putting the development of domestic energy resources, represented mainly by RES, high on the national agenda.

According to the Electricity System Commercial Operator (ESCO), the balancing supplier in the national electricity market, in 2013 Georgia produced 10,058 GWh of electricity. Some 82 percent of that amount was produced by hydropower plants (HPPs), while the remaining 18 percent was produced by gas-fired thermal power plants (TPPs).

A distinct feature of Georgia’s power sector is its seasonality. In the summer, local HPPs are able to fully meet domestic demand and even produce surplus electricity. However, in the autumn and winter, when electricity demand increases, the output of HPPs declines. This is a result of the limited reservoir capacity of Georgia’s

35 power plants, which is equivalent to 10 percent of annual generation, compared to some 70 percent in Norway and 50 percent in Sweden7. The country’s three gas-fired TPPs help offset the deficit during this period, but their output is not sufficient. Thus even in years when Georgia is a net power exporter (as it has been most years since 2007), it still has to import some electricity in the autumn and winter. Net exports of 460 GWh in 2011, for example, represented the difference between exports of 930 GWh and imports of 470 GWh.

Figure 3. Seasonal pattern of electricity generation and consumption in Georgia (Source: ESCO, 2013)

The government’s approach to addressing this problem is to promote the construction of new HPPs by private investors (see “Policy instruments” section for more details). It is supposed that in the winter the output of the new plants will be used to meet domestic demand, while for the rest of the year they will be able to export electricity to Turkey, taking advantage of its high electricity prices. Turkey is a promising export destination for Georgian electricity: it has one of the highest electricity tariffs in the region, its peak demand in the summer (attributable to the use of air conditioners, among other factors) coincides with the peak of supply in Georgia, and its power consumption is projected to grow rapidly in the coming years8. However, the insufficient capacity of transmission lines between the two countries can be a limiting factor in this regard. This determined the importance of the Black Sea Power Transmission project, which provided for the construction of a high-voltage direct current (HVDC) transmission line between Georgia and Turkey. The project, supported by a number of European financial institutions, was completed at the end of 2013.9

36 According to some projections, by 2017 Georgia will be able to export up to 5 TWh of electricity per year (its current power output is about 10 TWh/year).10

Georgia is a regional energy hub, playing an important role in the transit of Caspian hydrocarbon resources (particularly from Azerbaijan) and at the same time striving to become a significant electricity exporter in the region.

Institutional setting

Government authorities

The Ministry of Energy of Georgia is responsible for the formulation of the country’s energy policy and for overseeing its implementation. This includes state policy with regard to energy efficiency and RES. One statutory objective of the ministry is to promote the use of renewable energy. The ministry plays a central role in the implementation of the key national initiative in the field of renewable energy — a programme for the construction of new private HPPs.11

Unlike other members of the GUAM Organization for Democracy and Economic Development, Georgia does not have a separate renewable energy agency. The Ministry of Energy contains the Energy Efficiency and Renewable Energy Division, a second-level unit subordinate to the Energy Department.12

The Ministry of Environmental Protection is responsible for establishing, promoting and implementing policies and strategies for environmental protection, including nature protection and forest management. Among other activities, it is responsible for approving projects on the basis of environmental impact assessment materials. It also plays an important role in the formulation and implementation of Georgia’s climate policy, being responsible for the preparation of national communications to the UNFCCC and as the designated national authority for the Clean Development Mechanism of the Kyoto Protocol. The ministry has participated in international projects aimed at the promotion of RES in Georgia.13

The Georgian National Energy and Water Supply Regulatory Commission (GNEWRC) is an independent body responsible for the regulation of the electricity, natural gas and water supply sectors of Georgia. Among other activities, it grants licences and establishes tariffs for electricity generation (for regulated producers), transmission and distribution.14

State-owned companies

The Electricity Commercial System Operator (ESCO) is a market maker and balancing supplier in Georgia’s power market.15 It may sign guaranteed power purchase agreements with renewable-based power producers. In the winter, it purchases energy from deregulated producers.

37 The Georgian Energy Development Fund (GEDF)16 is a company wholly owned by the state and created to support the development of projects in the energy sector of Georgia.

Its core activities include17:

• developing, jointly with private investors, projects with an exit option for the GEDF at various development stages; • identifying and analysing potential greenfield HPPs and other types of renewable energy projects; • financing the development of identified projects; • attracting financing for the implementation of projects; and • promoting investment projects in the energy sector.

The GEDF has participated in 10 hydropower projects and one wind-based generation project with a total installed capacity of up to 200 MW.

Centres of expertise

The Laboratory of Renewable Energy at the Tbilisi-based Georgian Technical University18 opened in 2011 with support from international and domestic sponsors.19 The university’s Faculty of Power Engineering and Telecommunications contains the Department of Thermal and Hydropower Engineering

Winrock International, a non-profit organisation, has participated in the implementation of a number of projects financed by the United States Agency for International Development (USAID) in Georgia, including energy efficiency and renewable energy projects.

World Experience for Georgia (WEG)20 is an independent think tank established to support Georgian society’s progress towards democracy based on a free market and on the adoption of European Community standards. Energy and environment are among the organisation’s priorities: it has participated in a number of projects related to RES and to the development of energy polices and strategies.

The Energy Efficiency Centre21 was created in 1998 within the framework of a project supported by the EU. The centre has participated in the implementation of a number of energy efficiency and renewable energy projects in the country. It is a member of several international networks, including the World Renewable Energy Network (WREN), the European Small Hydropower Association (ESHA), and the International Network on Small Hydropower.

The company ABG & Profservice Group22 offers various types of energy equipment, including solar systems and biomass boilers. The company Solar Energy Georgia23 deals with the design, installation and maintenance of solar photovoltaic and thermal systems.

38 Renewable energy policies

Primary and secondary legislation

The Law on Electricity and Natural Gas is the key piece of legislation in Georgia regulating the country’s energy sector. The law, which was adopted in 1997, has been amended many times and currently incorporates elements of energy sector regulation and market rules in line with EU principles.24 It defines the functions and responsibilities of two important entities: the Georgian National Energy and Water Supply Regulatory Commission (GNEWRC), and the ESCO in the national electricity market. The objectives of the law include promoting the use of indigenous hydro energy and other renewable and alternative energy sources. According to the document, one of the principles of state policy with regard to the power and gas sector is to promote the growth of energy resources production with priority use of renewable (alternative) energy sources and supporting energy efficiency actions. The law defines small power plants (including small HPPs) with an installed capacity of 13 MW or less as a special category of power plants in Georgia.

The Main Directions of the State Energy Policy of Georgia were approved in 2006 by a resolution of the Parliament of Georgia. The document sets out the key objectives, priorities and principles of Georgia’s energy policy. The principal energy policy goal is defined as meeting the energy needs of final customers securely through the diversification of energy sources and the achievement of economic independence, and by ensuring the sustainability of the sector, taking into account technical, economic and political realities.25 Specific objectives of the energy policy include26:

• the full satisfaction of customer demand for electricity by the maximum possible utilisation of local hydropower resources, initially with the help of imports, and, eventually, by substituting these with thermal generation; and • the development of alternative energy sources (wind, solar and geothermal), taking into account Georgia’s specific circumstances.

The document defines several priorities for the state energy policy together with specific related measures. One of the measures associated with the priority “increasing energy efficiency” is to research and implement the necessary measures for the introduction of cogeneration systems and the utilisation of RES. Measures associated with the priority “energy security” include the rehabilitation of existing HPPs and the construction of new ones.

The overall approach set out in the document implies the broad use of market mechanisms and the creation of a favourable business environment to attract private investments. The key elements of that approach include privatisation, the simplification of licensing and other administrative procedures, as

39 well as the gradual liberalisation and deregulation of the electricity market. In particular, new HPPs commissioned since 2007 would be able to sell electricity at deregulated prices.27

According to the resolution, the key provisions of state energy policy were supposed to be given expression through legislative and normative acts, the implementation of state programmes and state- funded projects, participation in international actions, privatisation and other actions consistent with Georgian legislation.28

On April 18, 2008, the Government of Georgia adopted Resolution No. 107 on the Approval of the National Programme “Renewable Energy 2008” — Regulation for the Construction of New Renewable Energy Sources in Georgia. The document defines the procedure for initiating and implementing renewable energy projects in Georgia, the content of associated memoranda of understanding, and the format of an application form. Its objective is defined as “supporting the construction of new RES in Georgia by means of attracting investments”.29 The document does not contain renewable energy targets or a national action plan in the field.

According to Resolution No. 107, investors are allowed to build, operate and own renewable-based power plants in Georgia.30 The Ministry of Energy maintains a list of potential RES on its website, and investors are able to choose projects from the list. If several investors express an interest in a particular project, preference is given to the investor offering the greatest financial guarantee or the shortest construction period. The mutual obligations of the government and the investor are set out in a memorandum of understanding (MoU).

Investors are required to submit a bank guarantee of USD 170,000 for every MW of projected installed capacity. For 10 years after the commencement of a power plant, during three months of every winter season the entire plant output must be sold on the Georgian domestic market to any buyer at a freely negotiated price, or to the ESCO on the basis of a guaranteed power purchase agreement at a price specified by the agreement. During the remaining period, the plant operator is free to sell or export the output without any restrictions.31 The procedure described in the document does not apply to power plants (or HPP cascades) with an installed capacity below 1 MW or above 100 MW.

Resolution of the Government of Georgia No. 214 of August 21, 2013, on the Approval of Rules for Expressing Interest in Conducting Technical and Economic Feasibility Studies for the Construction, Ownership and Operation of Power Plants in Georgia effectively replaces Resolution No. 107 for new power plant projects.32 The new resolution somewhat modifies the approach introduced by the 2008 resolution. In particular, investors are required to sell 20 percent of the plant’s annual output to ESCO on the basis of a power purchase agreement for 10 years after the commencement of the plant (presumably during winter months). Other differences deal with procedural issues:

40 • In addition to maintaining a list of potential power plants, the Ministry of Energy issues calls for expressions of interest in relation to individual plants in the list. The call, which defines the basic parameters of a given project, may be issued on the ministry’s own initiative or at the request of an interested investor. • To apply for a project, an investor is required to provide a pre-construction bank guarantee (USD 5,000 for each MW of the plant’s installed capacity). If there are several applications, the winner is selected on the basis of the lowest price for the power purchase agreements. An MoU is signed with the winner. • The winner is required to provide a construction guarantee of USD 100,000 per MW of installed capacity for plants or cascades with an installed capacity of up to 100 MW; and of USD 50,000 per MW for plants or cascades with an installed capacity above that level.33

International agreements and commitments

Georgia has been an observer to the Energy Community since 2007. The Treaty establishing the Energy Community is an agreement intended to expand the EU’s regulatory framework for energy markets to a number of neighbouring countries. In January 2013, Georgia applied for full membership in the Energy Community. Member countries commit to implement a number of EU acquis communautaires with regard to energy, one of them being the acquis for renewables defined by the EU’s key directive on renewable energy, Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC. They are also committed to bringing into force the laws, regulations and administrative provisions necessary to comply with Directive 2009/28/EC (with some adaptations). When Georgia enters the community, it will have to adopt a mandatory target for the share of energy from renewable sources in gross final energy consumption in 2020. It will also have to develop a national renewable energy action plan defining renewable energy targets for specific sectors (electricity, heating and cooling, and transportation) and adequate measures to achieve those targets.

Georgia is a party to the UNFCCC and its Kyoto Protocol. As a non-Annex 1 country, it does not have binding emissions reduction targets, but it is still committed to reducing its greenhouse gas emissions, and the development of RES can be one of the means towards that end. The country has access to the Clean Development Mechanism (CDM) — one of the Kyoto flexibility mechanisms — which allows it to receive financing from Annex I countries for achieved emissions reductions. As of the end of 2013, there were seven registered CDM projects in Georgia, including five hydropower projects and a landfill gas project. Another hydropower project was at the validation stage.

41 Georgia is a partner to the EU’s European Neighbourhood Policy (ENP). The ENP Action Plan for Georgia was adopted in November 2006 at a meeting of the EU–Georgia Cooperation Council.34 The plan was supposed to cover a timeframe of five years, but no other plan was adopted at the end of that period. Among other things, the plan included actions related to RES:

Progress on energy efficiency and the use of RES

• Take steps to develop an action plan, including a financial plan for improving energy efficiency and enhancing the use of renewable energy. • Adopt legislation addressing energy efficiency and renewable energy. • Reinforce the institutions dealing with energy efficiency and RES. • Implement a set of measures in this area.

Policy instruments

The main element of Georgia’s current policy with regard to the promotion of RES is a programme for attracting private investment in the construction of power plants, and primarily HPPs. Investors are offered greenfield projects based on the build-own-operate principle. They are offered projects from a list compiled by the Ministry of Energy and are also invited to come up with their own project ideas.

The key principle of the programme’s approach is the simplification and streamlining of administrative procedures.35 In particular:

• The number of required licences and permits has been minimised. Small power plants (with an installed capacity below 13 MW) do not require a power generation licence. • Investors are able to choose the market for selling the electricity produced (except during the winter months, when they are required to sell the electricity within Georgia). Small power plants have the right to sell electricity directly to retail customers. • New power plants built after August 2008 and small power plants are able to sell electricity within the country and export it at deregulated tariffs. • No licence is required for power exports.

In addition, the following measures apply:

• Investors acquire or rent state-owned land for their projects at a nominal price. • Power plants are able to sign a guaranteed power purchase agreement with ESCO for the winter months, when they are required to sell electricity within the country. • Investors are offered priority access to the Georgia–Turkey transmission line.

42 The government also provides co-financing for some projects through state-owned companies — the Georgian Energy Development Fund (GEDF) and the Partnership Fund.

As a result of these measures, a large number of projects have been initiated. The website of the Ministry of Energy lists 32 investment projects at the construction and licensing stage and 33 projects at the feasibility study stage. The total planned installed capacity of these projects is over 2,400 MW, which is roughly equivalent to 75 percent of the installed capacity currently available in the country. The overall estimated cost is over USD 3 billion. Construction work has started on 16 power plants. Total investments in the construction of power plants amounted to USD 204 million in 2011 and USD 180 million in 2012.36

Almost all ongoing power plant projects are HPPs. The ministry’s list includes only three wind farms out of 65 plants. Presumably, existing policy instruments and market prices are not sufficient to justify significant investments in RES other than hydro. (For more details, see the section on wind energy below.)

Georgia does not have a system of feed-in tariffs for renewable-based electricity. Investors may be offered guaranteed power purchase agreements at a fixed price with ESCO, but these agreements cover only the winter season when power plants are required to sell electricity within the country, and the price is determined on an individual basis.

There are no fiscal incentives for renewable energy projects. The purchase and/or import of materials, equipment and services necessary for renewable energy projects is subject to regular taxes. The imported materials and equipment are also subject to regular customs duties.37 Some fiscal incentives were envisioned in the old Tax Code, which was in force until January 2005. According to one provider of small-scale solar power systems, the elimination of these incentives resulted in a price increase of 30 to 40 percent.38

Municipal initiatives

In April 2010, Tbilisi, the capital city of Georgia with a population of almost 1.5 million, joined the Covenant of Mayors, a European movement involving local and regional authorities making a voluntarily commitment to improve energy efficiency and increase the use of RES on their territories.39 Participants in the initiative are committed to reducing CO2 emissions in the areas under their jurisdiction by at least 20 percent by the year 2020 through the implementation of a sustainable energy action plan (SEAP) for the respective areas. According to the Covenant of Mayors, the promotion of the use of RES is an important task of regional and local governments.

Tbilisi City Hall approved the SEAP for the city in March 2011.40 Full implementation of the plan is intended to result in the reduction of the city’s greenhouse gas emissions by 25 percent by the year 2020. According to the document, the City Hall acknowledges its role as the main administrative driving force for all activities related to energy consumption and the use of renewable energy in transport, buildings and municipal infrastructure that cannot be implemented without municipal support. The plan envisions

43 increasing the share of renewable energy in heating. The process is due to start in public buildings controlled by municipal authorities and then be replicated in other public buildings and the residential sector. Specific actions include the installation of efficient boilers using bio-waste briquettes (a pilot project is intended to include at least 10 municipal buildings), and the installation of solar collectors in the municipal and residential sectors. The plan also envisions increasing the share of renewable energy in the outdoor lighting sector.

Renewable energy potential

According to the Government of Georgia, the overall achievable potential of RES in Georgia (excluding large hydro) is 16 to 17 TWh/year41 (Table 1).

Table 1. Estimates of the achievable renewable energy potential in Georgia (excluding large hydro), GWh/year Source Potential Small hydro 5,000 Wind 5,000 Biofuels 3,000–4,000 Solar 60–120 Geothermal 3,000

Wind

Average wind speed in the different regions of Georgia varies between less than 2.0 m/s and 9.0 m/s. The highest wind speed is detected in the gorges of high mountain ranges. However, these places are typically hard to access and in many cases cannot be used for wind farm construction.42 Significant wind energy potential is available in the highlands of southern Georgia (Javakheti region), and the southern part of the Black Sea coast.

In 2004, the Scientific Wind Energy Centre Karenergo produced the Wind Energy Atlas of Georgia.43 According to Karenergo, the overall technical wind energy potential available in Georgia is around 2,000 MW of installed capacity and around 5 TWh/year in terms of power output.44 The national Ministry of Energy provides an estimate of about 4 TWh/year.45 This can be compared to the total installed capacity of power plants in Georgia (around 3,000 MW and their output (8–9 TWh/year).

The Government of Georgia46 has identified several sites for potential major wind farms (Table 2). The most promising site is located in the Likhi Mountains in central Georgia.

44 Table 2. Selected potential sites for the development of wind energy projects Location Installed capacity (MW) Annual output (GWh) Likhi 630 2,000 Kutaisi 150 340 Gori 200 480 Tskhratskaro 100 260 Djvari 30 75

Different locations in Georgia have different seasonal profiles in terms of wind energy potential. In some of them, most energy is available in the winter. The construction of major wind farms in such locations can make an important contribution to compensating the “winter generation gap” (see Country overview above). According to some estimates, the construction of wind farms with a total installed capacity of 1,270 MW, rather than the three planned major HPPs (with a total installed capacity of 1,661 MW), by 2020, would allow the country to fully meet its demand for electricity throughout the year. 47 While this number does not seem realistic, given the current state of development of wind energy in Georgia, wind farms can definitely contribute to addressing the issue.

Solar

In Georgia, the annual number of sunny days is over 250; and the average annual number of hours of sunshine is over 2,000. According to data provided by the company Sun House, the average daily amount of solar radiation is between 3.5 kWh/m2 and 5.3 kWh/m2, depending on the region. The largest solar energy potential is available in mountain areas in the north and south of the country. The overall economic energy potential is estimated as 60–120 GWh.48

Bioenergy

Georgia has a significant rural population, representing 47 percent of the total population. 49 Agricultural land accounts for some 35 percent of the total land area, while forests cover 39.4 percent of the total land area. Potential sources of bioenergy include crop and animal farming residues, municipal waste, sewage treatment residues, and wood (Table 3). Overall, the country has major bioenergy potential: the report Renewable Energy Potential in Georgia estimates total biomass potential at 12.5 TWh/year. Bioenergy can be an important source of local heat supply in rural areas of the country.

45 Table 3. Energy potential of different types of biomass in Georgia (TWh/year) (Source: Renewable Energy Potential in Georgia) Source Potential Residues from corn and legume cultures 1.3 Residues from cattle farming and 6.9 poultry breeding Domestic residues 0.6 Residues from sewage water cleaning 1.0 stations Forest residues 2.7 Total 12.5

Hydro

There are 26,000 rivers in Georgia, including over 300 rivers with considerable energy potential. The technically achievable hydro energy potential is estimated at 90 TWh/year, while the economic potential is about 50 TWh/year.50 Less than 20 percent of this potential is currently being used. The technically achievable potential of small HPPs is estimated at 19.5 TWh/year, and about 70 percent of this amount is available in West Georgia.51 The economic potential of small hydro is about 5 TWh/year.52

Geothermal

Georgia has significant geothermal resources, particularly thermal waters. Their use for heating dates back to the 1950s. Georgia’s thermal water reserves are estimated to amount to 0.96 to 1 million m3/day. Over 80 percent of known geothermal resources are available in the west of the country.53 Georgia’s total geothermal energy potential is estimated at 3 TWh/year.54 According to some estimates, geothermal energy can be used for centralised heat supply in several Georgian cities, including Khobi (capacity of 1.2 MW), Senaki (11 MW), Samtredia (5 MW) and Vani (5 MW).55 Typically, geothermal wells show a declining yield, thus water reinjection is important for their sustainable use. The use of meters and insulated piping can also improve the efficiency of geothermal resources use.

Current and planned use of renewable energy sources

As noted above, in 2011 RES accounted for 28 percent of Georgia’s TPES, or 1,003 ktoe.56 Hydropower represented 67.7 percent of that amount; biomass used for heating in the residential and commercial sector 31.7 percent; and geothermal energy also used for heating 0.9 percent.

At present, Georgia does not have official targets for the use of renewable energy.

46 Wind

To date, no significant wind energy projects have been implemented in Georgia. Media reports mention a single wind turbine in the village of Skra, sponsored by USAID.57 The turbine produces 22 kWh/year, supplying two households with electricity.

In May 2011, an MoU was signed on the planned construction of a wind farm in the Samtskhe- Javakheti region, near Lake Paravani.58 According to this MoU, Wind Energy Investment, a company based in the Czech Republic, intended to build a wind farm with an installed capacity of 50 MW at a cost of about EUR 70 million. Like HPPs, the plant will be required to sell all electricity produced during three winter months within the country. There is an option to conclude a guaranteed purchase agreement with ESCO, which would purchase the electricity produced during those three months at a fixed rate of USD 0.05/kWh. For the rest of the year, the company is free to sell electricity to any domestic or foreign entity at any price.

According to the MoU, the company had to obtain a construction permit and start construction by May 1, 2013. It must complete the construction and start supplying power to the grid by November 1, 2014. No reports of the actual construction were found during the preparation of this study, so it is unclear whether implementation has started within the specified timeframe.

In 2012, an MoU on the conducting of a feasibility study for two wind power projects was signed with the Ukrainian company Green Apex59.

In May 2013, Minister of Energy Kakha Kaladze announced plans to build a pilot wind farm with an installed capacity of 20 MW in Kartli region. The project is supposed to be financed by the state-owned GEDF. In November, it was announced that the site had been selected and that an environmental assessment had been carried out. Construction is due to start in 2014. Kaladze stated that it would be possible to expand the plant to 150 MW, although this should be funded by private investors.60

On December 18, 2013, an MoU was signed between the Ministry of Energy and the American company Aeolus Apollo Alto Energy. The parties agreed to establish a joint venture with an 85 percent interest held by Aeolus Apollo and a 15 percent interest held by the GEDF. The new company will implement solar and wind energy projects in Georgia with a total installed capacity of up to 400 MW.61

The existing level of tariffs in Georgia’s electricity market may not be high enough to justify the construction of substantial wind-based generating capacities. According to a 2008 study by the Organization for Economic Co-operation and Development (OECD)/International Energy Agency (IEA)62, by 2005 no country with a rate for wind-based electricity below USD 0.07/kWh had witnessed the substantial deployment of the onshore wind sector. Typical rates in countries with a favourable investment climate, low administrative and regulatory barriers, and relatively favorable grid access

47 conditions were between USD 0.09 and 0.11/kWh. In Georgia, MoUs that include provisions for guaranteed power purchase by ESCO typically set a fixed price of around USD 0.05/kWh. This is also close to the price at which ESCO purchases electricity from deregulated power plants in the winter months.63 The maximum tariff in Turkey is around USD 0.09/kWh64, but it is not available throughout the year. Additional incentives to attract private investments in the wind generation sector may therefore be necessary. In this context, it is also not surprising that the Kartli project, which will presumably be the first wind project in Georgia to come online, is financed by the government through the GEDF.

Solar

No major solar energy projects have been implemented in Georgia to date. Small-scale solar power systems are currently used to provide hot water and power at the level of individual buildings and households. Georgia has over 100 small, remote villages that are not connected to the grid. They are typically situated in mountainous areas where the biggest solar energy potential is available, making solar power systems a natural solution for power supply in those villages. Solar power systems are also being installed in remote monasteries and protected areas. According to the company Sun House, by October 2013 there were a total of over 400 off-grid solar power systems with a total peak capacity of about 100 kW (see Figure 4 for growth between 2000 and 2011). The largest initiative for the installation of small-scale solar power systems in Georgia was the project Renewable Energy for Remote Areas of Georgia – Solar Energy in Thusheti, sponsored by the Czech Development Agency and implemented in Tusheti National Park in the east of Georgia.65 The project involved the installation of photovoltaic (PV) panels and solar heating systems in households and family hotels. The households received PV systems with a capacity of 360 W, and the hotels received systems with a capacity of 900 W. The total peak capacity of all PV systems installed under the project amounted to 36 kW.66

Figure 4. The number and total capacity of solar installations in Georgia (Source: Sun House)

48 In September 2013, it was reported that plans for the construction of Georgia’s first grid-connected solar farm in the community of Sagarejo were being considered, and the respective MoU was being drafted.67 The cost of the project, backed by Azerbaijani investments, would amount to USD 200 million.

Bioenergy

According to IEA statistics (2011), biomass consumption in Georgia amounts to 315 ktoe/year. This represents 8.9 percent of the TPES supply and 10.3 percent of the total final energy consumption in Georgia. Most of this amount is consumed in the residential and commercial sectors. Biomass meets some 28 percent of the total energy demand in the residential sector. Most of this amount is reportedly represented by firewood, typically burnt in inefficient stoves. During the economic difficulties of the early 2000s, the consumption of firewood was even higher. According to the IEA, in 2002 total biomass consumption in Georgia was 645 ktoe, of which 597 ktoe (or almost 7 TWh) was consumed in the residential sector. This represented almost 60 percent of energy consumption by households. As is often the case, official statistics may underestimate biomass consumption in the residential sector. The report Renewable Energy Potential in Georgia (published in early 2008) cites estimates according to which the household consumption of firewood in a number or previous years amounted to 22 TWh/year. This is equivalent to cutting 8 million m3 of forest annually. This level of wood consumption was dangerously unsustainable. The same report estimates the sustainable level for the use of forest resources to be 2.7 TWh/year. Although there are good reasons to believe that the use of firewood in the residential sector has decreased in recent years with the improved supply of natural gas and electricity to households, it probably remains at an unsustainable level. The transition to more efficient heating systems in the residential and commercial sectors, and to modern biomass, is therefore a priority.

The country currently has no infrastructure for the production and use of modern biomass. Ongoing projects in this area remain at the pilot level. Since the 1990s, a number of international donors have supported the installation of biogas reactors in rural households. Over 400 reactors have been installed, most of them low-tech units characterised by non-stable seasonal working regimes and low-level biogas production intensity (0.2–0.3 m3/day of biogas from 1 m3 of bioreactor volume).68 However, a number of more efficient reactors (3–4 m3/day of biogas from 1 m3 of bioreactor volume) were also installed. Many of these units are reported to have been abandoned by householders, who returned to the conventional use of firewood. However, it is believed that the better enforcement of forest management rules in recent years can make biomass digesters a more attractive option.

Between 2005 and 2009, several biomass digesters were installed in rural communities under the USAID-supported Rural Energy Programme.69 All digesters surveyed during the final evaluations

49 remained in operation two years after their installation. However, it was found that, given the high cost of the initial investment, such biodigesters were not economically feasible in Georgia without a significant subsidy and/or serious cost reduction.

The United Nations Development Programme (UNDP) is currently implementing the project Promotion of Biomass Production and Utilisation in Georgia70, which involves, among other activities, the construction of a pellet plant in Tbilisi and the installation of efficient biomass-based boiler systems in 10 municipal buildings. It is supposed that these activities will be co-financed by municipal authorities and local investors.

One project supported under the Georgian Energy Efficiency Programme (GEEP), funded by a number of international donors through the European Bank for Reconstruction and Development (EBRD) is the installation of a biogas digester and a combined heat and power (CHP) unit at a poultry farm.71 The digester is supposed to process about 50 tons of chicken manure per day, with the resulting biogas being used to produce electricity and heat (2,500 MW/year and 2,700 MW/year respectively). This would fully meet the energy demand of the farm. The total cost of the project is about USD 1.8 million. It is unclear whether the project has actually been implemented.

Hydro

By far the biggest share of electricity in Georgia is produced by HPPs. In 2013, Georgia’s HPPs produced 8,271 GWh of electricity, or some 82 percent of the total power production in the country. In 2010, when more water was available, the respective figures were 9,367 GWh and 93 percent.72

In 2004, at the beginning of the period of reforms, three out of 12 major HPPs in Georgia were idle due to deterioration and lack of maintenance. Many HPPs, including Enguri HPP, required urgent rehabilitation. Small HPPs, inherited from the Soviet period, were also in poor condition. Only 59 percent of the available installed capacity in the hydropower sector was being used.73

In subsequent years, a number of rehabilitation projects were implemented in the country’s HPPs, many of them supported by international donors. As a result, the output of HPPs increased by 43 percent between 2004 and 2010/2011.74

According to ESCO, at the end of 2013 there were 18 large and medium-sized HPPs in Georgia with a total installed capacity of 2,500 MW, the largest of them Enguri HPP (1,300 MW). Depending on the year, Enguri HPP generates between 32 percent and 42 percent of all electricity produced in the country.

There are also 44 small HPPs in the country (according to the national definition these are plants with an installed capacity below 13 MW). Their total installed capacity is about 128 MW. Between 2007 and

50 2010, the total annual output of small HPPs grew from 107.5 to 317.0 GWh as a result of rehabilitation measures and the commissioning of new plants. Since then, their output has varied between 267 and 329 GWh (Figure 5). In 2013, small HPPs produced 328.9 GWh, or 3.3 percent, of the total power in the country.

As described above (in the section “Policy instruments”), the Government of Georgia has been implementing a programme to promote the construction of new greenfield power plants. The website of the Ministry of Energy lists MoUs for 32 power plants at the licensing or construction stage with a total installed capacity of 1,735 MW and an expected annual power output of 5,735 GWh.75 Most plants have planned commissioning dates between 2014 and 2020. All plants in the list are HPPs, with the exception of one wind plant (see above). The largest project in the list is Khudoni HPP (702 MW), which is due to be built on the river Enguri by the Indian company Trans Figure 5. Output of small HPPs in Georgia Electrica Ltd. The estimated cost of the project is USD (Source: ESCO) 777 million and the plant is expected to be opened in 2020. Out of the 32 in the list, 15 are small plants. There are also 33 plants at the feasibility study stage: for many of them, specific project parameters and construction dates have not yet been determined.

The list of potential HPPs available on the website of the Ministry of Energy76 includes 72 plants with an installed capacity ranging from 1 MW to 670 MW. Their total installed capacity is around 2,500 MW. Forty plants included in the list are small ones (below 13 MW).

The power plants envisioned under the programme have already started to come online. The new Bakhvi 3 HPP, with an installed capacity of 9.8 MW, was commissioned in December 2013. The cost of the project was about USD 13.5 million and the respective MoU was signed in May 2009.77 In January 2014, the medium-sized Larsi HPP, with an installed capacity of 19 MW, was commissioned (the MoU was signed in May 2011).78 However, not all projects have progressed smoothly. In 2009, a consortium led by Korea Electric Power Corporation and the Turkish company Nuroli signed an MoU for the construction of one of the largest projects offered by the ministry — the Namakhvani cascade of three power plants with a total installed capacity of 450 MW. The estimated cost of the project was about USD 1 billion. However, in the subsequent years both key players left the consortium.79 As a result, the

51 government decided to put the project on hold, following criticism by local NGOs, and to request additional studies.

Geothermal

At present, there are up to 250 natural springs and artificial wells of thermal water with water temperatures of between 30 and 108ºC. Their total withdrawal amounts to 160,000 m3/day (58 million m3/year). 80 In Tbilisi, the local company Geothermica uses geothermal resources to supply residential buildings with hot water. In 2007, it supplied around 100 buildings withdrawing 4,000 m3 of water per day.

International organisations, programmes and projects

International financial institutions have played an important role in the recovery and subsequent development of Georgia’s energy sector. The EBRD, together with other institutions, provided funds for the rehabilitation of Enguri HPP — the largest HPP in Georgia — and continues to finance rehabilitation activities. The German development bank KfW provided loans for the rehabilitation of small HPPs. Later, in 2012, it signed a loan agreement worth USD 32 million with a Georgian bank. The funds are supposed to be used primarily for the construction of small HPPs.81

The UNDP/GEF project Georgia – Promoting the Use of Renewable Energy Resources for Local Energy Supply was implemented between 2004 and 2012.82 The project included components focusing on small HPPs and the use of geothermal resources for heating in Tbilisi.

USAID has implemented a number of successive projects and programmes aimed at facilitating the development of the renewable energy sector in Georgia. The Georgia Rural Energy Program83 (2005– 2009) focused on the promotion of RES — particularly hydropower and biomass — in rural areas of the country. The Hydropower Investment Promotion Project (HIPP)84 , focusing specifically on the hydropower sector, was implemented in 2010–2013. The project was intended to support the government programme for the promotion of private investment in the construction of greenfield HPPs. Project activities included developing quality engineering and technical information; providing targeted and effective investor outreach and promotion; as well as supporting institutional strengthening and capacity building. One outcome of the project was the preparation of the draft Renewable Energy Law. At the end of 2013, the follow-up Hydro Power and Energy Planning Project (HPEP) was launched in order to continue supporting market-based initiatives in Georgia aimed at facilitating investment in the hydropower sector.85

52 Energocredit86 is one of the EBRD’s sustainable energy financing facilities (SEFFs), a credit line worth USD 35 million, which was opened in 2007. Loans for energy efficiency and renewable energy projects are extended to both businesses and households through local banks. There are three main types of loan products: corporate loans (up to USD 2.5 million); SME equipment loans (up to USD 200,000); and loans for households. After the completion of the project, household borrowers receive a subsidy worth 10 percent of the loan amount. To streamline the process, some types of equipment have been pre- approved for financing with SME and household loans. These include a line of biomass digesters produced in Georgia. The borrowers receive technical assistance (including an energy audit) under the Georgian Energy Efficiency Programme financed by a number of international donors. According to the programme’s website, USD 10.7 million worth of loans have been provided so far.

Gaps and recommendations

Georgia does not currently have a law, strategy or programme dedicated specifically to RES.87 It is recommended to develop and adopt a law on RES. The draft law developed under USAID’s Hydropower Investment Promotion Project can be used in this process. The law can define a range of policy instruments for the promotion of renewable energy (see below).

Unlike other GUAM countries, Georgia does not have a dedicated renewable energy agency. There is an energy efficiency and renewable energy division at the Ministry of Energy, but it is a second-level unit (subordinate to the Department of Energy). The creation of a dedicated agency with a mandate to promote the development of the entire range of RES, or at least a top-level department at the Ministry of Energy, can be considered.

Although the country has a strong policy for the promotion of the use of hydropower as the main domestic source of electricity, there are no similar policies for other types of RES. It is recommended that national legislation, strategies and/or programmes address the entire range of RES available in the country, defining a clear and consistent national policy in this area. This policy may take into account the following considerations:

• Wind energy can play a role in offsetting the existing seasonality of the country’s power sector; it is also a more cost-efficient power generation solution than solar energy. • While the consumption of firewood for heating has probably decreased since the early 2000s, there are reasons to believe that it still remains at an unsustainable level. Given that fact and the country’s significant bioenergy potential, it is recommended to promote the use of biomass for heating in Georgia. The experience of international programmes and projects previously

53 implemented in Georgia and other GUAM countries (e.g. the Moldova Energy and Biomass Project) can be helpful in this regard. • Although the construction of major solar power plants may be too costly at the moment, small- scale solar power systems can be used to provide households and other customers in remote areas with electricity and heat. • Geothermal resources can be used locally for heating and hot water supply. The installation of circulation (re-injection) systems, insulated piping and meters can enhance the sustainability of their use.

The country does not have an action plan on RES. Georgia has applied for full membership in the Energy Community. When its request is granted, the country will be required to adopt a national renewable energy action plan covering the power sector, heating and cooling, and transportation. The drafting of such a plan can start before the country’s formal accession to the Energy Community.

At the current stage, additional incentives are necessary to promote the use of RES. To that end, some of the following policy instruments can be considered:

• Feed-in tariffs for renewable-based electricity supported by guaranteed purchase agreements. To limit the amount of subsidies, tenders for a number of pre-defined projects or pre-defined amount of capacity can be issued. • Priority access to grid and exports for renewable-based electricity producers. • Fiscal subsidies, tax and/or customs duty exemptions or reductions for activities and equipment related to renewable energy (including biomass). • The requirement for electricity customers to purchase a certain proportion of renewable-based electricity (although this approach is not practised in any of the GUAM countries).

Further studies, including detailed mapping, of the potential of Georgia’s RES are necessary.

There are a number of international organisations implementing projects and programmes in the field of renewable energy in Georgia. It is important to ensure synergy between their efforts and also with the actions of the Government of Georgia. A clearly defined national policy or strategy with regard to the entire range of RES is an important precondition for such synergy.

Notes

1 Sources: World Bank Data (data.worldbank.org/), IEA Statistics (www.iea.org/statistics/). 2 Energy Charter Secretariat. In-depth review of the energy efficiency policies and programmes: Georgia. 2012. 3 Energy Charter Secretariat. In-depth review of the energy efficiency policies and programmes: Georgia. 2012. 4 www.doingbusiness.org/rankings (accessed on January 15, 2014).

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5 UNDP/GEF. Georgia – Promoting the use of renewable energy resources for local energy supply. Final evaluation report. May 2012. 6 Energy Charter Secretariat. In-depth review of the energy efficiency policies and programmes: Georgia. 2012. 7 Econ. The electricity sector in Georgia – an overview. 2010. www.greengeorgia.ge/sites/default/files/The%20Electricity%20Sector%20in%20Georgia%20Overview.pdf (accessed on January 15, 2014). 8 T. Izoria. “Regulatory framework and investment opportunities.” Presentation. Kiev, October 17, 2013. 9 Transmission & Distribution World. “Georgia now exporting green energy to Turkey.” December 27, 2013. http://tdworld.com/substations/georgia-now-exporting-green-energy-turkey (accessed on January 11, 2014). 10 Trend. “Georgia plans to export 5 billion kWh of electricity in 2017.” April 6, 2012. http://en.trend.az/capital/energy/2011452.html (accessed on January 11, 2014). 11 Energy Charter Secretariat. In-depth review of the energy efficiency policies and programmes: Georgia. 2012. 12 www.energy.gov.ge/ministry.php?id_pages=8&lang=eng (accessed on January 16, 2014). 13 Energy Charter Secretariat. In-depth review of the energy efficiency policies and programmes: Georgia. 2012. 14 Energy Charter Secretariat. In-depth review of the energy efficiency policies and programmes: Georgia. 2012. 15 Energy Charter Secretariat. In-depth review of the energy efficiency policies and programmes: Georgia. 2012. 16 http://gedf.com.ge/en/about-company/activity (accessed on January 14, 2014). 17 T. Izoria. “Regulatory framework and investment opportunities.” Presentation. Kiev, October 17, 2013. 18 www.gtu.ge/indexEng.php (accessed on January 14, 2014). 19 www.mes.gov.ge/content.php?id=2891&lang=eng (accessed on January 14, 2014). 20 http://weg.ge/ (accessed on January 16, 2014). 21 http://eecgeo.org/index.htm (accessed on January 16, 2014). 22 www.abg-profservice.ge/index.php (accessed on January 16, 2014). 23 www.solar.ge/ (accessed on January 16, 2014). 24 Energy Charter Secretariat. In-depth review of the energy efficiency policies and programmes: Georgia. 2012. 25 Energy Charter Secretariat. In-depth review of the energy efficiency policies and programmes: Georgia. 2012. 26 Transparency International Georgia. Georgia’s energy policy: Overview of main directions. December 17, 2007. http://transparency.ge/sites/default/files/Energy%20Policy.pdf (accessed on January 12, 2014). 27 Transparency International Georgia. Georgia’s energy policy: Overview of main directions. December 17, 2007. 28 Energy Charter Secretariat. In-depth review of the energy efficiency policies and programmes: Georgia. 2012. 29 M. Barbakadze. Memorandums of understanding and agreements concluded for implementation of energy projects in Georgia. Tbilisi, December 2012. www.greenalt.org/webmill/data/file/publications/Memorandum_and_Agreements.pdf () 30 In practice, the document has been applied almost exclusively to hydropower projects. 31 UNDP/GEF. Georgia – Promoting the use of renewable energy resources for local energy supply. Final evaluation report. May 2012. 32 Although Resolution No. 107 technically remains in force, most of its provisions were repealed in August 2013. 33 The purpose is to guarantee the payment of possible penalties for delays at the beginning of the construction and/or the commencement of the plant. 34 http://ec.europa.eu/world/enp/pdf/action_plans/georgia_enp_ap_final_en.pdf (accessed on January 7, 2014). 35 T. Izoria. “Regulatory framework and investment opportunities.” Presentation. Kiev, October 17, 2013. 36 T. Izoria. “Regulatory framework and investment opportunities.” Presentation. Kiev, October 17, 2013. 37 UNDP/GEF. Georgia – Promoting the use of renewable energy resources for local energy supply. Final evaluation report. May 2012. 38 Transparency International Georgia. National policy of Georgia on developing renewable energy sources. May 2008. www.greengeorgia.ge/sites/default/files/National%20Policy%20of%20Georgia%20on%20Developing%20R enewable%20Energy%20Sources.pdf (accessed on January 12, 2014).

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39 www.covenantofmayors.eu/IMG/pdf/covenantofmayors_text_en.pdf (accessed on January 9, 2014). 40 http://helpdesk.eumayors.eu/docs/seap/1537_1520_1303144302.pdf (accessed on December 20, 2013). 41 Cited in: Energy Charter Secretariat. In-depth review of the energy efficiency policies and programmes: Georgia. 2012. 42 S. Kalandarishvili. “Wind energy potential in Georgia.” Presentation. Kiev, October 17, 2013. 43 M. Gelovani et al. Wind energy atlas of Georgia. Volume 1. Regional estimations. Tbilisi, 2004. 44 World Experience for Georgia. Renewable energy potential in Georgia and the policy options for its utilization. Tbilisi, 2008. www.greengeorgia.ge/sites/default/files/RENEWABLE%20ENERGY%20POTENTIAL%20IN%20GEO RGIA.pdf (accessed on January 11, 2014). 45 D. Sharikadze. “Energy sector and renewable energy potential in Georgia.” Presentation. Kiev, October 17, 2013. 46 Cited in: Energy Charter Secretariat. In-depth review of the energy efficiency policies and programmes: Georgia. 2012. 47 G. Kelbakiani and N. Pignatti. “Introducing wind generation as a way to reduce the seasonal volatility in electricity generation in Georgia.” IAEE Energy Forum, 4th quarter 2013. 48 World Experience for Georgia. Renewable energy potential in Georgia and the policy options for its utilization. Tbilisi, 2008. 49 World Bank Data, 2012. 50 D. Sharikadze. “Energy sector and renewable energy potential in Georgia.” Presentation. Kiev, October 17, 2013. 51 World Experience for Georgia. Renewable energy potential in Georgia and the policy options for its utilization. Tbilisi, 2008. 52 Energy Charter Secretariat. In-depth review of the energy efficiency policies and programmes: Georgia. 2012. 53 World Experience for Georgia. Renewable energy potential in Georgia and the policy options for its utilization. Tbilisi, 2008. 54 Energy Charter Secretariat. In-depth review of the energy efficiency policies and programmes: Georgia. 2012. 55 World Experience for Georgia. Renewable energy potential in Georgia and the policy options for its utilization. Tbilisi, 2008. 56 IEA Statistics. 57 Renewable Energy World. “Wind gets underway in Georgia.” July 23, 2013. www.renewableenergyworld.com/rea/news/article/2013/07/georgia-announces-start-of-20-mw-wind- project (accessed on January 12, 2014). 58 www.energy.gov.ge/projects/pdf/pages/Khobihesi%202%203%20Hidroelektrosadgurebi%20 %20Tsvlileba%2001062011%2063%20geo.pdf (accessed on January 14, 2014). 59 Ministry of Energy of Georgia. Ongoing investment projects. www.energy.gov.ge/projects/pdf/pages/Current%20Investment%20Projects%20436%20eng.pdf (accessed on January 9, 2014) 60 Wind Power Monthly. “Georgia makes first move into wind power.” November 28, 2013. www.windpowermonthly.com/article/1223048/georgia-makes-first-move-wind-power (accessed on January 12, 2014). 61 Trend. “Georgia developing alternative energy.” December 18, 2013. http://en.trend.az/capital/energy/2222970.html (accessed on January 14, 2014.) 62 OECD/IEA. Deploying renewables: principles for effective policies. 2008. 63 E.g. GEL 0.0848/kWh or USD 0.0488/kWh in December 2013. See www.esco.ge/index.php?article_id=65&clang=1 (accessed on January 17, 2014). 64 T. Izoria. “Regulatory framework and investment opportunities.” Presentation. Kiev, October 17, 2013. 65 www.czda.cz/czda/en_126/en_143/en_344.htm?lang=en (accessed on January 17, 2014). 66 K. Kobakhidze. “Solar energy in Georgia.” Presentation. Kiev, October 17, 2013.

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67 The Messenger. “Georgia to build the first solar electric station.” September 26, 2013. www.messenger.com.ge/issues/2955_september_26_2013/2955_econ_one.html (accessed on January 17, 2014). 68 World Experience for Georgia. Renewable energy potential in Georgia and the policy options for its utilization. Tbilisi, 2008. 69 USAID. Georgia Rural Energy Program. Final evaluation report. 2009. http://pdf.usaid.gov/pdf_docs/Pdact319.pdf (accessed on January 15, 2014). 70 UNDP. Promotion of Biomass Production and Utilization in Georgia. Project document. http://moe.gov.ge/files/Klimatis%20Cvlileba/Proektebi/Dagegmili%20Proektebi/003.pdf (accessed on January 15, 2014.) 71 www.energocredit.ge/sites/default/files/Case_poultry_final_eng.pdf (accessed on January 12, 2014). 72 ESCO energy balances. www.esco.ge/index.php?article_id=8&clang=1 (accessed on January 17, 2014). 73 UNDP/GEF. Georgia – Promoting the use of renewable energy resources for local energy supply. Final evaluation report. May 2012. 74 IEA Statistics. The average value for 2010 and 2011 is used. 75 Ministry of Energy of Georgia. Ongoing investment projects. www.energy.gov.ge/projects/pdf/pages/Current%20Investment%20Projects%20436%20eng.pdf (accessed on January 9, 2014). 76 Ministry of Energy of Georgia. List of Potential Power Plants in Georgia. www.energy.gov.ge/projects/pdf/pages/The%20List%20Of%20Potential%20Renewable%20Energy%20Sou rces%20435%20eng%20.pdf (accessed on January 10, 2014). 77 Agenda.ge. New hydro power plant to increase export. December 5, 2013. http://agenda.ge/news/3095/eng (accessed on January 9, 2014). 78 Agenda.ge. Multi-million dollar hydro-power plant opens. January 24, 2014, http://agenda.ge/news/6980/eng (accessed on January 28, 2014). 79 Democracy and Freedom Watch. Turkish company cancels hydroelectric project in Georgia. February 14, 2012. http://dfwatch.net/turkish-company-cancels-hydro-electric-project-in-georgia-96699 (accessed on January 15, 2014). 80 World Experience for Georgia. Renewable energy potential in Georgia and the policy options for its utilization. Tbilisi, 2008. 81 HydroWorld.com. Bank of Georgia, Germany’s KfW ink deal for small hydro development. November 16, 2012. www.hydroworld.com/articles/2012/11/bank-of-georgia-germanys-kfw-ink-deal-for-small-hydro- development.html (accessed on January 15, 2014). 82 UNDP/GEF. Georgia – Promoting the use of renewable energy resources for local energy supply. Final evaluation report. May 2012. 83 USAID. Georgia Rural Energy Program. Final evaluation report. 2009. 84 USAID. USAID/HIPP monitoring and evaluation report. 2013. http://hydropower.ge/user_upload/HIPP_ME_Report_36_Month_Apr2013.pdf (accessed on January 17, 2014). 85 http://hydropower.ge/eng/6/id15 (accessed on January 17, 2014). 86 http://www.energocredit.ge/ (accessed on January 15, 2014). 87 The state programme Renewable Energy 2008 defines the procedure for initiating and implementing renewable energy projects and the content of associated MoUs. In practice, it has been applied almost exclusively to hydropower projects.

Units of measurement ktoe thousand tons of oil equivalent Mtoe million tons of oil equivalent

57

W watt kW kilowatt MW megawatt GW gigawatt kWh kilowatt-hour MWh megawatt-hour GWh gigawatt-hour TWh terawatt-hour TJ terajoule PJ petajoule

58 Moldova

Key country data (2011)1

Population (millions): 3.56

GDP: USD 7.01 billion

GDP per capita: USD 1,970

TPES: 3.33 Mtoe

Share of renewable energy in TPES: 3.4 percent2

Country overview

The Republic of Moldova is a landlocked country located between Romania and Ukraine. It has the lowest nominal GDP among European countries at USD 2,038 (2012)3. The country has a predominantly rural population (52 percent) and a significant agrarian sector, which, together with the associated processing industries, accounts for a substantial proportion of export revenues. Food exports accounted for 70 percent of merchandise exports in 2011 and 58 percent in 2012. For most of the 2000s, the nation’s economy demonstrated high growth rates: between 2001 and 2012, the GDP growth rate exceeded 6 percent in eight out of the 12 years. However, this growth is vulnerable since it depends heavily on domestic consumption fuelled by remittances from Moldovan citizens working abroad4. In 2009, GDP decreased 6 percent; in 2010 and 2011 it increased 7.1 percent and 6.4 percent respectively, but in 2012 it fell 0.8 percent.

In 2011, the country’s total primary energy supply (TPES) was 3,331 ktoe5. Between 1990 and 2000, the TPES went through a period of free fall and then generally stabilised in the 2000s (Figure 1). With no fossil fuel reserves, the country is fully dependent on energy imports, importing about 96 percent of its TPES.

59

Figure 1. Total primary energy supply in Moldova (Source: IEA Statistics)

The country’s industrial and residential sectors are largely inherited from the Soviet period and energy intensity in Moldova is very high at 0.31 toe per thousand dollars of GDP PPP (in constant 2005 dollars), or 2.6 times higher than the respective value for the EU27 (0.12 toe per thousand dollars6). Improving energy efficiency is therefore an important national priority.

The frozen conflict in the Transnistria breakaway region continues to be a threat to Moldova’s stability7 and has serious implications for the country’s energy security. The largest power plant in Moldova, the Moldova Thermal Power Plant (TPP), is situated in the area controlled by the de facto authorities of Transnistria. The same is true of the largest hydropower plant (HPP) in the country, Dubasari HPP. The huge Moldova TPP, commissioned in 1964, was built specifically to supply Moldova and adjacent regions of Ukraine with electricity and alone accounts for over 80 percent of the total installed capacity in the country (Table 1)8. Within the area controlled by the Government of Moldova, there are three cogeneration plants originally built to supply specific urban areas with electricity and heat, and the relatively small Costesti HPP. Their total installed capacity is about 340 MW9. Between 76 and 79 percent of the electricity consumed in Moldova is therefore either procured from the Moldova TPP or imported from Ukraine. Prices for this power are not stable and tend to exceed prices on the EU market.

60 Table 1. Power plants in Moldova (Source: Energy Strategy of the Republic of Moldova till 2030) Plant Installed power capacity, Years of construction MW Moldova TPP* 2520 1964-1982 Chisinau CHPP-2 240 1976-1980 Chisinau CHPP-1 66 1951-1961 CHPP Nord, Balti 20.4 1956-1970 Dubasari HPP* 48 1954-1966 Costesti HPP 16 1978 Total 2910.4 Total outside Transnistria 342.4

* Situated in Transnistria

According to IEA statistics, in 2011 renewable energy sources (RES) represented some 3.4 percent of the TPES. Biomass accounted for 64 percent of the renewable component of the TPES, and hydro energy accounted for the remaining 36 percent. However, it is likely that these data underestimate the actual use of biomass in the residential sector, as is often the case. According to a detailed survey commissioned by the Energy Community10, the actual consumption of biomass in Moldova is estimated at 236–237 ktoe/year. If this figure is used with the IEA data, renewable energy accounts for 8 percent of the TPES. In any case, almost all primary energy sourced domestically comes from renewable sources (some oil production on a local scale accounts for 0.3 percent of the TPES).

Overall, improving Moldova’s energy security through the construction of new power generation capacities and the development of RES as the only primary energy sources available domestically is a pressing imperative for the country. However, given the country’s financial constraints, this should be achieved in the most cost- efficient way possible, which limits the range of available options.

According to the policy document Rethink Moldova: Priorities for the Medium-Term Development of the Republic of Moldova, the Government of Moldova regards European integration as the most fundamental priority of domestic and foreign policy and is determined to implement an ambitious agenda to achieve it. On November 29, 2013, the EU–Moldova Association Agreement was initialled.11 In the context of the energy sector, this means the harmonisation of national policies with those of the EU, integration with European power and gas transmission systems, and integration into the European electricity market.

61 Institutional setting

Government agencies and ministries

Moldova has a dedicated government body responsible for the development of RES — the Energy Efficiency Agency (EEA), which is subordinate to the Ministry of Economy12. The EEA was created in December 2010, replacing the National Agency for Energy Conservation. The key responsibilities and functions of the EEA include:

• implementing state policy in the field of energy efficiency (EE) and renewable energy (RE); • participating in the development of draft EE and RE programmes and national action plans; • reviewing EE and RE programmes fully or partially funded by the state; • developing pilot projects in the field of EE and RE; • providing information support to central and local authorities in the development of their EE and RE programmes; • providing advice and information support to organisations and individuals working in the field of EE and RE; • creating an information database on EE and RE; • organising seminars, conferences and exhibitions in the field of EE and RE; and • cooperating, within the authorities delegated by the Government of Moldova, with international bodies and institutions to promote EE and RE.

Moldova does not have an energy ministry: the Ministry of Economy is responsible for the formulation and implementation of state policies and strategies with regard to the energy sector.13 The ministry’s Department of Energy Security and Energy Efficiency monitors the implementation of national and regional strategies and programmes in a number of areas, including the development of RES. Through the EEA it ensures the implementation of national programmes in the field of EE and RES.

The Ministry of Environment is responsible for issuing environmental permits and for the formulation of climate change policies (the ministry contains the dedicated Climate Change Office). These policies view the development of RES as a means to reduce greenhouse gas emissions.

The National Agency for Energy Regulation (ANRE) is responsible for the state regulation of the national energy sector and energy market.14 Among other activities, it issues licences for electricity production and transmission, and for the production of fuel from RES. It establishes tariffs for electricity production, transmission and distribution. In particular, it has developed a methodology for determining tariffs for electricity produced from RES and, based on this methodology, determines feed-in tariff rates for individual producers. The ANRE ensures the implementation of the principle of the priority purchase and dispatch of

62 electricity produced from RES. It also establishes terms, conditions and tariffs for grid connection for power producers, taking into account the costs and benefits of renewable-based generators.

The Energy Efficiency Fund was created in 2012 in accordance with the Law on Renewable Energy (2007) and the Law on Energy Efficiency (2010).15 The fund is intended to identify, evaluate and finance EE and RE projects that contribute to improving energy efficiency and reducing greenhouse gas emissions, and to attract and manage financial resources for this purpose. Sources of financing are state funding as well as donations from domestic and foreign individuals and organisations, including international financial institutions and donors. The fund provides grants, loans and loan guarantees for the implementation of EE and RE projects; it also provides financial assistance in the form of leasing. The fund can cover the costs of technical assistance to the selected projects and finance pilot projects initiated by the EEA. An energy audit is required for all projects supported by the fund.

In 2013, the fund announced two calls for grant proposals — one for public sector organisations and one for private sector organisations. By December 2013, the fund had financed a total of 87 projects. Funding for grants was provided by the European Commission.16 The financed public sector organisations included cultural, medical, educational and childcare institutions. Most of the submitted proposals focused on enhancing energy efficiency by improving the energy performance of buildings. However, several private sector projects involved the use of RES. At the end of 2013, another call for proposals for public sector organisations was announced with a total budget of MDL 150 million (EUR 8.3 million).17

Centres of expertise

Research in the field of renewable energy technologies is one of the key areas of activity of the Institute of Power Engineering of the Academy of Sciences of Moldova (http://www.ie.asm.md/en/home). The Technical University of Moldova (http://www.utm.md/) trains specialists in the field of renewable energy. The university participates in the international CREDO project — Doctoral Programme in Renewable Energy and Environmental Technology. The Energy Plus centre at the university’s Power Engineering Department is involved in studies of the RES potential in Moldova, renewable energy technologies and projects.

The Institute for Development and Social Initiatives (IDIS “Viitorul”) is a Moldovan think tank participating in the development of various policies, including those related to the energy sector and renewable energy (http://www.viitorul.org/). The NGO Alliance for Energy Efficiency and Renewables (AEER) contributes to the development of policies and strategies in the field of EE and RE. The Wind Energy Association of Moldova (http://www.alternativenergy.md), an NGO based in Komrat, promotes small-scale solar and wind energy solutions at the level of individual households and small farms.

63 International organisations and programmes

There are a number of international organisations providing technical assistance and funding for the development of RES in Moldova. Some of these programmes are discussed in later in this report.

Renewable energy policies

Legislation

The Law on Energy Industry (No. 1525 of February 19, 1998, as amended on December 19, 2011) creates the legal foundation for the effective functioning of the country’s energy sector and for the reliable supply of energy resources to the national economy and households. It does not contain specific provisions on renewable energy sources.

The Law on Renewable Energy (No. 160 of July 12, 2007, as amended on June 4, 2010) establishes the general framework for the utilisation of renewable energy in Moldova. The document defines key terms related to RES, as well as the goal, principles and objectives of state policy in this area. The goal of the state renewable energy policy is to the enhance energy security of the country and reduce the adverse environmental impact of the energy sector by means of an annual increase in the share of RES in energy production and consumption. The key principles of the state renewable energy policy include:

• the harmonisation of the respective national legislation with EU and international standards; • the guaranteed sale of energy from renewable sources through non-discriminatory access to transmission and distribution networks; • the promotion of electricity production from renewable sources through the mandatory purchase of an established share of renewable-based electricity and certain administrative measures; • the provision of economic and financial incentives for the development of RES; and • access for organisations and individuals to information on the development of RES and the raising of public awareness of renewable energy.

The objectives of the state renewable energy policy include:

• increasing the diversity of local primary energy resources; • achieving, by the year 2020, the production of energy from RES at a level of 20 percent of total energy production from traditional energy sources; • improving environmental security and ensuring public health and occupational safety in the process of RES development;

64 • creating a system for the production, distribution, sale and efficient use of renewable energy and fuels; • attracting investments to the renewable energy sector; • promoting international cooperation in the areas of science and technology and adopting world scientific and technological achievements in the renewable energy sector; and • providing information support to activities aimed at the development of RES.

According to the law, the Government of Moldova shall:

• identify the priorities of the state renewable energy policy; • define procedures for the organisation and regulation of activities in the field of renewable energy; • approve state programmes for developing the production and use of renewable energy and oversee their implementation; and • use financial and economic incentives and mechanisms to support activities in the field of renewable energy.

The law establishes the EEA as the state authority in the field of renewable energy, and the Energy Efficiency Fund as an instrument for financing EE and RE activities in accordance with government strategies and programmes (see “Institutional setting” above). The law also defines the mechanism of feed-in tariffs for renewable-based electricity (see “Policy instruments” below).

The law contains provisions on guarantees of origin for renewable-based electricity, which are issued by the network company after an examination of the producer’s facilities, and on the certification of renewable- based fuels.

The Law on Electricity (No. 124 of December 23, 2009, as amended on April 7, 2011) regulates activities in Moldova’s electricity sector. One of the regulatory principles defined by this law is the promotion of electricity production from RES and at combined heat and power (CHP) plants. The law defines the functions of the National Agency for Energy Regulation, including those related to renewable-based electricity, and establishes principles for grid access, including:

• non-discriminatory access for renewable-based producers; and • the priority purchase and dispatch of electricity produced from renewable sources.

According to the law, the costs of grid connection shall by borne by the electricity producers, while the costs of associated grid reinforcement shall be borne by network operators and recovered through tariffs in accordance with investment plans approved by the ANRE.

65 Small power plants do not require a licence for electricity production. This applies to power plants with an installed capacity below 5 MW that supply electricity to the public network, or plants with an installed capacity below 20 MW that produce electricity for the operator’s own needs.

The Law on Energy Efficiency (of July 2, 2010) does not focus on renewable energy. However, it contains a list of the functions and responsibilities of the EEA, including those aimed at promoting RES.

A draft Law on the Promotion of the Use of Renewable Energy Sources is reported to have been prepared by the ANRE and submitted to the Ministry of Economy for consideration. The proposed law is intended to transpose the provisions of Directive 2009/28/EC into national legislation, ensure adequate conditions for the meeting of established renewable energy targets, define clearly and comprehensively responsibilities and authorities in the field, and set out a state policy that would guarantee the meeting of the established targets.18

International agreements

Moldova is a contracting party to the Treaty establishing the Energy Community, an agreement intended to expand the EU’s regulatory framework for energy markets to a number of neighbouring countries. Moldova signed the accession protocol in March 2010, becoming a full member of the Energy Community on May 1, 2010. The contracting parties commit to implementing a number of EU acquis communautaire with regard to energy, one of them being the renewable energy acquis defined by the EU’s key directive on renewable energy, Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC. According to the Decision of the Ministerial Council of the Energy Community 2012/04/MC-EnC, each contracting party shall bring into force the laws, regulations and administrative provisions necessary to comply with Directive 2009/28/EC (with some adaptations) by January 1, 2014. Among other provisions, the decision defines mandatory targets for the contracting parties for the share of energy from renewable sources in gross final energy consumption in 2020: a target of 17 percent was set for Moldova. By June 30, 2013, the parties had to submit to the Energy Community Secretariat national renewable energy action plans defining renewable energy targets for specific sectors by 2020 and adequate measures to achieve those targets. Moldova approved its National Renewable Action Plan in December 2013 (see the next section).

Moldova is a party to the United Nations Framework Convention on Climate Change and its Kyoto Protocol. As a non-Annex 1 country, it does not have binding emissions reduction targets, but it is still committed to reduce its greenhouse gas emissions, and the development of RES can be one of the means towards that end. The country has access to the Clean Development Mechanisms (CDM) — one of the Kyoto flexibility mechanisms — allowing it to receive financing from Annex I countries for achieved

66 emission reductions. As of the end of 2013, there were eight registered CDM projects in Moldova, including a biogas production project. A landfill gas project was at the validations stage.19

Strategies and plans

The National Development Strategy “Moldova 2020”: Seven Solutions for Economic Growth and Poverty Reduction was approved by Law No. 166 on July 11, 2012. The document is intended to provide a cohesive vision of long-term sustainable economic development based on an analysis of constraints for such development. The objective of the strategy is to ensure qualitative economic development and, implicitly, poverty reduction.

Among the seven development priorities (the “solutions” of the document title), the strategy lists “reducing energy consumption by increasing energy efficiency and using renewable energy sources”. This priority stems from the scarcity of energy resources in the country and its almost complete dependence on energy imports. The document defines a number of specific targets to be achieved by 2020, including:

• a 20 percent share of energy from renewable sources in total energy consumption (with a target of 10 percent by 2015); • a 10 percent share of biofuels in total fuel consumption (with a target of 4 percent by 2015); • a 10 percent share of electricity produced from RES; • a 10 percent reduction in the energy intensity of the national economy; and • a 25 percent reduction in greenhouse gas emissions (compared to 1990).

In February 2013, the Government of Moldova approved the Energy Strategy of the Republic of Moldova up to 2030, a document that replaced the National Energy Strategy up to 2020 (adopted in 2007). The document contains specific guidelines for the development of Moldova’s energy sector with the main objective of providing the necessary foundation for economic growth and improved social wellbeing. The strategy gives priority to the integration of the national energy system with the energy systems and internal energy market of the EU and considers the development of the national energy system in a broader commercial space.

The three key objectives of the strategy are to:

• ensure the security of energy supply; • develop competitive markets and ensure their regional and European integration; and • ensure the sustainability of the energy sector and combat climate change.

The development of RES is considered an important means of enhancing energy security. The strategy contains far more detailed objectives and plans for the first period of its implementation (2013–2020). Among other provisions, it reiterates the targets for 2020, defined by pre-existing renewable energy policies:

67 20 percent of total final energy consumption, 10 percent of electricity consumption, and 10 percent of energy consumption in transportation from renewable sources.

The general priorities for the development of RES in Moldova include:

• the establishment of a national institutional framework; • appropriate support for RES development; • harmonised integration into the existing energy infrastructure; • the reduction of environmental impacts; and • the fulfilment of Energy Community and EU requirements in the area.

Among the six strategic objectives for the period 2013–2020, objective 4 deals explicitly with renewable energy: to improve energy efficiency and increase the use of renewable energy sources. The development of RES should also play an important role in the achievement of objective 3: to create a strong power and heat generation platform through retrofitting, efficient district heating and advanced marketing.

With regard to the electricity sector, by 2020 it is planned to increase installed capacity by 800 MW through decommissioning 250 MW of obsolete capacities and building 1,050 MW of new capacities. It is estimated that 400 MW of these new capacities will be renewable-based power plants, which will account for 16 percent of gross domestic power consumption (250 MW would be enough to meet the 10 percent target). The renewable-based capacities commissioned between 2013 and 2020 are going to be predominantly wind farms due to the lower cost of the technology compared to solar-based generation. Between 2020 and 2030, the installed capacity of renewable-based plants is set to increase by another 200 MW, reaching 600 MW and providing 15 percent of gross domestic electricity consumption by 2030. These new capacities may be solar based, provided that a significant reduction in the cost of the technology is achieved.

It is expected that funds for the construction of renewable-based power plants will come from private investors. To attract the necessary investments, the Government of Moldova will rely on the mechanism of feed-in tariffs. At the same time, the government is willing to consider the experience of other countries in this area and to avoid possible mistakes, such as the indiscriminate application of generous feed-in tariffs leading to the use of less-cost-efficient technologies and the suboptimal siting of facilities. It is therefore planned to conduct auctions to allocate the rights to build renewable-based capacities supported by feed-in tariffs (for more details see “Policy instruments” below). It is also assumed that those rights will be supported by the obligation to purchase electricity at a defined rate.

Overall, it is recognised that a proper regulatory framework for feed-in tariffs, in addition to a methodology for determining tariff rates, should include regulations defining:

• a specific mechanism for financing the subsidies; • procedures for the priority dispatch of renewable-based electricity;

68 • grid connection rules, including the distribution of associated costs between the investor and the network operator; and • approaches towards the balancing of intermittent power sources and necessary improvements to the grid.

A more thorough investigation of the country’s renewable energy potential will be necessary in order to have a more accurate determination of the target capacity quotas.

Priority will also be given to expanding the decentralised use of RES. With regard to biomass use, the strategy envisions the continuation of the traditional use of biomass for heating. It contains general targets but no detailed provisions or estimates with regard to the use of RES in heating or transportation.

The National Renewable Energy Action Plan for 2013–202020 (NREAP) was developed by the Ministry of Economy and approved by the Government of Moldova on December 4, 2013. The NREAP is primarily intended to define a pathway towards the achievement of the target adopted by Moldova within the framework of the Energy Community — that is, a 17 percent share of renewable energy in the overall final energy consumption. The purpose of the document is to promote the use of RES in order to achieve the key strategic objectives of enhancing the country’s energy security and ensuring long-term progress with regard to environmental protection and climate change mitigation. The plan defines the sectoral targets that are necessary to achieve the overall target for RES use by 2020 (20 percent of the total final energy consumption), as well as the legal, regulatory and administrative provisions required to meet these targets. The fact that the overall target set within the Energy Community (17 percent) is lower that the target defined by national legislation potentially allows Moldova to take advantage of the mechanism of statistical transfers established by the EU Renewable Energy Directive (2009/28/EC) and transposed to the Energy Community.

Confirming the previously established targets for the electric power and transportation sectors (10 percent), the document states that, in order to achieve the required overall 20 percent share of RES, the share of RES in gross final energy consumption for heating and cooling should be 27.2 percent. The plan includes a list of proposed actions, including:

• the preparation of draft laws (Law on Thermal Energy; and Law on the Promotion of the Use of Renewable Energy Sources, intended to transpose the provisions of Directive 2009/28/EC into national legislation); • the establishment of clear definitions and the streamlining of administrative procedures; • the introduction of various rules (e.g. for the priority purchase of renewable-based electricity from producers); • the introduction of fiscal incentives for the production of energy from renewable sources; • the establishment of mandatory national quotas for the share of biofuel in imported/sold fuel;

69 • the implementation of measures to support the production of biogas; • information dissemination and awareness-raising activities; and • the drafting of studies (e.g. a detailed study of solar and wind energy potential, and feasibility studies for biomass-based CHP generation and for crops and lands suitable for the production of biomass).

Table 2. Projected growth in renewable-based power generation (minimum trajectory consistent with the 10 percent target by 2020) (Source: NREAP) 2013 2014 2015 2016 MW GWh MW GWh MW GWh MW GWh Hydro 16.00 81.00 16.00 81.00 16.00 81.00 16.00 81.00 Wind 0 0 0 0 0 0 9.30 23.26 Biogas 0 0 0 0 2.00 5.00 3.00 10.00 TOTAL 16.00 81.00 16.00 81.00 18.00 86.00 28.30 114.26 2017 2018 2019 2020 MW GWh MW GWh MW GWh MW GWh Hydro 16.00 81.00 16.00 81.00 16.00 81.00 16.00 81.00 Wind 44.19 110.49 79.08 197.7 113.9 284.9 148.86 372.16 Biogas 5.00 15.00 7.00 21.00 9.00 26.00 10.00 31.00 TOTAL 65.1 206.49 102.08 299.7 138.97 391.94 174.8 484.16

The NREAP contains projections of renewable energy consumption up to 2020. For electricity, the minimum installed capacity in 2020, consistent with the 10 percent share of renewable-based electricity, is estimated to be 174.8 MW (which is lower than the estimate of 250 MW cited in the Energy Strategy up to 2030). It is expected that the majority of this capacity (148.86 MW) will be represented by wind farms; 16 MW by hydro energy; and 10 MW by biogas-based generation (Table 2). Annual power production is estimated at 372.16 GWh for wind, 81 GWh for hydro, and 31 GWh for biomass, or 484.16 GWh overall. It is expected that the commissioning of wind farms will start in 2016, and the commissioning of biogas-based plants in 2015. The construction of solar plants is not included in the projections due to the higher cost of the technology. The construction of new hydropower plants is not envisioned (the figures for hydropower in 2020 refer to the performance of the existing Costesti HPP). The overall numbers represent only the minimum trajectory necessary for achieving the target for electricity. It is planned to auction the rights for the construction of up to 400 MW of renewable-based generating capacities supported by feed-in tariffs and obligation to purchase (Table 3). If these plans are successful, the actual capacity by the end of the decade could be higher than 174.8 or even 250 MW. It is also envisioned that, in the case of significant cost

70 reduction, solar technology could also contribute to renewable-based generation nearer to the end of the decade.

Table 3. Renewable-based generation capacities to be auctioned by 2020 (Source: NREAP) Years Wind and solar Other RES Total 2013–2015 140 MW 10 MW 150 MW 2016–2019 220 MW 30 MW 250 MW

In the transportation sector, it is expected that in 2020 a total of 42.5 ktoe of energy from renewable sources will be consumed, including 11.68 ktoe of bioethanol, 26.82 ktoe of biodiesel, and 4 ktoe of renewable-based electricity. There are no plans for constructing biofuel plants within the country: it is expected that all the necessary biofuels will be imported.

In the heating and cooling sector, in 2020 it is planned to use 334.0 ktoe from solid biomass and 8.0 ktoe of solar thermal energy, or 342 ktoe overall. The main types of biomass used will include wood, wood-processing waste and agricultural waste. Most of the biomass (290 ktoe in 2020 compared to 251 in 2012) will be consumed by households, mainly in a decentralised manner (Figure 2). It is expected that in the future a niche for biomass-based cogeneration on a small scale may emerge.

Figure 2. Projected consumption of renewable energy sources for heating and cooling (Source: NREAP)

71 One priority in the plan is the integration of the national grid with the European power transmission network (ENTSO-E), in particular by means of the construction of transmission lines to Romania. This should provide the necessary balancing capacities for accommodating electricity from intermittent renewable sources and increase the overall stability of Moldova’s power system.

Policy instruments

Feed-in tariffs

The concept of feed-in tariffs for renewable-based electricity was introduced into the legislation of Moldova by the Law on Renewable Energy, according to which ANRE is required to:

“approve tariffs for each type of renewable energy, calculated by the producers using duly approved methodologies, which shall provide for return of investments made, depending on the circumstances, in the construction, extension, and modernisation of installations, as well as in the lines for connection, transmission and distribution of energy and fuels, for a term of up to 15 years, providing the planned profitability rate does not exceed more than two times the corresponding rate for the traditional energy.”

When approving the tariffs, international prices for similar products should be taken into account.

Pursuant to the law, ANRE has developed the Methodology for the Determination, Approval and Application of Tariffs for Electricity Generated from Renewable Energy Sources and Biofuel, which was approved in 200921. The methodology applies to all producers of renewable-based electricity with an installed capacity of 10 kW and above willing to sell the electricity on the electric power market, as well as to all biofuel producers selling their products on the petroleum product market.

According to the methodology, tariffs for renewable-based energy products are determined on the basis of the “cost plus” principle, which is intended to ensure the recovery of costs and a certain return on investments. Initially, producers provide ANRE with information on their estimated costs; over the first two years of their operations they submit detailed information on their actual costs, and their costs in the second year are used as a basis for calculating the tariff for the remainder of the 15-year period.

According to the existing procedure, feed-in tariffs can be granted only to a completed installation. There is no way to obtain pre-approval before the commencement of construction.22

So far, the system has not been very successful in attracting private investments into the renewable energy sector. According to documents available on the ANRE website, five electricity producers received feed-in tariffs between 2010 and 2013. Their installations include a biogas plant and landfill gas plants23 (MDL 1.73/kWh or EUR 0.096/kWh), two solar plants (MDL 1.92/kWh or EUR 0.106/kWh), and a wind

72 turbine (MDL 1.24/kWh or EUR 0.068/kWh), all of them relatively small installations. By way of comparison, current tariffs established for thermal cogeneration plants are within the range of MDL 1.37– 1.66/kWh24 (EUR 0.076–0.092/kWh), thus the wind installation has been granted a lower rate compared to the CHPPs.

The lack of a clearly defined mechanism for financing subsidies for renewable-based electricity has not been a problem thus far, given the small amount of such electricity sold using feed-in tariffs.

The Government of Moldova is currently reconsidering its approach towards feed-in tariffs, seeking to attract significant investments into the renewable energy sector while ensuring that the most cost-efficient solutions are used. To that end, a system of auctions is envisioned in the Energy Strategy of Moldova up to 2030 and the National Renewable Energy Action Plan for 2013–2020. It is planned that the rights to build and operate renewable-based capacities supported by feed-in tariffs (see above) will be auctioned among potential investors. The total amount of capacity to be offered at auction will be determined (see Table 3 for projections). A descending-price auction would start from the tariff cap (maximum feed-in tariff) established by a law or a regulation for the given RES type, and the rights would go to investors offering the lowest tariffs. Thus lowest-cost options for the production of renewable energy will be selected. This approach is expected to attract sufficient private investments for the construction of hundreds of megawatts of installed capacity, predominantly wind based, by the year 2020.

As for the mechanism for financing feed-in tariffs, ANRE envisions a “single buyer model”, according to which all renewable-based electricity from eligible producers will be purchased by a single designated entity. That entity will then sell the electricity to power suppliers and major customers, who will be required to purchase renewable-based electricity in proportion to their market/consumption share.25

Other policy instruments

Obligation to purchase

According to the existing Law on Renewable Energy, power suppliers are required to purchase a defined share of electricity produced from RES. Under the proposed new system, it is expected that feed-in tariffs acquired through auctions will be accompanied by the obligation to purchase, presumably by a designated single buyer.

Grid connection

According to the Law on Renewable Energy, network operators are required to connect producers of renewable-based electricity, provided that this does not threaten the reliability and security of the network. There is currently no secondary legislation that would specifically address the grid connection of such producers. According to media reports, producers of renewable-based electricity, having received feed-in tariffs, may experience difficulties in getting their connection approved by the grid company.26

73 Local content

There are no local content requirements in Moldova.

Fiscal incentives

The existing legislation does not contain provisions about fiscal incentives for companies using RES or importers of related equipment. The possibility of introducing such incentives (exemption from or a reduction in certain taxes and/or exemption from or a reduction in import duties) is envisioned in the National Renewable Energy Action Plan.

Mandatory share requirements

The existing legislation does not include requirements concerning a mandatory share of biofuel in sold or produced motor fuels. The possibility of introducing such requirements is envisioned in the National Renewable Energy Action Plan.

Direct financing

The promotion of renewable energy use through the provision of subsidies, grants and soft loans is a significant area of activity, particularly in the biomass sector. While a substantial proportion of such financing comes from international sources, the Government of Moldova plays a role in attracting such financing and in designing and implementing such programmes.

* * *

One important area of activities intended to support the development of RES is the adoption of standards. In doing so, Moldova relies on EU standards. By the end of 2013, the national Institute of Standardisation had adopted over 30 European standards for fuels produced from biomass;27 some European standards for solar collectors and heating systems were also adopted.28

Renewable energy potential

According to the National Development Strategy “Moldova 2020”, the available technical potential of RES in Moldova (without low-potential heat) amounts to 113.4 PJ/year, or 2.7 Mtoe/year (Table 4).

74 Table 4. Available technical potential of renewable energy sources in Moldova (Source: National Development Strategy “Moldova 2020”) RES type Technical potential per year PJ Mtoe Solar 50.4 1.2 Wind 29.4 0.7 Hydro 12.1 0.3 Biomass 21.5 0.5 Total 113.4 2.7 Low-potential heat > 80 > 1.9

Wind

According to a study carried out within a UNDP-supported project29, the average wind speed at a height of 70 m is between 4.5 and 8.5 m/s, with the largest potential available in the south of the country (Figure 3). The technical wind energy potential in Moldova is estimated at 29.4 PJ/year or 0.7 Mtoe/year.30 In terms of installed capacity, the potential is estimated at 1 GW.31

Solar

Moldova has a moderate continental climate. The theoretical duration of sunshine is about 4,450 h/year, while actual duration (which takes into account cloudy periods) is about half this number (2,100–2,300 h/year). The average annual solar radiation is about 1,280 kWh/m2 in the north of the country, and 1,370 kWh/m2 in the south.

Some 75 percent of this amount is available Figure 3. Wind energy potential in Moldova between April and September. 32 The technical (Source: P. Todos et al. Renewable Energy – A potential of solar energy is estimated at 50.4 PJ or Feasibility Study) 1.2 Mtoe per year.33

75 Bioenergy

The agricultural sector plays an important role in Moldova’s economy. Although at 13 percent34 its contribution to GDP is not particularly high, it accounts for 26 percent of total employment. Over half of Moldova’s population (52 percent) lives in rural areas, which has serious implications for the actual and potential patterns of renewable energy use, including biomass. Agricultural land accounts for 74.8 percent of the total land area. The total area of unused arable land is 178,847 ha, or about 8 percent of the total area of agricultural land.35 The proportion of forested area in Moldova is one of the smallest among European countries at 11.9 percent.

Table 5. Technical potential of bioenergy sources in Moldova (Source: National Development Strategy “Moldova 2020”) Source PJ/year Agricultural waste 7.5 Firewood 4.3 Wood-processing waste, rapeseed 4.7 Biogas 2.9 Biofuel 2.1 Total biomass 21.5

Given the role of its agricultural sector, Moldova has significant potential in terms of biomass energy. According to the National Development Strategy “Moldova 2020”, the total technical potential of various sources of biomass in Moldova is 21.5 PJ/year (Table 5). The EEA reports a similar figure of 19.4 PJ/year. According to the EEA, this amounts to 20.7 percent of the total final energy consumption. If fully used, this resource could substitute 35–40 percent of the country’s natural gas imports.36

Other sources

According to the National Development Strategy “Moldova 2020”, the technical potential of hydro energy in Moldova is 12.1 PJ/year or 0.3 Mtoe/year. There is also low-potential heat, which can be used by means of heat pumps, with a total potential of over 80 PJ/year or 1.9 Mtoe/year.

Current use of renewable energy sources, projections and targets

The current share of RES in the TPES is between 3.4 and 8 percent, depending on estimates of residential biomass consumption. As mentioned above, the national renewable energy targets include:

76 • a 20 percent share of energy from renewable sources in total energy consumption by 2020 (10 percent by 2015); • a 10 percent share of biofuels in total fuel consumption by 2020 (4 percent percent by 2015); and • a 10 percent share of electricity produced from RES by 2020.

Wind

Several experimental wind turbines with a total installed capacity of 100 kW have been installed by the Technical University of Moldova, and several turbines with a smaller capacity have been installed by the Wind Energy Association of Moldova. At present, one wind-based electricity producer — Elteprod LLC, which operates a turbine with a capacity of 1.1 MW — has received a feed-in tariff from ANRE. Another project, currently at the planning stage, involves the installation of wind generators with a total installed capacity of 18 MW.37

According to the National Renewable Energy Action Plan, between 2013 and 2020 the development of renewable-based power generation will rely predominantly on wind energy. The rights for the construction of up to 360 MW of both wind-based and solar-based (but mainly wind) installed capacity supported by feed-in tariffs and obligation to purchase may be auctioned among potential investors. The minimum amount of wind-based capacity necessary to meet the 10 percent target is estimated at 148.86 MW, and production at 372.16 GWh.

Solar

To date, only two operators of small-scale PV installations have received feed-in tariffs — Solotrans-Agro LLC (with an installed capacity of 95 kW) and Tasotilex LLC. In 2013, a solar PV installation with an installed capacity of 250 kW was commissioned at the Oncology Institute in Chisinau. The installation will produce up to 300,000 kWh/year, covering up to 15 percent of the organisation’s electricity demand. About USD 5 million for the project were provided as a grant by the Japan International Cooperation Agency.38

There are also projects for the utilisation of solar energy for heating. The Posta Veche commercial centre in Chisinau has installed solar collectors and condensing boilers, almost completely eliminating the use of electricity for water heating and saving 94 MWh/year.39 Due to the high cost of the technology, existing policy documents do not envision the significant development of solar-based power generation over the coming decade. According to the Ministry of Economy40, priorities will include the installation of solar collectors for heating (up to 1 million m2) and units for the drying of agricultural products (80,000 m2). The estimated investment required is EUR 153 million. The use of small-scale PV installations to power water pumps for irrigation and at customers’ sites is also possible.

According to the NREAP, in 2020 around 8.0 ktoe of solar energy will be used for heating.

77 Bioenergy

According to IEA statistics, in 2011 the contribution of biomass to the TPES was 83 ktoe, or 2.5 percent. Almost 85 percent of this biomass was used for heating in the residential sector. Producing reliable estimates of residential biomass consumption is notoriously difficult, especially in a country with a predominantly rural population, thus the IEA’s data may seriously underestimate the real consumption. According to a survey of biomass consumption initiated by the Energy Community 41 , the actual consumption of biomass for electricity and heat in 2009–2011 amounted to 236–237 ktoe, almost three times more than the value cited by the IEA. Of that amount, 220 ktoe were consumed in the residential sector. Similar numbers were used in preparing the NREAP.

As an immediate priority, the government is relying on the development of decentralised biomass use for heating, predominantly in rural areas, which means that the construction of costly infrastructure can be avoided. According to the NREAP, plans for the construction of biomass-fired cogeneration plants can be considered after 2020. In addition to the installation of modern boilers, the modernisation of the decentralised biomass heating sector requires a number of other objectives to be addressed. In particular, it is necessary to ensure a stable supply of “modern” biomass, including pellets and/or briquettes. Building local capacity for the production of modern biomass can help reduce costs and contribute to the development of the local economy. Some promotional and awareness-raising activities can also be helpful. An example of this kind of integrated approach is the Moldova Energy and Biomass Project (see “International programmes and projects” below).

In September 2013, a biogas plant was opened at the Drochia sugar factory owned by Sudzucker Moldova. The plant will use processing waste (compressed beet pulp) to produce about 7.3 million m3 of biogas annually.42 The produced gas will be used in a cogeneration process to provide heat and electricity for the factory, and part of the produced electricity is expected to be sold. The total cost of the project is EUR 7.5 million. The Energy and Biomass Project provided a grant of EUR 140,000 for the installation of the cogeneration equipment.43 The project has been registered as a CDM project.

The first biogas project in Moldova was launched in 2004 by Vasile Moraru, a farmer who built a biogas plant in Colonita. The plant, which has an installed power capacity of 87 kW, produced about 553 MWh of electricity and 510 MWh of heat per year. In 2008, the plant ceased operation due to the closure of the cattle farm that supplied it with biomass. A loan for the resumption of plant operations was later provided within the framework of the MoSEFF programme (see below). In 2010, Moraru became the first power producer in Moldova to receive a feed-in tariff from ANRE.

A landfill gas project implemented by Tevas Grup has an installed power capacity of 320 kW. In 2013, the company was granted a feed-in tariff by ANRE. The expansion of the project to an installed capacity of 2.5

78 MW44 is envisioned. The developers have applied for registration as a CDM project, and currently the project is still at the validation stage.

There are several more biogas projects with an installed capacity of between 1 and 2 MW in the pipeline.

According to the NREAP, the use of biomass for heating is projected to reach 334 ktoe/year by 2020, with 44 ktoe/year of that amount being used outside the residential sector. The total installed capacity of biogas-fired power plants is expected to reach 10 MW, and their power output 31 GWh/year.

Other sources

There is only one hydropower plant — Costesti HPP, with an installed capacity of 16 MW — currently operating in the area controlled by the Government of Moldova. Existing policies do not envision the construction of any significant hydropower capacities over the next decade, although the construction of small HPPs is possible. Two small HPPs with submersible turbines (90 kW and 380 kW of installed capacity respectively) are reportedly planned by private companies.45

There are no targets for energy production using heat pumps. Documents from the Moldova Energy and Biomass Project46 mention completed projects for the installation of heat pumps in a household and a school.

International programmes and projects

The Moldovan Sustainable Energy Financing Facility (MoSEFF) has been implemented by the EBRD since 2009 to address the demand for EE and RE investments in Moldova.47 The second stage of the programme was launched in 2012: a credit line worth a total of EUR 42 million was made available under the two stages. In the framework of the programme, loans worth between EUR 10,000 and 2 million are extended to privately owned organisations in Moldova through local banks for the implementation of EE and RE projects. Borrowers also receive technical assistance. After project completion, an independent consultant verifies the achieved energy savings. In the event of successful verification, the borrower also receives a grant worth between 5 and 20 percent of the original loan.

The programme is expected to help demonstrate the benefits of energy efficiency and of using RES, and also to build expertise among both local financial institutions and companies working in the field of EE and RES. Types of renewable energy projects eligible for financing include:

• biomass combustion in heat only and combined heat and power plants; • biogas generation for use in heat only and combined heat and power plants; • solar thermal collectors for hot water or steam generation; • small hydropower plants; • solar PV plants;

79 • wind power plants; and • geothermal installations.

MoSEFF loans were used for the implementation of a number of projects mentioned in earlier sections, including the biogas plant at the Südzucker sugar factory, the solar thermal system at Posta Veche, and the resumption of operations at Vasile Moraru’s biogas plant.

The Moldovan Residential Energy Efficiency Financing Facility (MoREEFF)48, another EBRD programme, targets the residential sector and involves a credit line worth EUR 35 million. Loans are offered to individual homeowners, associations of homeowners, management companies and energy service companies. As in the MoSEFF, loans are complemented by grants worth between 20 and 35 percent of the project costs. To date, the programme has committed to 682 EE loans totalling EUR 2,525,971, and incentive grants amounting to EUR 718,743.49 While most projects focus on EE, 5.4 percent of the total amount of loans was provided for RE projects — the installation of solar thermal systems, biomass boilers and heat pumps.

The Moldova Energy and Biomass Project was financed by the EU (EUR 14 million) and co-financed and implemented by UNDP (EUR 560,000).50 The project supports the installation of modern biomass boilers in rural public institutions, such as schools, kindergartens, health centres and community centres (thus expanding the use of biomass-fired heating beyond the residential sector). It is planned to install 130 boilers with a total capacity of 35 MW. The project also facilitates the development of biomass markets by providing interest-free loans for the acquisition of briquetting equipment by private companies. The project also supports capacity building (e.g. training operators of straw-fired boilers). In 2013, the Moldova Energy and Biomass Project supported an initiative by the Government of Moldova to promote the procurement of modern biomass boilers (including briquette- and pellet-fired boilers) by rural households. Over 600 families will be able to purchase boilers with subsidies of 30 percent of the cost (but not above EUR 1,000). The boilers must be produced locally. The project provided EUR 640,000 to finance the subsidies.

The project also supports a number of awareness-raising activities, including the annual Moldova Eco- Energetica Awards. A newsletter is published regularly, and an interactive map of bioenergy potential in Moldova is available on the project website. 51

Gaps and recommendations

Following the adoption of the Renewable Energy Law in 2007, various developments have taken place in the country’s renewable energy sector. The country has adopted a number of strategies and programmes, joined the Energy Community, and gained practical experience in the field of renewable energy policy. To accommodate the new realities, the draft Law on the Promotion of the Use of Renewable Energy Sources has

80 been prepared. It is recommended to finalise and adopt the law, thus establishing a legal framework for the new stage of the development of RES in Moldova.

It is recommended to streamline the overall permitting process for renewable energy projects, in particular by establishing clear and transparent procedures for grid connection and covering associated costs. It is also recommended to clearly define other relevant procedures, including the priority purchase and dispatch of renewable-based electricity.

The existing system of feed-in tariffs has failed to attract significant private investments in the renewable energy sector. Such tariffs can currently be granted only after the completion of construction. If the existing system remains in place, it is recommended to make possible the pre-approval of feed-in tariffs.

If the system of auctions for renewable-based generation capacities envisioned in existing strategies and plans is to be implemented, it should be supported by a number of steps, including:

• a detailed study of energy demand and renewable energy potential in order to identify more accurately the capacity quotas to be auctioned; • the consideration of other relevant criteria (including plant location); • the determination of feed-in tariff caps; • the establishment of a specific mechanism to finance feed-in subsidies; and • the adoption of other secondary legislation necessary for conducting auctions.

The 2020 renewable-based electricity target is ambitious and achieving it will require serious efforts and decisive steps. One significant challenge is associated with the sheer size of the necessary investment. According to the NREAP, about EUR 250 million will be required for the construction of the minimum capacity consistent with the 10 percent target, and over EUR 600 million will be needed for the construction of 400 MW. Given the fact that in 2009–2012 the annual net inflows of foreign direct investment to Moldova varied between USD 135.2 million and USD 267.4 million,52 attracting even the minimum necessary amount of investment over just a few years may be difficult, especially given the fact that generous feed-in tariffs would contradict the priorities of cost efficiency.

The development of the decentralised use of RES is an important priority, given the country’s predominantly rural population and the lack of financial resources for the implementation of large-scale projects. To effectively pursue this objective, a number of interconnected steps are necessary:

• the promotion of modern heating equipment (including through subsidies and soft loans); • the development of local capacity for the production of such equipment; • the development of the biomass market and local capacity for the production of biomass fuel (pellets and briquettes); and • training and awareness-raising activities.

81 The Moldova Energy and Biomass Project can be regarded as a good model and a source of experience in this regard. Similar programmes for the promotion of other decentralised solutions, including solar thermal systems and heat pumps, can be considered.

At present, information on RES in Moldova that can be of interest to potential investors and project developers remains scattered. It is recommended to create a dedicated web-based resource providing “one- stop-shop” access to various types of information, including legal documents, inventories of renewable energy potential, project reports, and lessons learned from pilot projects.

Notes

1 Sources: World Bank Data (http://data.worldbank.org/), IEA Statistics (http://www.iea.org/statistics/). 2 According to a different estimate, this share may reach 8%; see the text for details. 3 All data in this paragraph: World Bank Data. 4 Rethink Moldova: Priorities for Medium Term Development of the Republic of Moldova. Report for the Consultative Group Meeting in Brussels, March 24, 2010. 5 IEA Statistics. 6 IEA Statistics. 7 Government of Moldova. National Report for UN CSD 2012 Rio+20. Chisinau, 2012. 8 Energy Strategy of the Republic of Moldova till 2030. 9 There are also several CHPPs owned by sugar factories and producing electricity and heat for the factories’ own consumption with a total installed capacity of 97.5 MW (Energy Strategy of the Republic of Moldova till 2030). 10 Energy Community. Biomass Consumption Survey for Energy Purposes in the Energy Community – Republic of Moldova – National Report. 2011. 11 http://eeas.europa.eu/top_stories/2013/291113_eu-moldova_association_agreement_en.htm (accessed on January 20, 2014). 12 Government Resolution No. 1173 of December 21, 2010 On the Energy Efficiency Agency. 13 Resolution of the Government of Moldova No. 690 of November 13, 2009 On the Approval of the Regulation on the Organization and Functioning of the Ministry of Economy, Structure and Maximum Staff Size of Its Central Office. 14 Resolution of the Parliament No. 238 of October 26, 2012 On the Approval of the Regulation on the Organization and Functioning of the National Agency for Energy Regulation. 15 Resolution of the Government of Moldova No. 401 of June 12, 2012 On the Energy Efficiency Fund. 16 http://www.fee.md/index.php?pag=news&id=355&rid=298&l=ro (accessed on January 15, 2014). 17 At the official exchange rate as of December 30, 2013. 18 Izvoreanu O. Moldova: Legal Framework in the Field of Renewable Energy Sources. Presentation. Kyiv, October 17, 2013. 19 CDM/JI Pipeline Analysis and Database. http://www.cdmpipeline.org/ (accessed on January 18, 2014). 20 http://www.gov.md/public/files/ordinea_de_zi/04.12.2013/Intr09.pdf (accessed on January 15, 2014). 21 Resolution of the National Energy Regulation Agency No. 321 of January 22, 2009 on the Approval of the Methodology for the Determination, Approval and Application of Tariffs for Electricity Generated from Renewable Energy Sources and Biofuel. 22 V. Colun, RES project implementation benchmarks. Presentation. Kiev, October 18, 2013. 23 All tariffs are exclusive of VAT. 24 Resolution of the Board of ANRE No. 429 of October 21, 2011. 25 A. Boscaneanu, “Renewable energy regulation in Moldova.” Presentation. Chisinau, May 16, 2013. 26 Ekonomicheskoye Obozreniye. There are different feed-in tariffs. March 15, 2013.

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27 E. Bicova and T. Kirillova. “Current state and perspectives of the development of renewable energy in Moldova.” In Renewable energy sources: Potential, achievements, prospects. Proceedings of international expert workshop held in Minsk, December 3–4, 2013. 28 I. Raileanu. “Solar Energy Potential in the Republic of Moldova.” Presentation. Kiev, October 17, 2013. 29 P. Todos et al. Renewable Energy – A Feasibility Study. Chisinau, 2002. 30 National Development Strategy Moldova 2020. 31 www.evwind.es/2010/09/04/moldova-a-potential-1000-mw-of-installed-capacity-in-wind-energy/7220 (accessed on January 17, 2014). 32 P. Todos et al. Renewable Energy – A Feasibility Study. Chisinau, 2002. 33 National Development Strategy Moldova 2020. 34 World Bank Data, 2011–2012. 35 National Renewable Energy Action Plan for 2013–2020. 36 M. Lupu. “Biomass Potential in the Republic of Moldova.” Presentation. Kiev, October 18, 2013. 37 V. Colun. “RES projects implementation benchmarks.” Presentation. Kiev, October 18, 2013. 38 http://adevarul.ro/moldova/actualitate/oncologia-alimentata-cuenergie-solara- 1_517f4df9053c7dd83f5ed89f/index.html (accessed on January 19, 2014). 39 MOSEFF website: www.moseff.org/index.php?id=109&type=98&L=1 (accessed on January 18, 2014). 40 Raileanu I. Solar Energy Potential in the Republic of Moldova. Presentation. Kyiv, October 17, 2013. 41 Energy Community. Biomass Consumption Survey for Energy Purposes in the Energy Community – Republic of Moldova – National Report. 2011. 42 www.suedzucker.md/eng/events/first-biogas-plant-working-sugar-beet-press-pulp-opened-drochia (accessed on January 17, 2013). 43 Moldova Energy and Biomass Project Newsletter. No. 13, November – December 2013. 44 V. Colun. “RES projects implementation benchmarks.” Presentation. Kiev, October 18, 2013. 45 V. Colun. “RES projects implementation benchmarks.” Presentation. Kiev, October 18, 2013. 46 http://biomasa.aee.md (accessed on January 15, 2014). 47 www.moseff.org/index.php?id=109&type=98&L=1 (accessed on January 18, 2014). 48 moreeff.info/en/ (accessed on January 20, 2014). 49 moreeff.info/en/moreeff-statistics/ (accessed on January 20, 2014). 50 www.undp.md/projects/Biomass.shtml (accessed on January 21, 2014). 51 www.biomasa.aee.md/potentialul-energetic-din-biomasa-total-pe-rm/ (accessed on January 21, 2014). 52 World Bank Data.

Units of measurement ktoe thousand tons of oil equivalent Mtoe million tons of oil equivalent W watt kW kilowatt MW megawatt GW gigawatt kWh kilowatt-hour MWh megawatt-hour GWh gigawatt-hour TWh terawatt-hour

83

TJ terajoule PJ petajoule

84 Ukraine

Key country data (2011)i

Population (millions): 45.71

GDP: USD 163.42 billion

GDP per capita: USD 3,576

TPES: 126.44 Mtoe

Share of renewable energy in TPES: 2 percent

Country overview

Among the post-Soviet countriesii, Ukraine is the second largest in terms of both economy and population, and the third largest by area. The country inherited its major industrial sector from the former Soviet Union, in which it was one of the leaders in terms of industrial development. National industries include coal mining, machinery and transport equipment manufacturing, ferrous and non-ferrous metal processing, chemical industry, and food processing.

Both the industrial and residential sectors are characterised by extremely high energy intensity and low energy efficiency. Although the energy intensity of the national economy has decreased by some 30 percent since 1990, it remains one of the most energy intensive in the world. In 2011, Ukraine ranked sixth globally (after the Democratic Republic of Congo, Uzbekistan, Zimbabwe, Turkmenistan and Ethiopia) in terms of the energy intensity of its GDPiii; and eleventh in terms of the energy intensity of its purchasing power parity GDPiv.

According to the International Energy Agency (IEA), high energy intensity and poor efficiency combined with energy consumption subsidies is one of the key energy policy challenges facing the countryv. Ukraine has enormous energy efficiency potential, especially on the demand side, but subsidies are preventing market signals from driving demand-side efficiency measures. In addition, due to their large energy consumption, both industrial and residential customers are sensitive to energy prices, making the transition to market-based pricing politically difficult.

In 2011, Ukraine’s total primary energy supply (TPES) was 126,438 ktoe, with natural gas (mainly imported from Russia) providing 37 percent of the total, coal 33 percent, nuclear energy 19 percent, and oil and

85 petroleum products 10 percent. Renewable energy sources (mainly hydro and solid biomass) accounted for about 2 percent of the nation’s TPES.

Despite significant reserves of fossil fuels, particularly coal, as well as substantial renewable energy potential, the country is nevertheless seriously dependent on imports of energy resources, particularly Russian gas and also oil. In 2010, the country’s energy import dependence was estimated at 39.1 percentvi. The price of imported gas has a significant impact on the nation’s budget. Ukraine is also a major transit country for Russian gas exports to Europe, although due to the development of alternative routes and changes in gas demand in Europe the volumes of transit have been decreasing in recent yearsvii.

In this situation, the development of domestic renewable energy sources (RES) is important since it can enhance the country’s energy security and reduce the carbon footprint of the national economy, which is currently based mainly on fossil fuels.

According to IEA statistics (based on energy balances provided by Ukrstat, the national statistical agency), in 2011 the share of renewable energy in Ukraine’s TPES was about 2 percent (Figure 1). This represents a significant increase compared to 2000, when the respective indicator was around 0.9 percent. In 2011, the overall renewable-based component of TPES amounted to 2,541 ktoe. Primary solid biomass accounted for the largest fraction of that component (62 percent, or 1,563 ktoe), while hydro energy represented 37 percent (941 ktoe). “New” renewables — solar, wind and other sources (with the exception of small hydro, included in the overall hydro category) — accounted only for 0.4 percent of the renewable component.

Figure 1. Percentage of renewable energy sources in the total primary energy supply in Ukraine (Source: IEA Statistics)

86 In 2011, a total of 11,217 GWh of electricity was produced from renewable sources (mainly hydro), which accounted for approximately 5.9 percent of gross national electricity consumptionviii. This represented a certain decrease compared to 2010 (when the respective share was 7.2 percent), resulting from a decline in generation at large hydropower plants (HPPs). These levels are relatively low compared to EU countries. According to Eurostat (which officially calculates gross electricity consumption for member states), in 2011 EU member states where this indicator was below 10 percent included Malta (0.1 percent), Cyprus (3.4 percent), Luxembourg (4.1 percent), Hungary (6.4 percent), Poland (8.2 percent), the UK (8.7 percent), Belgium (8.8 percent), Lithuania (9.0 percent), and the Netherlands (9.8 percent). The value for the EU27 as a whole was 21.7 percent.

According to the draft National Renewable Energy Action Plan for the Period up to Figure 2. Renewable energy sources (without large hydro) in power generation in 2012 2020, presented in November 2013, the share (Source: SAEE) of renewable sources in total final energy consumption in 2009 was 3.8 percent, while the share of renewable sources in gross electricity consumption in the same year was 7.1 percent. The share of RES, excluding large hydro, in power generation in 2012 is shown in Figure 2.

However, these data do not provide an insight into the dramatic changes in the field of new renewables that have taken place since 2011 as a result of policy measures adopted in 2009 (mainly the introduction of “green” feed-in tariffs for electricity produced from new renewables, which will be discussed in a later section). According to the data provided by Ukraine’s State Agency for Energy Efficiency and Energy Saving (SAEE)ix, as of September 1, 2013, the total installed capacity of power plants using new renewables reached 956.2 MW; almost one-third of that amount (310.5 MW) went online in 2013. According to the SAEE, the total output of those power plants over the first eight months of 2013 reached 1 TWh (Figure 3). This means that in 2013, for the first time, new renewables could account for more than 10 percent of total power production from renewable sources. The time when fluctuations in the output of large HPPs completely masked developments in the new renewables sector is over.

87

Figure 3. Power generation from new renewables in Ukraine (Source: SAEE)

The main renewable sources behind this rapid growth are wind and solar energy. According to the SAEE, between 2010 and September 1, 2013, the installed capacity of wind farms increased 4.2 times, while the installed capacity of solar plants increased 220 timesx. Over the same period, the installed capacity of small HPPs increased by only 11 percent. These three sources currently account for almost all electricity production from renewable sources (97 percent in 2013).

Institutional setting

Government agencies and ministries

The State Agency for Energy Efficiency and Energy Saving (SAEE)

The SAEE is Ukraine’s dedicated government agency responsible for the development of RES. The other major area of the agency’s responsibilities is the promotion of energy efficiency in Ukraine. The SAEE, which is under the aegis of the national Ministry of Economic Development and Trade, is responsible for the implementation of government policy in relation to the efficient use of fuel and energy resources, energy conservation, RES and alternative fuels, and for ensuring an increase in the share of RES and alternative fuels in the country’s energy supply.

Among other tasks, the SAEE develops policy proposals with regard to the efficient use of fuel and energy resources, energy conservation, RES and alternative fuels, and ensures the implementation of those proposals. It also develops state targeted programmes; approves sectoral and regional programmes in those areas and

88 ensures their implementation; develops state standards, rules and regulations in those areas; and issues certification for alternative fuels that makes their producers and/or consumers eligible for various incentivesxi.

The Ministry of Energy and Coal Industry is responsible for most of the country’s energy supply policies. In particular, it is responsible for the formulation and implementation of government policy with regard to the electric power industry, making it an important player in the production of electricity from renewable sources.

The National Commission for State Energy Regulation (NERC)

The NERC oversees Ukraine’s electricity and gas markets. Among its other responsibilities, it establishes feed-in tariffs for electricity produced from renewable sources (based on minimum rates set out in the Law on Electric Power Industry) and regulates the financing of grid connection for renewable-based power producers. The NERC also issues licences for power generation.

The Ministry of Income and Fees

This ministry administers various taxes and customs duties, thus implementing fiscal incentives intended to facilitate the development of RES.

The Ministry of Environment and Natural Resources

This ministry is responsible for issuing environmental permits, and for climate change policy.

The Ministry of Agrarian Policy and Food

This ministry controls the state enterprise Ukrspirt, a consortium of state-owned alcohol producers that is potentially the largest national producer of biofuels. Given the country’s substantial bioenergy potential, associated with its agricultural sector, agrarian policy may have a significant impact on the development of RES.

Centres of expertise

The nation’s leading research institution in the field of renewable energy is the Institute of Renewable Energy of the National Academy of Sciences of Ukraine (NAS). The NAS also features the Intersectoral Science and Technology Center for Wind Energy. A number of institutes of higher education, including Kyiv Polytechnic Institute (the National Technical University) and the National Mining University, have departments of renewable energy. There are also a number of consulting companies (e.g. the Renewable Energy Centre, http://rencentre.com) and specialist NGOs (e.g. the Renewable Energy Agency, http://www.rea.org.ua) working in the field of renewable energy.

89 Industry associations

Associations of renewable energy producers include the Bioenergy Association of Ukraine (UABIO, http://www.uabio.org) and the Ukrainian Wind Energy Association (UWEA, http://www.uwea.com.ua), which promote the respective renewable energy sectors, represent the interests of energy producers at national and international level, and develop policy proposals. Experts from both associations recently contributed to the preparation of the draft National Renewable Energy Action Plan for the Period up to 2020. Among other activities, the UABIO publishes well-researched position papers on various aspects of the development of the bioenergy sector in Ukraine and provides policy recommendations.

The Ukrainian National Committee of the International Chamber of Commerce launched the GREENENERGY initiative (http://iccua.org/en/content/greenergy-initiative), focusing on the development of green economy in Ukraine. Attracting investment in the development of renewable energy is one of the initiative’s priorities.

There are a number of active international programmes providing grant and loan financing, as well as technical assistance to Ukrainian organisations involved in renewable energy activities. Some of these programmes will be discussed in a later section.

Renewable energy policies

Legislation

The key pieces of Ukrainian legislation relevant to the development of RES are outlined below.

Law on Alternative Energy Sources

The Law on Alternative Energy Sources of February 20, 2003, with amendments as of October 24, 2013, defines the general legal, economic, environmental and organisational principles for the use of alternative energy sources and the facilitation of their increased use in the fuel and energy complex.

Law on Energy Conservation

The Law on Energy Conservation of July 1, 1994, with amendments as of October 16, 2012, defines the general principles of, and approaches to, energy conservation in Ukraine.

Law on Alternative Fuels

The Law on Alternative Fuels of January 1, 2000, with amendments as of June 19, 2012, establishes the principles of state policy with regard to alternative fuels and defines specific mechanisms for promoting the use of biofuels in Ukraine.

90 Law on Electric Power Industry

The Law on Electric Power Industry of October 16, 1997, with amendments as of October 24, 2013, introduces “green” feed-in tariffs for electricity produced from renewable sources.

Law on the Principles of the Functioning of the Electricity Market in Ukraine

The Law on the Principles of the Function of the Electricity Market in Ukraine of October 24, 2013, introduces a new, more liberal model of the national electricity market and defines a specific mechanism for providing subsidised feed-in tariffs for renewable-based electricity.

Tax Code of Ukraine

The Tax Code of Ukraine of December 2, 2010, with amendments as of December 19, 2013, introduces a number of fiscal incentives for certain activities related to renewable energy.

Customs Code of Ukraine

The Customs Code of Ukraine of March 13, 2012, with amendments as of September 19, 2013, defines customs duty exemptions for certain goods related to renewable energy.

Specific provisions of these laws will be discussed in the section on policy instruments below.

International agreements

Ukraine is a contracting party to the Treaty Establishing the Energy Community, an agreement intended to expand the EU’s regulatory framework for energy markets to a number of neighbouring countries. Ukraine signed the accession protocol in September 2010 and ratified the treaty on December 15, 2010, becoming a full member of the treaty on February 1, 2011. The contracting parties commit to implementing various areas of the EU Energy Community acquis communautaire, among them the acquis on renewables, which includes the EU’s key directive on renewable energy, Directive 2009/28/EC of the European Parliament and of the Council of April 23, 2009, on the promotion of the use of energy from renewable sources, and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC. According to the Decision of the Ministerial Council of the Energy Community 2012/04/MC-EnC, each contracting party shall bring into force the laws, regulations and administrative provisions necessary to comply with Directive 2009/28/EC (with some adaptations) by January 1, 2014. Among other provisions, the decision defines mandatory targets for the share of energy from renewable sources in gross final energy consumption by 2020 for the contracting parties. A target of 11 percent was set for Ukraine. By June 30, 2013, the parties had to submit to the Energy Community Secretariat national renewable energy action plans defining renewable energy targets for specific sectors by 2020 and adequate measures to achieve those targets. At the end of 2013, Ukraine had only a draft national action plan presented for public discussion (see the next section).

91 Ukraine is also a party to the United Nations Framework Convention on Climate Change (UNFCCC) and its Kyoto Protocol. As an Annex 1 country, it has binding emissions reduction commitments for both the first and second commitment periods. The development of RES is one way of fulfilling those commitments. Ukraine also has access to one of the flexibility mechanisms under the Kyoto Protocol — Joint Implementation (JI) — which allows the country to receive foreign financing for emissions reduction projects. As of May 2012, Ukraine was the leading country worldwide in terms of the number of JI projects hosted and emission reduction units (ERUs) issuedxii. There were 90 registered JI projects in Ukraine, of which around 10 focused on RES.

Programmes, strategies and plans

State Programme on Energy Efficiency and Renewable Energy Sources for 2010–2015xiii

This programme, approved by the national government in 2010, sets specific targets for the use of RES: by 2015, renewable sources and alternative fuels should account for at least 10 percent of the nation’s energy supply. It also contains targets for specific sources: the total installed capacity of wind power plants, for example, should reach 5.61 GW. As of December 2013, it was clear that these targets are over-ambitious and will not be met by 2015. National experts therefore believe that the programme should be revisedxiv.

Energy Strategy of Ukraine for the Period up to 2030

The original version of the Energy Strategy was approved in 2006. However, in 2012 the draft Updated Energy Strategy of Ukraine for the Period up to 2030 was released for public consultationxv. The updating of the strategy was considered necessary for a number of reasons, among them Ukraine’s new international commitments stemming from its accession to the Energy Community Treaty. The updated strategy is intended to define development goals, objectives and pathways for the nation’s energy sector and set parameters for the restructuring of its energy policies and markets. According to media reportsxvi, on June 24, 2013, the Government of Ukraine approved the draft strategy. However, no final text of the approved document has yet been released and the document is reportedly still being revised by the Ministry of Finance. This analysis will therefore be based on the public consultation draft published in 2012.

Based on overarching energy policy goals, the draft Updated Strategy 2030 defines eight objectives, the fourth of which includes a reference to RES: “Increasing the amount of energy and energy products produced from unconventional and renewable energy sources.”

The draft Updated Strategy contains projections of energy supply and demand, as well as estimates of required investments for three scenarios that differ in terms of GDP growth rate.

By 2030, renewable and unconventional energy sources will account for at least 10 percent of the total installed capacity or 5–7 GW (10–12 GW including large hydro), with their annual power production

92 reaching 11–16 TWh (Table 1) (or 23–28 TWh including large hydro). This will account for about 4.6 percent of total electricity output (reference scenario, without large hydro). In the event of major progress in renewable energy technology and associated cost reductions, these indicators may be higher. According to estimates based on the strategy dataxvii, in 2030 the share of renewable sources in Ukraine’s primary energy supply will amount to 5.7 percent (reference scenario, including large hydro).

Table 1. Power generation from new renewables according to the draft Updated Strategy 2030 (reference scenario) (TWh) 2010 2015 2020 2025 2030 Wind 0.1 0.6 1.9 3.8 7.4 Solar <0.1 0.3 0.8 1.4 2.6 Small hydro 0.2 0.4 0.7 1.3 2.1 Bioenergy <0.1 <0.1 0.2 0.2 0.3 Other RES <0.1 <0.1 <0.1 0.1 0.2 Total RES <0.4 <1.4 3.6 6.8 12.6

The strategy envisions an almost 20-fold increase in biofuel consumption, which is projected to reach 1.9 million tons per year by 2030.

Overall, UAH 190 billion in 2010 prices (USD 24 billion or EUR 18 billion) of investment in renewable energy, including large hydro, will be required over the period 2011–2030.

The document envisions a number of policy measures to promote the development of RES:

• green tariffs for renewable-based electricity; • the development of back-up capacity necessary for the stable operation of power grids receiving a large share of renewable energy, and, where such capacity is lacking, the selection of renewable-based projects to be connected to the grid; • the possible revision of the current scheme of financing grid connection for power producers; • the modernisation of the grid and the development of “smart grids”; • the creation of favourable conditions for investments; and • support to research and development and the localisation of the production of necessary equipment.

The suggestion is to incorporate all these measures into a comprehensive long-term national renewable energy strategy covering the legal, regulatory, economic, scientific and technical aspects of renewable energy development in Ukraine.

In its position paperxviii, the UABIO criticised the draft Updated Strategy for underestimating the potential of renewable sources, particularly bioenergy, and for the lack of ambition in this area. According to the paper,

93 the proposed strategy, which foresees an increase in the share of coal and nuclear energy in primary energy supply by 2030, goes against European trends.

The draft National Renewable Energy Action Plan for the Period up to 2020 (NREAP)xix

The draft action plan, which was presented in November 2013, was developed by the SAEE. Thematic components of the plan were prepared with the involvement of relevant experts from a United Nations Industrial Development Organization/Global Environment Facility (UNIDO/GEF) project, the Institute of Renewable Energy of the NAS, the UABIO, and the Ukrainian Wind Energy Association.

Figure 4. Growth of electricity production from renewable sources according to the draft NREAP and the draft Updated Strategy 2030 (without large hydro)

The action plan is intended to define a pathway towards the achievement of the target adopted by Ukraine within the framework of the Energy Community: a share of 11 percent of renewable energy in overall final energy consumption. According to the authors of the plan, the draft Updated Strategy 2030 is not consistent with this target and focuses mainly on the electric power industry and related sectors (e.g. coal mining), paying less attention to the use of renewables for heating and cooling and transportation. In terms of electric power production, the plan defines targets similar to those set by the draft Updated Strategy 2030 — that is, 11.73 GW of renewable-based installed capacity and 25.24 TWh/year of electricity production (both numbers include large hydro) — although these targets are supposed to be achieved 10 years earlier, by 2020 (Figure 4). The plan also defines specific targets for the use of renewable energy in heating and cooling and transportation (Table 2). Unlike the draft Updated Strategy 2030, the plan does not contain estimates of the investments necessary to achieve its targets.

94 Table 2. Share of RES in final energy consumption according to the draft NREAP 2013 2014 2015 2016 2017 2018 2019 2020 Heating and cooling 6.0 6.5 7.1 8.0 8.8 9.7 10.8 12.2 Electricity 7.2 7.6 8.3 8.7 9.4 10.2 10.9 11.5 Transport 2.3 4.1 5.0 6.5 7.5 8.2 9.0 10.0 Total final energy 5.6 6.1 6.8 7.5 8.2 9.0 9.9 11.0 consumption

According to media reports, during the presentation the plan was criticised by experts from the Institute of General Energy of the NAS, who considered it to be unrealistic and lacking an appropriate technical and economic basis. They also claimed that a large share of intermittent renewables would threaten the stability of the national power systemxx.

Policy instruments

Green Tariffs for Renewable-Based Electricity

Ukraine has a system of feed-in tariffs (so-called green tariffs) for electric power produced from renewable sources. Green tariffs were first introduced in 2009 and applied to small hydro, solar, wind and solid biomass of plant origin. No preferential tariffs were established for biogas. In November 2012, new amendments to the national Law on Electric Power Industry were adoptedxxi. The main effects of those amendments with regard to green tariffs (most of them applicable to facilities commissioned since April 1, 2013) included:

• the introduction of green tariffs for installations using biogas; • the introduction of green tariffs for facilities using biomass of animal origin and organic components of municipal and industrial waste; • the introduction of green tariffs for private households using solar power systems with an installed capacity of up to 10 kW; • the classification of small HPPs into three categories (micro, mini and small), with the most preferential rates established for micro plants; and • a reduction in rates for solar installations.

Green tariffs for all categories of producers will remain in effect until January 1, 2030. The rates differ for installations commissioned in different periods — they decline progressively by 10 percent, 20 percent and 30 percent for installations commissioned since 2015, 2020 and 2025 respectively. The state guarantees the preservation of the tariff regime established by the law for eligible installations, regardless of possible future changes in the legislation. (However, in the event of the introduction of a new tariff regime, companies will be able to switch to it voluntarily.)

95 To protect investors from exchange rate fluctuations, the base rate is fixed at the level of January 1, 2009, converted to EUR at the official exchange rate on that date (EUR 0.05385/kWh) xxii . The base rate is then multiplied by a coefficient that varies from 1.2 for certain wind installations and HPPs to 3.7 for roof-top solar installationsxxiii (Table 3). In addition, another multiplier — a peak-time coefficient equal to 1.8 — is also applied for hydro and solar installations. Based on the resulting coefficient, the NERC establishes Figure 5. Feed-in tariffs for solar electricity in selected fixed minimum tariffs for green energy in European countries UAH, periodically adjusting them to (Source: Presentation by L. Unigovsky) accommodate fluctuations in the EUR/UAH exchange rate. Units co-firing eligible biofuel with other fuels are not eligible for green tariffs.

Among the various RES, the scheme favours solar energy. The tariff for land-based solar installations commissioned by the end of March 2013 is about EUR 0.46/kWh; and for various types of solar installations commissioned between April 2013 and December 2014 between EUR 0.34 and 0.36/kWh. This makes Ukrainian feed-in tariffs for solar electricity uniquely high among European countries (Figure 5).

The NERC certifies companies as eligible for green tariffs on an individual basis. Green tariffs can be granted only to a completed facility ready for operation, thus investors are unable to get the feed-in tariff pre- approved before construction, which increases uncertainty. To be eligible for green tariffs, the installation must meet local content requirements (see next section).

An additional eligibility criterion for large renewable-based plants was introduced at the end of 2013xxiv. From January 1, 2015, renewable-based generating facilities for green feed-in tariffs with installed capacity of 5 MW and above will be eligible only if their construction is consistent with the Ten-Year Development Plan of the United Energy System of Ukraine; otherwise standard rates apply. It is supposed that the decision on consistency will take into account regional demand for power from the specific source. The government is due to approve the Ten-Year Development Plan by January 1, 2015. This approach is in line with some policy recommendations. The IEA’s report published in 2012, for example, noted that the system of generous feed- in tariffs does not prioritise the most cost-effective options; uncontrolled growth in these sectors may lead to a serious financial burden on consumers or on the budget; and the plants are not always built in the most

96 favourable locationsxxv. However, this makes the introduction of pre-approval for green tariffs an even more pressing need.

In order to apply for green tariffs, developers are required to produce several other permits, including a licence for power generation and technical specifications for grid connection. Overall, the procedure for obtaining permits is considered over-complicatedxxvi. The integration of the various permission and licensing procedures would make it easier to develop renewable energy projects. Austria, Denmark and Germany, for example, simultaneously grant building permits, green tariffs and access to the energy grid within the framework of an accelerated procedurexxvii.

Private households are not required to obtain a licence for power generation. No secondary legislation regarding the procedure for granting green tariffs to private households or for connecting them to the grid has been prepared to date, and no cases of households being officially granted green tariffs have been reported. It is reportedxxviii that the regulations now being considered may include a requirement to install enterprise- grade automatic metering systems, which would render the activity unfeasible for private households.

Table 3. Feed-in tariff coefficients and rates for renewable-based electricity producers* RES Plant type and Peak-time Commissioned by March Commissioned between April installed coefficient 31, 2013 1, 2013, and December 31, capacity 2014 Coefficient Minimum Coefficient Minimum rate, rate, EUR/kWh EUR/kWh Wind Up to 600 kW — 1.20** 0.065 1.20*** 0.065 Above 600 kW — 1.40** 0.075 1.40*** 0.075 and up to 2 MW Above 2 MW — 2.10** 0.113 2.10*** 0.113 Bioenergy Biomass — 2.30**** 0.124 2.30 0.124 Biogas — — — 2.30 0.124 Solar Land-based 1.8 4.80 0.465 3.50 0.339 Roof-top, 1.8 4.60 0.446 3.60 0.349 above 100 kW Roof-top, up to 1.8 4.40 0.426 3.70 0.359 100 kW Private 1.8 — — 3.70 0.359 households, up to 10 kW

97 Hydro Micro (up to 1.8 1.20 0.116 2.00 0.194 200 kW) Mini (above 1.8 1.20 0.116 1.60 0.155 200 kW and up to 1 MW) Small (above 1.8 1.20 0.116 1.20 0.116 1 MW and up to 10 MW) * Rates for installations commissioned between 2015 and 2029 are not shown ** Capacity levels apply to wind farms *** Capacity levels apply to individual installations **** Only biomass of plant origin

(Source: Law on Electric Power Industry, Ukraine 2012 [IEA]).

Local content requirements

In order to facilitate the domestic production of equipment and components for the renewable energy sector, the current Law on Electric Power Industry establishes local content requirements for renewable energy installations eligible for green rates. For wind, solar and biomass installations commissioned after July 1, 2013, the level of local content should be at least 30 percent. For similar installations commissioned after July 1, 2014, the local content requirement is at least 50 percent. There is a similar requirement for biogas installations, but the respective commissioning dates are a year later (July 1, 2014, for 30 percent; and July 1, 2015, for 50 percent). The law also establishes the percentage contributions of different components and assembly works for the purpose of calculating overall local content percentages. No local content requirements apply to HPPs.

According to media reportsxxix, the local content requirements introduced by the law have become a source of controversy among players in the country’s renewable energy sector. At the end of 2013, there were a number of companies in Ukraine capable of producing equipment for solar installations, and serious progress had been achieved in the field of manufacturing equipment for wind farms. However, there were virtually no manufacturers of equipment for biogas plants. Representatives of the UABIO therefore suggested completely abolishing any local content requirements with regard to bioenergy, citing these requirements as a major obstacle to the development of the sector. Andriy Konechenkov, chairman of the Ukrainian Wind Energy Association, stated that a 30 percent requirement for wind energy was realistic but suggested delaying the introduction of a higher (50 percent) level by two years compared to the existing law. Green energy producers also questioned the conformity of the requirements with EU and World Trade Organization (WTO) rules. At the same time, national manufacturers of energy equipment supported the existing policy.

98 In November 2013, Ukraine’s Ministry for Economic Development and Trade suggested a compromise solution, publishing proposed amendments to the Law on Electric Power Industry. According to the proposal, for solar, wind and biomass installations commissioned after July 1, 2014, and for biogas installations commissioned after January 1, 2014, the local content should be at least 25 percent. The ministry cited the need to comply with WTO rules and to make the national renewable energy sector more attractive to international investors as reasons for the proposalxxx.

Obligation to purchase

The state guarantees the purchase of electricity produced from certified renewable sources and not sold under direct contracts with customers at the green rates established by the law. In practice, direct contracts are not used, since there are no incentives for customers to buy green electricity at higher prices. It is currently the state-owned wholesale supplier Energorynok that is obliged to purchase electricity produced from RES. The law guarantees that the state obligation to purchase such electricity will be preserved in the event of any reforms of the national power market.

At the end of 2013, the new Law on the Principles of Functioning of the Electricity Market in Ukraine was adopted, which provided for the liberalisation of the national electricity market. In order to maintain subsidised green tariffs for electricity, the new law introduced the concept of a guaranteed buyer, required to purchase renewable-based electricity at such tariffs. The costs of the guaranteed buyers should be covered from the Cost Imbalance Allocation Fund, which is formed by contributions from nuclear and HPPs (excluding small hydro), electricity importers and power transmission companies. The transition to the new system should be completed by the middle of 2017.

Grid connection

“Market participants consider this step to be the most complicated and burdensome”xxxi. The main elements of uncertainty include sources of financing grid connection (including associated infrastructure) and the amount of electricity (capacity) from intermittent energy sources that can be accommodated by the network.

According to the 2012 IEA reportxxxii, project developers were supposed to finance the construction of connections from plant to grid, while the grid companies were to finance investments in substations and related equipment to accommodate the renewable generation. In practice, however, investors usually financed all expenses related to grid connection and then transferred some of the assets to the grid company. There were no standard procedures for reimbursing the developers’ costs of such grid investments.

Amendments to the Law on Electric Power, adopted in 2012, determined sources of financing grid connections for companies producing electricity from renewable sources. According to these amendments, 50 percent of connection costs for such producers are financed by the network company (which compensates these costs through transmission tariffs), while the remaining 50 percent are provided by the project

99 developer as reimbursable financial aid to the network company. These costs should be reimbursed within no more than 10 years. The NERC has updated its secondary legislation accordingly, adding the provision that “at the project developer’s request” the share of costs financed as reimbursable financial aid to the grid company can be increased to the full cost of connection.

According to amendments to the legislation adopted at the end of 2013, from January 1, 2015, renewable- based generating facilities with a capacity of 5 MW and above have to comply with the Ten-Year Development Plan of the United Energy System of Ukraine in order to be eligible for the 50/50 scheme of financing grid connection.

According to media reports, developers continue to experience difficulties getting their facilities connected to the grid. They are often required to finance the modernisation of the existing network or are denied connection on the grounds that networks are unable to accommodate intermittent power sources. Business magazinexxxiii cites a letter from Deputy Minister of Energy and Coal Industry Sergiy Chekh, according to whom the national United Energy System is able to accommodate up to 1.5 GW of capacity from intermittent renewable sources. Above that level, developers of renewable power projects may be required to commission extra back-up capacities to an amount equal to the commissioned renewable-based capacities. The Ukrainian Wind Energy Association notes that, given the existing sector growth rates, the 1.5 GW limit will be reached early in 2014, and it questions the validity of this limit.

Fiscal incentives

There are a number of fiscal incentives for companies using RES in Ukraine.

1. Exemption from corporate profit tax until 2020 on income from:

• the production of electricity and/or heat from biofuels; • the sale of biofuels; and • the sale of domestically produced equipment for using RES.

2. Exemption from corporate profit tax until 2021 on the income of power-generating companies using only RES.

3. An 80 percent reduction in corporate profit tax for five years for the sale of materials, equipment and parts that are used in producing energy from RES and/or for producing alternative fuels.

4. Exemption from customs duties for the import of equipment using RES, equipment and materials used in producing alternative fuels, as well as materials, equipment and components used in producing such equipment and materials.

5. Exemption from value added tax until 2019 on sales of:

• equipment and machinery using alternative fuels; and

100 • imported equipment and components used for the construction or modernisation of plants for producing biofuels, or the production or modernisation of equipment and machinery using biofuels, provided that similar goods are not manufactured in Ukraine.

6. A 75 percent reduction in land tax on land used for power-generating facilities using renewable energy.

Biofuel content requirements

The existing Law on Alternative Fuels requires that a certain amount of bioethanol should be added to all motor gasoline produced and/or sold in Ukraine. The required levels are:

• at least 5 percent in 2013 (recommended); • at least 5 percent in 2014–2015 (mandatory); and • at least 7 percent from 2016 (mandatory).

Given the fact that in 2012 the overall gasoline consumption in Ukraine was 4.2 million tonsxxxiv, the country would require some 210,000 tons of gasoline to meet the requirements of the law. However, according to the Ministry of Energy and Coal Industry, the national capacity for the production of bioethanol does not currently exceed 56 percent of the required amount. The use of imported bioethanol will lead to an increase in gasoline prices due to excise duty. Furthermore, the ministry believes that amendments to existing technical regulations should be made prior to adding bioethanol to gasoline on a larger scale. The ministry has therefore asked the Fuel and Energy Committee of the national parliament to support legal proposals that would delay the introduction of mandatory requirements by two years (to 2016 and 2018 respectively)xxxv. The proposed delay is opposed by the Ministry of Agriculture and Food and by national producers. According to the Ukrspirt state enterprise, the leading Ukrainian producer of ethanol, as a result of the modernisation programme the enterprise alone would be able to produce 150,000 tons of bioethanol by the end of 2013; and by the end of 2014 national producers will be able to supply the required amount of 225,000 tons.

Renewable energy potential

Ukraine has access to various renewable energy sources. According to the Institute of Renewable Energy of the NAS, the total technically achievable potential of RES is 68.9 Mtoe/year in terms of primary fuel substitution, or 548.8 TWh/year in terms of secondary energy products (electricity and heat) (Table 4).

101 Table 4. Technically achievable potential of renewable energy sources in Ukraine (Source: Institute of Renewable Energy) RES Annual technically achievable potential TWh/year Mtoe/year Wind 60 15 Solar 38.2 4.2 - electricity 5.7 1.4 - heat 32.5 2.8 Large hydro 20.1 4.9 Small hydro 8.6 2.1 Bioenegry 178 21.7 - electricity 27 7.21 - heat 151 14.49 Geothermal 97.6 8.4 Energy of the environment (heat pumps) 146.3 12.6 Total 548.8 68.9

Wind

Ukraine has significant wind energy potential. According to the draft Updated Strategy 2030, the greatest wind energy potential is available in the southern and southwestern regions of the country, adjacent to the Black Sea and the Sea of Azov, where the average wind speed exceeds 5 m/s. These regions include the Autonomous Republic of Crimea, as well as Odessa, Mykolaiv, Kherson, Zaporizhia and Donetsk regions. Most large new wind farms are currently being commissioned in these regions. Various sources estimate the economic potential of wind energy in Ukraine at between 10 and 16 GW of installed capacityxxxvi. However, according to the Updated Strategy 2030, the construction of such capacity would require significant investment — according to some estimates over UAH 200 billion (some USD 24 billion). According to the Institute of Renewable Energy of the NAS, the technically achievable potential of wind energy in Ukraine is 60 TWh/year, or almost one-third of the country’s electricity production in 2011xxxvii.

102 Solar

The country is endowed with major solar energy potential. Average annual solar radiation in Ukraine varies from 1,000 kWh/m2 in northern and central regions to some 1,350 kWh/m2 in southern regionsxxxviii. Regions with the highest level of solar radiation mostly overlap with those regions best endowed with wind energy potential and include the Autonomous Republic of Crimea, as well as Odessa, Mykolaiv, Kherson, and Zaporizhia regions. According to some estimates, the economic potential of solar power generation in Ukraine is some 4 GW in terms of installed capacityxxxix. The Institute of Renewable Energy estimates the technically achievable potential of solar energy in Ukraine at 5.7 TWh/year of power generation and also 32.5 TWh/year of heat production.

Bioenergy

Of the total area of Ukraine, 71 percent is agricultural land and 17 percent devoted to forestry. The country’s agricultural sector employs 17 percent of the total workforce, although it accounts for only 9 percent of the nation’s GDPxl. The country therefore has ample potential for the production of biomass energy. According to the UABIOxli, the economic potential of bioenergy in Ukraine is around 26.8 Mtoe/year in terms of primary fuel. This includes some 17.6 Mtoe from firewood and existing biomass waste, and some 9.2 Mtoe from energy crops that could be produced on currently unused agricultural land (over 4 million ha). Agricultural biomass is concentrated in the central, southeastern and southern regions of the country, while the northern and western regions have the greatest potential in terms of forest biomass. According to the Institute of Renewable Energy, the total technically achievable potential of bioenergy in Ukraine is 21.7 Mtoe/year in terms of the substitution of primary fuels, or 27 TWh/year of electricity and 151 TWh/year of heatxlii. According to the draft Updated Energy Strategy 2030, the potential installed capacity of biomass- based facilities is estimated at 10 to 15 GW of heat and 1 to 1.5 GW of electricity.

Sources of bioenergy with the greatest potential in Ukraine include agricultural crops, wood and wood waste, certain fuel types produced from biomass, organic components of solid municipal waste, as well as biogas. At present, the techniques for using bioenergy that are best suited for broad commercial use include biomass combustion in boilers, as well as the capture and use of biogas at solid waste landfillsxliii.

Hydro

According to the Institute of Renewable Energy, the technically achievable potential of large HPPs is 20.1 TWh/year, while the potential of small hydro is 8.6 TWh/yrxliv. More than half the potential of small rivers is available in three western regions of Ukraine — Lviv, Chernivtsi and Zakarpattia regions — which have a mountainous terrain. In terms of installed capacity, the economic potential of small hydro in Ukraine is estimated at up to 4 GWxlv. Small hydro installations can play an important role in power supply to western

103 regions of the country, particularly in remote areas. In some districts, they are able to fully meet local demand for electricityxlvi.

In national legislationxlvii, small HPPs are defined as plants with an installed capacity above 1 MW and up to 10 MW; mini HPPs above 200 kW and up to 1 MW; and micro HPPs 200 kW or below.

Other renewable energy sources

Ukraine has some geothermal resources, including geothermal water and hot dry rock energy. At present, the country is better prepared for using geothermal water. According to the draft National Renewable Energy Action Plan, the economic potential of geothermal energy in Ukraine is up to 8.4 Mtoe/year. Regions with significant geothermal resources include the Autonomous Republic of Crimea, as well as Chernihiv, Poltava, Kharkiv, Luhansk and Zakarpattia regions. These resources can be used for heating, while some high- temperature geothermal resources (120–180°C) can also be used for electricity generation.

The country also has low-potential heat resources (referred to as “energy of the environment” in national publications) that can be exploited using heat pumps. According to Directive 2009/28/EC, energy produced using heat pumps can be counted towards renewable energy generation provided that the pumps meet certain efficiency criteria. The nation’s potential in terms of energy of the environment is estimated at 12.6 Mtoe/year.

Current Use of Renewable Energy Sources, Projections and Targets

The first large-scale national initiative for the development of new RES in Ukraine focused on wind energy. In 1996, Presidential Decree No. 159 on the Construction of Wind Power Plants was signed; and in 1997 the government adopted the Complex Programme for Wind Farm Construction, with the plan to install 1,990 MW of wind capacity by 2010xlviii. The programme also envisioned developing the national production of wind turbines. The programme, which was driven by state investment, ended in failure, with only 76.6 MW of installed capacity by the end of 2010. By the mid-2000s it had become clear that the implementation of the programme would lead to the construction of inefficient wind farms based on obsolete technology, and in 2009 the government radically changed its approach, concentrating on attracting private investors to the sector by means of incentives. To that end, green feed-in tariffs for renewable-based electricity were introduced.

This has led to a real boom in the wind, and particularly solar, energy sectors (the latter being most favoured by the new tariffs). For data on their growth in 2010–2013, see the Country Overview above. The bioenergy- based projects originally lagged behind due to narrow eligibility criteria (only solid biomass of plant origin),

104 although there are signs that the situation may have changed since the adoption of amendments to the Law on Electric Power Industry in 2012.

The growth is expected to continue in the coming years as new investments are made in the sector. According to the head of the SAEE, Mykola Pashkevych, in 2014 the installed capacity of renewable-based power plants will double, increasing by 1 GW. Investments in the sector will amount to some USD 1.5 billion. According to investor plans known to the SEAA, installed capacity is expected to grow by 1 GW annually for several more yearsxlix.

China is one possible source of investments in the sector. In December 2013, during the official visit of Ukrainian President Viktor Yanukovych to China, a framework agreement was signed on the implementation of renewable energy projects. The agreement between LLC Greentech Energy (Ukraine), China National Building Material Group Corporation (CNBM) and China Export and Credit Insurance Corporation (SINOSURE) determines the key principles for attracting direct investments and project financing from Chinese investors for the development of renewable energy projects (solar and wind) in Ukraine with installed capacity over 1 GWl. According to unofficial sources cited by Forbes Ukraine, total funding will amount to EUR 288 million during the first stage, and up to EUR 2.5 billion in the second stageli.

The Autonomous Republic of Crimea, with its ample solar and wind potential, is the leader among Ukrainian regions in terms of renewable-based electricity production. According to the republic’s government, between January and November 2013 solar and wind plants generated 30 percent of the power produced in Crimea, meeting some 6.6 percent of the regional demand for electricitylii. By November 2013, the total installed capacity of solar and wind plants in Crimea reached 295.5 MW, including 227.3 MW at solar plants and 68.2 MW at wind plants. This represents about 30 percent of the total national capacity of such plants.

It is important to note that the renewable energy boom has so far been limited to the electric power sector. No similar processes have taken place in the heating and transportation sectors.

Wind

Wind energy is considered the most promising source of renewable energy by Ukrainian policy makers. As mentioned above, the first major government programme for the development of RES focused on wind energy. According to the draft Updated Strategy 2030, wind-based power generation would be the foundation of the development of renewable energy in Ukraine during the period covered by the strategy.

The country’s wind energy sector, driven by feed-in tariffs and the private investments attracted by those tariffs, is undergoing a period of rapid growth. In 2012, the total installed capacity of wind installations

105 reached 193.8 MW, while electricity output amounted to 257.5 GWh. The respective figures for the first nine months of 2013 were 323.6 MW and 396.5 GWhliii.

At present, the biggest Ukrainian wind farm project is Botiyeve WPP, implemented by Wind Power, a subsidiary of DTEK, the largest Ukrainian energy holding. In 2012, the first stage of the project was commissioned, with an installed capacity of 90 MW and based in Zaporizhia Region. The second stage, with an installed capacity of 110 MW, is expected to be commissioned in 2014. After reaching the design capacity, the plant will produce 686 million KWh annually. The estimated cost of the project is EUR 350 million. The plant is intended to be part of the 550 MW DTEK Priazovsky wind park, which will include two additional wind farms. The estimated cost of the entire wind park project is about EUR 900 millionliv.

In terms of specific targets, the draft Updated Strategy 2030 envisions that in 2030 wind-based generation will account for 7.4 TWh/year of power production (out of 12.6 TWh/year for all new renewables) and 3.5 GW out of the total 6.0 GW of installed capacity. According to the more ambitious draft National Renewable Energy Action Plan, comparable targets are to be achieved 10 years earlier, by 2020: 6,700 TWh/year (out of 12,290 TWh/year without large hydro) and 3,000 GW of installed capacity (out of 6,530 GW).

Solar

The solar power sector demonstrates the most rapid growth driven by feed-in tariffs favouring this type of renewable energy. In 2012, the installed capacity of solar plants was 376.1 MW, while their power output reached 333.6 GWh. The respective figures for the first nine months of 2013 were 550.4 MW and 400.8 GWhlv. Between December 2012 and December 2013, the number of solar installations with green tariffs approved by the NERC increased from 31 to 66lvi.

At present, the largest solar power plant in Ukraine is Perovo Solar Park, based in Crimea. The plant, which has a total installed capacity of 105 MW, was built by the Austrian company Active Solar, and the final stage was commissioned in 2011.

According to the draft Updated Strategy 2030, in 2030 the installed capacity of solar generating facilities will reach 1.5–2.5 GW, and production will amount to 2–3.3 TWh/year. Again, the draft National Renewable Energy Action Plan sets more ambitious targets: 2.8 GW of installed capacity and 2.6 TWh/year of production by 2020. This is generally consistent with estimates given by the international company IHSlvii, according to which the installed capacity of solar plants in Ukraine will reach 2.2 GW by 2020. At present, there are over 100 solar energy projects at various stages of development and implementation in Ukraine with a total installed capacity of over 1.4 GW.

According to the draft National Renewable Energy Action Plan, by 2020 solar energy will contribute 600 ktoe/year (equivalent to 7 TWh/year) to heating and cooling.

106

Bioenergy

According to the draft National Renewable Energy Action Plan, bioenergy may have the largest development potential among all RES in Ukraine. However, the realisation of this potential is constrained by a number of factors, including the insufficient development of the infrastructure and raw material base necessary for a steady and reliable supply to power- and heat-generating facilities; the underdevelopment of sectors that manufacture equipment for bioenergy production; and the small capacity of individual generating facilities. As a result, bioenergy is lagging behind such new renewables as solar and wind energy in terms of electricity production. However, biomass can make a serious contribution to the production of heat.

Estimates of current biomass consumption vary widely, mainly due to the significant share of residential use for heating. According to IEA statistics, in 2011 biofuels and waste accounted for some 1.5 Mtoe in terms of primary energy supply, while the Biomass Consumption Survey for Energy Purposes in the Energy Communitylviii estimated biomass consumption for electricity and heat at 2.9 Mtoe/year (the average for the periods 2009/2010 and 2010/2011).

According to the SAEE, in 2013 there were 124 producers of alternative fuels in Ukraine, including 74 producers of solid fuels, 49 producers of liquid fuels, and one producer of gaseous fuelslix.

As of May 2013, the total installed capacity of bioenergy-based power-generating facilities in Ukraine was about 10 MW, including 6.2 MW of biomass installations and 3.8 MW of biogas installations. A position paper by the UABIOlx lists 10 such installations run by agribusinesses, energy companies and the operators of solid waste landfills. The facilities use wood chips, sunflower husks, corn silage, biogas from manure, and landfill biogas. In December 2013, green tariffs were established for eight generating installations using bioenergy: four biomass-based and four biogas-based installations (the latter including one poultry farm producing biogas from manure and three solid waste landfills)lxi.

According to the UABIOlxii, there are various key challenges to sector development:

• Even after the recent amendments to the green tariff legislation, the definition of biomass eligible for such tariffs still remains too narrow — it covers various types of waste and residues, but does not include products used specifically for producing energy (particularly bioenergy crops), which limits the use of such products. • The green tariff coefficient established by the amended law (2.3) is too low; experts suggest coefficients of 2.7 and 3.0 (depending on the type of installation). • Local content requirements for bioenergy production are unrealistic; the country does not have capacity for producing many types of high-end bioenergy equipment and is unlikely to acquire such

107 capacity within the next few years. In addition, the terminology for equipment components used by the law differs from commonly used national terminology, which may cause problems in registering certain locally produced components as meeting the requirements. • There are no incentives (green tariffs) for producing power by co-firing biomass and fossil fuels, although such projects make it possible to substantially expand the use of biomass at existing generating facilities with minimal capital requirements within a short period. • While the existing legislation exempts imports of bioenergy equipment from customs duties, the procedure for obtaining such benefits is long, complicated and non-transparent.

Despite these limitations, the bioenergy-based power industry, like other renewable-based sectors following the introduction of green tariffs, is poised for rapid growth. According to the UABIO, several projects for thermal power plants (TPPs)/combined heat and power plants (CHPPs) with total installed capacity of 50 MW (five times more than the existing capacity) are currently in preparation. In the agricultural sector, large agribusinesses able to consolidate large amounts of agricultural waste and with the financial resources necessary to run relatively large high-end installations will play the leading role in the development of bioenergy-based generation. Ukrlandfarming, one of the largest agribusinesses in the country, announced its intention to commission 30 biogas installations with an installed capacity of 197 MW at a total cost of EUR 884 million between 2013 and 2015lxiii. Estimated annual electricity production will amount to 1,397 GWh. If these plans are implemented, power production by this company alone will exceed by several times the target for biomass-based generation set by the draft Updated Strategy 2030 and will account for almost half of the national target established by the draft National Renewable Energy Action Plan.

The original version of the Energy Strategy of Ukraine for the Period up to 2030, approved in 2006, estimated the total substitution of fossil fuels with bioenergy at 6.4 Mtoe in 2030 and provided a breakdown of this amount by source. The draft Updated Strategy, published in 2012, is less specific in this regard. According to this document, 300 GWh/year of electricity will be produced from biomass by 2030, but no specific target for the biomass-based production of heat is cited. As noted above, this approach has been criticised by the UABIO,lxiv which suggests that more ambitious targets — 7 percent of primary energy supply, 10 percent of total final energy consumption, and 4 percent of total electricity production by 2030 — can be realistic if proposed policy measures aimed at eliminating barriers to bioenergy development are implementedlxv.

The draft National Renewable Energy Action Plan sets a much higher target compared to the draft Updated Strategy 2030 — 2,350 GWh/year of power generation and 530 MW of installed capacity by 2020. Biogas accounts for approximately a quarter of both figures, while solid biomass accounts for the remaining share. Biomass will also account for 4,000 ktoe of final energy used in heating and cooling (more than two-thirds of all renewable energy used in that sector).

108 Biomass is also intended to be the main source of renewable energy used in transportation. The draft Updated Strategy 2030 envisions that 1.1 million tons of bioethanol and 0.8 tons of biodiesel will be produced in 2030. According to the draft National Renewable Energy Action Plan, bioethanol will provide 320 ktoe of energy used in the transportation sector, while biodiesel will provide another 70 ktoe. Collectively, biofuels will account for 73 percent of renewable energy used in the sector, while electricity from various renewable sources will account for the remaining part.

Hydro

From the 1940s to the 1960s, small hydro played a significant role in power supply at the local level in Ukraine. According to various sources, the number of small HPPs was between 1,500 and 3,000, and their total installed capacity reached 300 MWlxvi. However, as the country moved to a model of power supply based on major plants and centralised grids, most small HPPs were abandoned or fell into disrepair. In 2000, the country had fewer than 100 operating HPPs with an installed capacity of less than 100 MW, all of them using obsolete equipment and/or in a deteriorated condition. In the 2000s, some projects were implemented for the modernisation of existing small HPPs and the construction of new plants.

In 2011, total electricity production at HPPs amounted to 10,496 GWh, or some 5.6 percent of total power production in the country. Large HPPs accounted for more than 98 percent of all power production from hydro energy and for more than 97 percent of power production from all renewable sources. According to the SAEE, in 2012 the total installed capacity in the country’s small hydro sector amounted to 73.5 MW, while the annual production of electricity was 171.9 GWhlxvii. According to the NERC, between December 2012 and December 2013, the number of small HPPs for which green tariffs were established rose from 78 to 90lxviii.

The draft Updated Strategy 2030 does not envision the construction of new, traditional, large HPPs, although some modernisation and expansion projects are mentioned. It is expected that their total installed capacity will grow from 4.5 GW in 2010 to 5.8 GW in 2030, while electricity production will increase from 12.4 TWh/year to 14 TWh/year. At the same time, the document provides for the construction of several new large pumped-storage plants (PSPs). The installed capacity in this sector is planned to increase from 0.9 GW in 2010 to 4.7 GW in 2030, and power production from 0.5 to 7 TWh/year. While electricity produced at PSPs does not count towards renewable energy, developments in this sector are important for the development of renewable sources. Since these plants are used for load balancing, their presence increases the resilience of the national grid and its capacity to accommodate power from intermittent renewable sources such as wind and solar.

According to the draft Updated Strategy 2030, the installed capacity of small HPPs may reach 400 to 800 MW by 2030, while their power production may reach 1.8 to 3.5 TWh/year, depending on the scenario. The

109 draft National Renewable Energy Action Plan envisions the total installed capacity of small HPPs at 150 MW and power production at 330 Gwh/year by 2020.

Other renewable sources

At present, there are 11 geothermal circulation systems operating in pilot mode in Crimealxix. At national level, however, the amount of energy produced from geothermal sources is negligible compared to such renewable sources as solar, wind, small hydro and bioenergy. The draft Updated Strategy 2030 does not contain any specific targets for the use of geothermal energy. According to this document, electricity production from all renewable sources other than the four mentioned above will amount to 200 GWh/year by 2030. The draft National Renewable Energy Action Plan sets more specific targets with regard to this source: by 2020 the country will have 50 MW of installed capacity and will produce 300 GWh/year from geothermal resources. Geothermal energy will also contribute 150 ktoe/year to the total final energy consumption for heating and cooling (less than 3 percent).

Currently, heat pumps are not used in Ukraine to any significant extent. The draft Updated Strategy 2030 mentions heat pumps as a technology but does not provide any specific targets. The draft National Renewable Energy Action Plan envisions that by 2020 heat pumps will provide 1,100 ktoe of energy for heating and cooling (almost 19 percent of the total final consumption for this purpose).

International programmes

There are a number of international programmes aimed at supporting the development of RES in Ukraine. One of the largest initiatives in the area is the Ukraine Sustainable Energy Lending Facility (USELF)lxx, an investment facility of up to EUR 50 million established by the European Bank for Reconstruction and Development (EBRD) specifically to support small and medium-sized renewable energy projects in Ukraine and launched in 2010. The Clean Technology Fund provides an additional EUR 20 million. The facility is intended to provide loan financing to projects for power generation from such RES as biomass and biogas, solar, wind and hydro. The projects have access to free technical assistance financed by a GEF grant. As of October 2013, seven projects had been approved and four more were in the preparation stage. The approved projects include the followinglxxi:

• A solar power plant in Porogi, Vinnitsa Region, with a total installed capacity of 4.5 MW. The total project cost was EUR 9.5 million, including EUR 5.7 million in loan financing from the EBRD and the Clean Technology Fund (CTF). The plant was commissioned in February 2013. • A 12.5 MW wind farm in Lviv Region with a total project cost of EUR 20.5 million, including EUR 13.3 million of loans from the EBRD and the CTF. The plant was due to be commissioned by the end of 2013.

110 Another of the EBRD’s credit facilities in Ukraine is the Ukraine Energy Efficiency Programme (UKEEP)lxxii, which was launched in 2007 to support energy efficiency and renewable energy projects implemented by private companies. As of January 2013, a total of USD 143 million of financing for 75 projects had been approved. The projects receive free technical assistance financed by the Austrian Federal Ministry of Finance.

Further GEF support for the development of RES in Ukraine comes from the Small Grants Programmelxxiii, which supports projects at community level. It provided USD 149,415 for three small-scale demonstration projects in Luhansk Region, which included the installation of a solar heating and power-generating system in a public building.

The project Improving Energy Efficiency and Promoting Renewable Energy in the Agro-Food and other Small and Medium-Sized Enterprises (SMEs) in Ukrainelxxiv was also financed by GEF, which provided a project grant of USD 5.15 million. The project is implemented by UNIDO in partnership with a number of national agencies and organisations, including the SAEE, the Institute for Renewable Energy, and the Ministry of Agrarian Policy and Food.

Gaps and recommendations

The country does not currently have a consistent strategy with regard to RES. There are several policy documents (some of them public consultation drafts) setting widely differing targets and priorities and presumably reflecting different institutional perspectives. It is therefore important to develop a single, coordinated strategy (e.g. a comprehensive long-term national renewable energy strategy, as envisioned by the draft Updated Strategy 2030) incorporating the views of various stakeholders.

The inability to obtain pre-approval for green tariffs for a project before its actual implementation means a significant element of uncertainty for investors. It is recommended to make it possible to obtain pre-approval for green tariffs. The recent introduction of additional eligibility criteria (in the interests of consistency with the Ten-Year Development Plan of the United Energy System) makes this even more important.

Grid connection is reportedly the most complicated and burdensome part of the procedures necessary to get a power-generation project online. A streamlined and transparent procedure for getting grid access is necessary.

Overall, the permitting process for renewable energy projects is long and complicated. It is recommended to streamline and simplify the process, possibly by introducing an integrated procedure for granting a construction permit, grid connection permit and green tariff.

Given current trends in the wind and solar power sector, the grid’s ability to accommodate power from intermittent generators may soon become a constraint on the further development of the sector (and has

111 reportedly already become a constraint in some regions). There are differing views on the grid’s limits in this regard. It is therefore important to:

• develop an authoritative assessment of the grid’s ability to accommodate intermittent power sources; • implement a clear and transparent procedure for selecting producers for connection, should this ability become a constraint; and • implement measures to enhance the grid’s capacity to accommodate intermittent power sources.

Local content requirements are often cited by industry players as a major constraint on the development of RES. It is therefore recommended to lift or relax these requirements, probably depending on the sector.

Given the country’s climate and the size of its agricultural sector, biomass is a ubiquitous renewable resource with significant energy potential. In many settings it can be a more cost-effective energy source than other renewables. While some measures to provide incentives for biomass use have recently been undertaken, it is recommended to take further steps to promote the use of biomass by:

• expanding the definition of biomass to include dedicated energy crops in addition to residues and waste; • providing incentives for the use of RES, including biomass, in the heating sector; • providing incentives for co-firing biomass and coal, which can be a cost-effective way of increasing the use of biomass; • streamlining the procedures for obtaining customs duty exemptions for biomass-related equipment; and • if local content requirements remain in place, aligning the terminology used in the respective legislation with the terminology used within the industry.

Notes i Sources: World Bank Data (http://data.worldbank.org/); and IEA Statistics (www.iea.org/statistics/). ii In terms of purchasing power parity GDP or nominal GDP in constant 2005 dollars. In terms of nominal GDP in current dollars (2012), it is the third post-Soviet economy after Russia and Kazakhstan. iii Total primary energy supply per dollar of GDP in constant 2005 dollars. iv IEA Statistics. v International Energy Agency. Ukraine 2012 – Energy policies beyond IEA countries. 2012. vi International Energy Agency. Ukraine 2012 – Energy policies beyond IEA countries. 2012. vii International Energy Agency. Ukraine 2012 – Energy policies beyond IEA countries. 2012. viii National electricity production adjusted for imports and exports. ix Web portal of the Ukrainian Government: www.kmu.gov.ua/control/uk/publish/article?art_id=246735611&cat_id=244277212 (accessed on December 25, 2013). x I. Kovalyov, “State policy on renewable energy in Ukraine.” Presentation, Kiev, October 17, 2013.

112 xi Decree of the President of Ukraine of April 13, 2011, No. 462, on the State Agency for Energy Efficiency and Energy Saving of Ukraine. xii M. Zhenchuk, The integrity of Joint Implementation projects in Ukraine. National Ecological Centre of Ukraine. Kiev, 2012. xiii State targeted economic programme on energy efficiency and the development of the production of energy products from renewable sources and alternative fuels for 2010–2015. xiv Darya Revina, “Greening Ukraine’s energy: Opportunities and challenges.” Presentation, Kiev, October 18, 2013. xv http://mpe.kmu.gov.ua/fuel/doccatalog/document?id=222032 (accessed on December 19, 2013). xvi RBC Ukraine. The Cabinet of Ministers approved the draft Updated Energy Strategy of Ukraine for the Period up to 2030. http://tek.rbc.ua/rus/kabmin-utverdil-proekt-obnovlennoy-energostrategii-ukrainy- 01082013160100 (accessed on December 25, 2013). xvii Bioenergy Association of Ukraine. Position of bioenergy in the draft updated Energy Strategy of Ukraine up to 2030. Position paper No. 1. 2012. www.uabio.org/img/files/docs/position-paper-uabio-1-en.pdf (accessed on December 22, 2013).The figure is not cited in the strategy text, thus some assumptions were required to produce it. xviii Bioenergy Association of Ukraine. Position of bioenergy in the draft updated Energy Strategy of Ukraine up to 2030. Position paper No. 1. 2012. xix http://saee.gov.ua/forum/userfiles/files/plan.docx (accessed on December 18, 2013). xx UA-Energy. http://ua-energy.org/post/38686 (accessed on December 23, 2013). xxi Law of November 20, 2012, No. 5485-VI On Amending the Law of Ukraine “On Electric Power Industry” with regard to the Promotion of Electricity Generation from Alternative Energy Sources. xxii International Energy Agency. Ukraine 2012 – Energy policies beyond IEA countries. 2012. xxiii For installations commissioned between April 2013 and the end of 2014. xxiv Law on the Principles of the Functioning of the Electricity Market in Ukraine. xxv International Energy Agency. Ukraine 2012 – Energy policies beyond IEA countries. 2012. xxvi Darya Revina. Greening Ukraine’s energy: opportunities and challenges. Presentation, Kiev, October 18, 2013. xxvii Organization for Economic Cooperation and Development. Attracting investment in renewable energy in Ukraine. Private sector development policy handbook. 2012. xxviii Interfax Ukraine. http://interfax.com.ua/news/economic/129582.html (accessed December 20, 2013). xxix Delovaya Stolitsa, Alternative energy will be disassembled for spare parts. November 18, 2013. xxx Interfax Ukraine. http://interfax.com.ua/news/economic/175698.html (accessed on December 29, 2013). xxxi IFC Ukraine Cleaner Production Programme. How to obtain feed-in tariff. www.ifc.org/wps/wcm/connect/62f3e8004b6ba7e89ccdbd6eac26e1c2/ENG_green-tariff- final.pdf?MOD=AJPERES&CACHEID=62f3e8004b6ba7e89ccdbd6eac26e1c2 (accessed on December 20, 2013). xxxii International Energy Agency. Ukraine 2012 – Energy policies beyond IEA countries. 2012. xxxiii Business. “Wind energy.” July 22, 2013. xxxiv Ukrinform. www.ukrinform.ua/eng/news/ukraine_cuts_gasoline_consumption_2_in_2012_298518 (accessed on December 28, 2013). xxxv Forbes Ukraine. “The Ministry of Energy wants to delay the adding of bioethanol to gasoline.” http://forbes.ua/news/1361069-minenergouglya-hochet-otsrochit-dobavlenie-bioetanola-v-benzin (accessed on December 27, 2013). xxxvi L. Unigovsky, “The Energy Strategy of Ukraine up to 2030. The role of renewable energy sources.” Presentation, Kiev, October 18, 2013. xxxvii S. Kudria, “Renewable energy development in Ukraine.” Presentation, Kiev, October 18, 2013. xxxviii L. Unigovsky, “The Energy Strategy of Ukraine up to 2030. The role of renewable energy sources.” Presentation, Kiev, October 18, 2013. xxxix Draft Updated Energy Strategy of Ukraine up to 2030. xl World Bank Data.

113 xli Bioenergy Association of Ukraine. Position of bioenergy in the draft updated Energy Strategy of Ukraine up to 2030. 2012. xlii S. Kudria, “Renewable energy development in Ukraine.” Presentation, Kiev, October 18, 2013. xliii Draft Updated Energy Strategy of Ukraine up to 2030. xliv S. Kudria, “Renewable energy development in Ukraine.” Presentation, Kiev, October 18, 2013. xlv Draft Updated Energy Strategy of Ukraine up to 2030. xlvi Draft National Renewable Energy Action Plan up to 2020. xlvii Law on Electric Power Industry. xlviii International Energy Agency. Ukraine 2012 – Energy policies beyond IEA countries. 2012. xlix UNIAN. www.unian.net/society/849227-moschnosti-vozobnovlyaemoy-energetiki-v-ukraine-v-2014- godu-udvoyatsya-glava-gosenergoeffektivnosti.html (accessed on December 29, 2013). l Official website of the president of Ukraine. www.president.gov.ua/en/news/29691.html (accessed on December 28, 2013). li Forbes Ukraine. “The number of solar plants may increase dramatically.” http://forbes.ua/business/1362217-v-ukraine-mozhet-rezko-vyrasti-kolichestvo-solnechnyh-elektrostancij (accessed on December 26, 2013). lii Web portal of the Government of Ukraine. www.kmu.gov.ua/control/uk/publish/article?art_id=246855721&cat_id=244277216 (accessed on December 23, 2013.) liii I. Kovalyov, “State policy on renewable energy in Ukraine.” Presentation, Kiev, October 17, 2013. liv Press release by DTEK. www.dtek.com/ru/media-centre/press-releases/details/dtek-otkril-krupnejshuju- ukrainskuju-vetroelektrostantsiju (accessed on December 30, 2013). lv I. Kovalyov, “State policy on renewable energy in Ukraine.” Presentation, Kiev, October 17, 2013. lvi www.nerc.gov.ua/?id=8774 (accessed on January 2, 2013). lvii L. Unigovsky, “The Energy Strategy of Ukraine up to 2030. The role of renewable energy sources.” Presentation, Kiev, October 18, 2013. lviii Energy Community. Biomass consumption survey for energy purposes in the energy community – Ukraine – National report. 2011. lix I. Kovalyov, “State policy on renewable energy in Ukraine.” Presentation, Kiev, October 17, 2013. lx Bioenergy Association of Ukraine. Prospects for the electricity generation from biomass in Ukraine. Position paper No. 5. 2013. www.uabio.org/img/files/docs/position-paper-uabio-5-en.pdf (accessed on December 22, 2013). lxi www.nerc.gov.ua/?id=8774 (accessed on January 2, 2013). lxii Bioenergy Association of Ukraine. Barriers to the development of bioenergy in Ukraine. Position paper No. 3. 2013. www.uabio.org/img/files/docs/position-paper-uabio-3-eng.pdf (accessed on December 22, 2013). lxiii UNIAN. http://economics.unian.net/energetics/724940-agroholding-ukrlandfarming-postroit-30- biogazovyih-zavodov-za-884-mln-evro.html (accessed on December 30, 2013). lxiv Bioenergy Association of Ukraine. Barriers to the development of bioenergy in Ukraine. Position paper No. 3. 2013. lxv Bioenergy Association of Ukraine. Prospects for the electricity generation from biomass in Ukraine. Position paper No. 5. 2013. lxvi UNIAN. http://economics.unian.net/energetics/513258-malyie-ges-bolshie-nadejdyi.html (accessed on December 28, 2013). lxvii I. Kovalyov, “State policy on renewable energy in Ukraine.” Presentation, Kiev, October 17, 2013. lxviii www.nerc.gov.ua/?id=8774 (accessed on January 2, 2013). lxix Draft National Renewable Energy Action Plan up to 2020. lxx www.uself.com.ua/index.php?L=2 (accessed on December 27, 2013). lxxi S. Maslichenko, “EBRD experiences and priorities – the example of USELF.” Presentation, Kiev, October 17, 2013. lxxii www.ukeep.org/ (accessed on December 27, 2013). lxxiii https://sgp.undp.org/ (accessed on December 27, 2013).

114 lxxiv www.thegef.org/gef/node/4305 (accessed on December 27, 2013).

Units of measurement ktoe thousand tons of oil equivalent Mtoe million tons of oil equivalent W watt kW kilowatt MW megawatt GW gigawatt kWh kilowatt-hour MWh megawatt-hour GWh gigawatt-hour TWh terawatt-hour TJ terajoule PJ petajoule

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