Europe’s Biggest Solar Power Incentive Bolsters Ukraine: Energy

Solar-power capacity in Ukraine is forecast to double this year, spurred by the completion of Europe’s biggest photovoltaic plant in December and incentives a third higher than anywhere else in the region.

Developers in the former Soviet republic may add panels with 300 megawatts of capacity after last year installing about 200 megawatts, according to the Association of Alternative Fuels and Energy Market Participants, the main lobby group tracking PV installations in the nation. It had just 2.5 megawatts in 2010.

“A boom in solar is starting in the Ukraine,” Kaveh Ertefai, chief executive officer of Activ Solar GmbH, a Vienna- based developer that has installed 90 percent of Ukraine’s solar capacity. This year, he said, “there will be a lot of growth.”

President Viktor Yanukovych’s efforts to develop Ukraine’s renewable energy industry contrast with steps to rein in solar subsidies in Germany, Italy and Spain after incentives for the industry pushed installations past government targets. Manufacturers led by Sharp Corp (6753). and Schneider Electric SA (SU) are stepping up work in Ukraine.

Yanukovych’s administration is targeting 1,000 megawatts of solar capacity by 2015, about 2 percent of the 50,200 megawatts of capacity the nation had in 2010.

Investment Doubling

Investment in the country’s renewables market including wind, biomass and biofuels may be valued at $5 billion in five years, up from $2 billion now, said Vitaly Daviy, head of the alternative fuels association that’s known as the APEU.

“There’s a lot of interest from local and international companies right now in the Ukrainian solar market,” Daviy said in a telephone interview from Kiev. The government target “will be reached for sure.”

The nation offers a feed-in tariff fixing a price of 46 euro cents ($0.61) a kilowatt-hour for utility-scale solar projects, 59 percent higher than Greece, which has the next highest rate in Europe. The rates are little changed since their introduction in April 2009 and are fixed until 2030.

In contrast, German 2013 electricity futures for 2013 cost the equivalent of about 5.2 euro cents a kilowatt-hour, according to Energy Broker prices on Bloomberg.

The subsidies, meant to compensate for the risk of doing business in Ukraine, may spur runaway growth as it did in western European nations that offered above-market rates for solar power, said Martin Simonek, an analyst at Bloomberg New Energy Finance.

Passing Targets

“The high tariffs in the Ukraine might trigger a boom in solar that beats government targets,” Simonek said, noting that subsidies delivered through feed-in tariffs for solar power have been trimmed in Germany, France, Spain, Italy and the U.K.

President Yanukovych is seeking alternatives to natural gas, the nation’s biggest source of energy and the cause of price disputes with Russia’s OAO Gazprom (GAZP) that cut winter supplies twice since 2006.

Ukraine gets about 40 percent of its energy from gas, 31 percent from coal and 17 percent from nuclear plants, according to statistics compiled by BP Plc. (BP/) Renewables accounted for less than 1 percent.

The formula Russia uses to fix gas prices for Ukraine is “enslaving,” Yanukovych has said, adding in a speech last month that investment in energy self-sufficiency help the country “earn and save money for decades to come.”

Wind and Hydro

Ukraine had about 117 megawatts of wind farms, 104 megawatts in small hydroelectric capacity and 68 megawatts in biomass by the end of last year, according to the lobby group.

Activ finished three PV plants last year including one on Dec. 29 totaling 100 megawatts, which is the biggest in Europe. More developers and manufacturers including Sharp, Schneider Electric and Renewable Energy Corp. are moving into Ukraine, said Daviy from the renewable industry group.

Sharp is seeing customer interest in its solar modules in Ukraine “because it has a very attractive feed-in tariff,” said Barbara Rudek, a spokeswoman for the company, which is based in Osaka, Japan. Officials at Schneider, which has its headquarters in Rueil-Malmaison, France, had no comment.

The investments reflect growing interest in renewable energy projects in Eastern Europe after Germany and Italy, the world’s two biggest solar markets, reduced incentives.

Bulgaria and Romania

Solar capacity in Bulgaria, the nearest market to Ukraine with a feed-in tariff, is adding capacity at a slower pace, while neighboring Romania has no megawatt-scale projects, data from New Energy Finance shows. Romania pays as much as 33 euro cents a megawatt-hour through a so-balled green certificate program.

Bulgaria, with an estimated 85-megawatt expansion last year to 100 megawatts, pays almost 25 euro cents a kilowatt-hour for utility-scale projects under rates fixed every July, according to New Energy Finance. Poland plans to boost solar subsidies starting in 2015.

Ukraine’s installed solar capacity may reach 800 megawatts within two years, driven by the feed-in tariff and “good” solar-radiation levels in the south, said Peter Rozenkrants, managing director of SunElectra, an Israeli developer that’s working in Ukraine.

SunElectra is developing 10 projects in the Black Sea region of Odessa with a total 30 megawatts, Rozenkrants said by e-mail.

Activ’s Plans

Activ, which owns a polysilicon factory in Ukraine and the Perovo development that was completed in December, also opened an 80-megawatt plant in Ohotnikovo in October. It expects to build at least 200 megawatts this year, according to Ertefai.

Ekotechnik Praha s.r.o. of the Czech Republic plans two 42- megawatt solar parks near Kiev and Dnepropetrovsk this year. Kiev-based Rentechno Group operates a 0.25-megawatt project and is developing more than 15 megawatts.

Checks on growth include financing constraints, a complex bureaucracy and weakening economic expansion, the European Bank for Reconstruction and Development said on its website. The bank introduced a 50 million-euro program to boost renewable-energy projects in Ukraine in 2010.

“The key challenge is project financing,” said Terje Pilskog, head of solar systems for Renewable Energy Corp. of Norway, which is selling its products in Ukraine.

IMF Bailout

Ukraine’s current-account deficit has widened on higher gas imports, according to the central bank. A 2010 bailout loan from the International Monetary Fund has been frozen since last March following the country’s failure to raise household gas tariffs. Since Ukraine isn’t part of the European Union, solar-project funding isn’t always readily available and can be costlier than within the bloc.

“It’s essential that the feed-in tariff is higher than the ones in more mature markets because of the higher risk and higher cost of debt here,” said Ertefai from Activ.

Ukraine’s premium tariff this year probably will remain little changed this year, said Daviy of the APEU, noting that European banks are showing a “big interest” in the country’s renewable-energy market.

“The stability of the feed-in tariff is directly dependent on the economic situation in Ukraine,” he said. “But so far, all is good.”

To contact the reporter on this story: Marc Roca in London at mroca6@bloomberg.net

To contact the editor responsible for this story: Reed Landberg at landberg@bloomberg.net

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