PRIVATE SECTOR DEVELOPMENT POLICY HANDBOOK Attracting Investment in Renewable Energy in Ukraine - SECTOR COMPETITIVENESS STRATEGY FOR UKRAINE PHASE II - NOVEMBER 2012 The OECD Eastern Europe and South Caucasus Initiative Launched in April 2009, the OECD Eastern Europe and South Caucasus Initiative is part of the OECD Eurasia Competitiveness Programme, which aims to contribute to economic growth in Armenia, Azerbaijan, Belarus, Georgia, Moldova, and Ukraine. Its objective is to share with the governments of the region the knowledge, experience and good practices of OECD countries to create a sound business climate for investment, enhance productivity and support entrepreneurship, develop the private sector, and build knowledge-based economies to render its sectors more competitive and attractive to foreign investment. Its approach comprises both a regional policy dimension, which entails peer dialogue and capacity building, and a country-specific aspect supporting the implementation of a number of prioritised reforms. A sector analysis is also included, covering the formulation of targeted policies and strategies requested at the industry level. Within the framework of the programme, public authorities, the private sector and civil society in these countries have been engaged in a dialogue and collaboration process to support policy actions and identify the key barriers to sectoral competitiveness. The participation of all the stakeholders in the reform process, including foreign investors, is considered to be crucial for guaranteeing the effectiveness and transparency of the recommended policies. 2 Foreword Since 2009, the OECD Eurasia Competitiveness Programme has supported the Government of Ukraine in advancing national economic reform through its “Sector Competitiveness Strategy for Ukraine” project. This handbook contains the conclusions of the second phase of the project. It addresses specific policy barriers to improve competitiveness in one of the sectors with high investment promotion potential identified in the first phase, namely renewable energies. During phase II (2011-12) the OECD worked with the Government of Ukraine, the private sector, international organisations and civil society to advise on how to remove sector-specific policy barriers, exploiting its industry and policy expertise to focus on the most practical and effective measures. The project is conducted in collaboration with the Government of Ukraine and financially supported by the Government of Sweden. 3 Acknowledgements This handbook is the outcome of work conducted by the OECD Eurasia Competitiveness Programme under the authority of the Eastern Europe and South Caucasus Initiative Steering Committee, in consultation with the Government of Ukraine and participation of the private sector in Ukraine. Representatives of the administration of the President of Ukraine, the Verkhovna Rada of Ukraine, several Ministries, government agencies and private sector associations in Ukraine contributed to this report. These include: Iryna Akimova, First Deputy Head of the Administration of the President of Ukraine; Valeriy Khoroshkovsky, First Deputy Prime Minister of Ukraine; and Andriy Klyuyev, former First Deputy Prime Minister of Ukraine and former Minister of Economic Development and Trade. The Ministry of Economic Development and Trade: Petro Poroshenko, Minister of Economic Development and Trade; Anatoly Maksyuta, First Deputy Minister; Volodymyr Bandurov, Deputy Minister; Volodymyr Pavlenko, Deputy Minister; and Olena Kucherenko, Head of Department on International Co-operation and Foreign Technical Assistance. Representatives of the public sector participating in the Working Group on Energy-Efficiency and Renewables: Serhiy Dubovyk, Deputy Head of the State Agency on Energy Efficiency and Energy Saving and Working Group Chairman; Ruslana Boroshok, Chief of Unit on Energy and Resource Efficiency, Ministry of Economic Development and Trade; Vira Bozhok, Head of Unit on Statistics of Commodity Markets of the Trade Statistics Department, State Statistical Service; Vitaliy Chernenko, Chief Expert of the Market Research Department, Anti-Trust Committee; Svitlana Karpishina, Deputy Head of Division, Chief of Investment Policy Unit, State Agency on Energy Efficiency and Energy Saving; Yuriy Khomenko, Chief of the Agro- Energy and Renewable Energy Sources Unit, Ministry of Agrarian Policy and Food of Ukraine; Yuliya Kovaliv, Co-Ordinator on Reforms Implementation, Reforms Co-Ordination Centre; Yulia Lyovina, Chief Specialist of the Unit for Energy and Resource Saving, Department of Real Economy Development, Ministry of Economic Development and Trade; Rostyslav Maraykin, Biomass Energy Project Manager, State Agency on Investments and National Projects of Ukraine; Vira Oleynikova, Deputy Director of the Department on Project Management and Energy Efficiency Chief of Unit, Ministry of Regional Development, Construction and Housing, Oleksiy Orzhel, Deputy Head of Unit on Electricity Generation Companies, National Commission of Electricity Regulation; Oleksandr Rubel, Head of Unit of Coal Mining Equipment of the Ministry of Energy and Coal Industry; Leonid Shofarenko, Head of Unit on Co-operation and Investments of the State Aerospace Agency; Viktor Tymoshchuk, Chief Specialist of the Agro-Energy and Renewable Energy Sources Unit, Ministry of Agrarian Policy and Food 4 of Ukraine; I. Vecherya, Chief Specialist of the Ministry for Regional Policy, Construction and Housing; Volodymyr Vysotin, Deputy Head of the Market Research Department, Anti-Trust Committee; and Vleriy Yoldych, Head of Unit on Electricity Generation Companies, National Commission of Electricity Regulation. Representatives of the private sector and international organisations participating in the Energy-Efficiency and Renewables Working Group: Edward Klaeger, Chief Executive Officer, Alter Energy Group AG; Darya Revina, Vice President of the International Chamber of Commerce; Volodymyr Kukovalskyi, Director of SmilaEnergoPromTrans. Ltd.; Serhiy Osavolyuk, Project Manager, IFC; Olga Revina, Vice Chairwoman on Energy Efficiency, ICC; and Tetiana Zheliezna, Senior Researcher, Institute of Engineering Thermophysics, NASU. The Co-Chairs of the OECD Eastern Europe and South Caucasus Initiative: Sweden (His Excellency Anders Ahnlid, Ambassador and Permanent Representative of Sweden to the OECD) and Poland (His Excellency Paweł Wojciechowski, Ambassador and Permanent Representative of Poland to the OECD). The handbook was written under the guidance of Carolyn Ervin, Director of the Directorate for Financial and Enterprise Affairs (DAF); Anthony O’Sullivan, Head of the Private Sector Development Division within DAF; Elena Miteva, Counsellor, Private Sector Development Division within DAF; and Antonio Somma, Acting Head of the Eurasia Competitiveness Programme. Grégory Lecomte, Project Co-ordinator, supervised the study, and Hendrik Bosshammer, Policy Analyst, prepared the handbook. The publication benefited from the valuable input and exchanges provided by a panel of reviewers, including: Darya Revina, Vice-Chairwoman on Energy Efficiency, ICC Ukraine; Edward J. Klaeger IV, Chief Executive Officer, Alter Energy Group; Gabriela Prata Dias, Senior Expert, Directorate for Energy Efficiency and Investment, Energy Charter Secretariat; Elena Merle-Beral, Energy Policy Expert, IFC Advisory Services; and Anselm Eisentraut, Energy Analyst, IEA. Additional research assistance was provided by Catherine Hart. In addition, the publication was reviewed by the State Agency on Energy Efficiency & Energy Saving of Ukraine. The handbook was edited and prepared for publication by Antonio Somma, Grégory Lecomte, Hendrik Bosshammer, Michael Sykes, Vanessa Vallée and Georgia Hewitt. 5 Local support in Ukraine was provided by Oksana Shulyar, Consultant of the OECD and former Adviser to the Head of the Parliamentary Committee of Ukraine on European Integration. Ms. Lyudmila Strelyanaya-Taranina provided interpretation and translation. Valuable administrative support was provided by Anna Chahtahtinsky, Orla Halliday, Elisabetta Da Prati and Lynn Whitney. 6 Table of Contents Acronyms and abbreviations ......................................................................... 9 Executive summary ..................................................................................... 10 Introduction ............................................................................................. 14 Chapter 1: Unlocking the potential of energy production from renewable sources by focusing on investment policy ................................................. 15 The renewable energy sector in Ukraine has significant investment potential ..................................................................................................... 15 Hydroenergy has been historically strong, but technology needs upgrading ................................................................................................... 16 The potential of solar energy and wind power is confined to specific regions ........................................................................................................ 17 Biomass is the renewable energy source with the greatest potential across all regions of the country ................................................................. 18 Focus on investment policy: administrative hurdles as a key barrier to renewable energy production ...................................................................... 20 Bibliography