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Ukraine is threatened by energy shortage

The discussion about trade with the separate regions of Donetsk and Luhansk oblasts (SRDHO) once again drew attention to the topic of energy independence of Ukraine. Officials in the government state that the dependence on coal from the occupied territories can be reduced to zero within 2-2.5 years. At the same time they calm the population with statements about the stability of the power-transmission system, in which the main generation is provided by nuclear energy stations, already independent from the Russian supplies. However, if one evaluates the prospects of the Ukrainian energy sector, there is no reason for excessive optimism: if we traditionally keep living for today, then after 5-10 years the country can face enormous challenges – regardless of the war, Russia, and the EU.

The power-transmission system of Ukraine – the problems are around the corner

Discussions about the country’s energy independence mostly dealt with the issues of gas supplies. Today, the coal trade issue has become topical. However, energy independence concerns not only the above-mentioned products, but also petrochemicals and electricity. It was recently written about gasoline, diesel and jet fuel: there really is a problem.

Production of electricity, unfortunately, is also under threat. To understand this, it is worth to look closer at the overall system of generation and distribution. Below is a simplified map (as of 2012) of generation and transmission facilities.

The system’s basis consists of nuclear power plants, which produce up to 50% (in 2016 according to UkrStat – almost 52%) of all electricity. NPPs provide the basic electrical generation, which is constant and is designed to ensure the satisfaction of the minimum necessary requirements. The total generating capacity of Ukrainian nuclear power industry is slightly over 13 GWs. That’s a lot, but not enough to meet all the needs of the state. Especially that is because the NPPs are not able to quickly increase or decrease the production of electricity. Bursts of consumption, daily and seasonal variations are backed by the so-called shunting facilities: hydro and thermal power plants.

To “Energoatom’s” credit, during 2014-2016 a significant reduction of the dependence on Russian fuel was achieved. Cooperation with “Westinghouse” allowed beginning the process of gradual replacement of fuel rods. Moreover, after not a very successful start, the shortcomings have been eliminated and the nuclear experts are quite satisfied with the American fuel.

It would be possible to slightly calm down, but there is a next problem – the resource of the reactors of Ukrainian nuclear power plants. Today, there are 15 units which the system operates (plus 1 exploratory reactor on the Nauky Prospect in Kyiv). Unfortunately, most of them have already served out their designed service life. Illustration is given on the chart below:

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Data source for infographics are IAEA and “Energoatom”: they can hardly be suspected of information distortion. Thus, as of 01.01.2018, there will be only three reactors in Ukraine, which will not exceed the maximum projected resource. All the other ones act in accordance with the decisions on extending their service life.

It is too early to raise a scare on this point – virtually any reactor has a margin of safety, and the “extension” of service life involves carrying out serious repairs and maintenance of all systems, and of the reactor vessel. This practice is widespread in the world. The only question is how many times and for how long to extend.

Unfortunately, the metal of the reactor vessel changes its properties under the effect of radiation and temperature extremes. It is impossible to fully restore its original characteristics, and only in certain cases is it possible to come close to them. Given the Ukrainian realities, it is quite difficult to carry out works on the second “life extension” at all stations, except for the Rivne station, due to the limitations of the power units design (the first has already been done, except for the three most new reactors – note by Tyshkevich). So, having worked their potential out, they will stop. The first portent is the second reactor of the South Ukraine Nuclear Power Plant, which has to be shut off no later than in 2025. Ukrainian energetics will immediately feel the shortage of 1 GW of generating capacity. By 2030-2035 the shutdowns of reactors will occur one after the other. Thus, already by 2036 out of 13 GWs of electricity generation there will remain only 3 GWs at the disposal of “Energoatom”.

There might be problem with those ones as well: the level of power plants maintenance in Ukraine, mildly speaking, is far from ideal. This applies to virtually all types of stations. For example, in January-May 2016 power units of Ukrainian NPPs emergently stopped 9 (nine!) times.

The situation with the thermal and hydroelectric power situations is not better. Ukrainian thermal power stations decrease energy production year-on-year, and not due to fuel shortage but because of the old equipment. And, for example, in recent years I have heard about large-scale works of modernization and/or replacement of power plants only a couple of times, and even then only in relation to small stations with a generating capacity of under 200 MW. Generation at thermal power stations is going to gradually decrease. HPPs can maintain the level of electricity generation both due to maintenance of the facilities, and to the commissioning of the new Kanivsky pumped storage power plant (PSP, not to be confused with HPP) and new units of the Tashlytsky PSP plant.

Thus, by 2035 total electricity production in the country is likely to be reduced almost by half. A reasonable question arises: how the capacities can be replaced. There are multiple replies to this question from the different groups of population: starting with “green” energy everywhere, a large network of small power plants on coal, gas, renewable sources, and ending with construction of new nuclear power plants. The reasons why it is necessary to think about this become clear, if all the numbers are put in one picture box. I took it upon myself to make such infographic:

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What to do and what to build?

As an experiment, a week before writing this text I have posted a brief background information on the terms of operation of Ukrainian NPPs on Facebook. The goal was to make a kind of cross-section of sentiment of the active part of society. The comments turned into a serious discussion.

The first argument, which has been voiced – was about working on the energy consumption of the economy. Indeed, the level of energy costs for production of 1 dollar of GDP in Ukraine is one of the highest in Europe (in 2013 it was the highest; more recent data was not analyzed). The problem is that power consumption is not identical to electricity consumption. Even if “agrarian paradise” is chosen as a priority of the development of Ukrainian economy, the problem will still be relevant in connection with an increase in household electricity consumption.

In 1991, when Ukraine received the power system of the Ukrainian SSR (since then it has not changed much) at its disposal, household consumption did not exceed 30% of the total. Today, this rate is more than half of the total: TV-sets, computers, air conditioners, and heaters require more and more energy. Therefore, loss of nuclear capacity will be considerable, even for the resource-based and agrarian economy. This raises the question of replacement.

Green energy

One of the most popular ideas in Ukraine is the idea of the development of green energy – solar and wind stations, etc.. There were many examples cited and the readers quite categorically asserted that replacement of nuclear power with the solar panels is quite real. There were also arguments for:

  • 1.Already today solar and wind power plants are actively built in the country in large quantities. These are the GW capacities, which Golden Concord Holdings plans to build in the Chernobyl zone, as well as another fifty stations across the country.
  • 2.Solar energy is environmentally friendly, simple, and construction of stations does not take much time.
  • 3.The payback period of solar stations in Ukraine is at its maximum 7-9 years, and in some types (and rates) it varies in the range of 5.5 – 7 years.

The arguments are strong and worth paying attention to, but there is a number of significant limitations. Main one is the land. Unfortunately, Ukraine is not a perfect place (except for the part of the Odessa oblast and Crimea) for the solar industry. The lack of light has to be compensated with the large areas. The above mentioned “Chernobyl station” will take not less than 2.5 thousand hectares of land. The number of such vacant plots (or the state-owned ones) is not large. And any reasonable investor would require guarantees for his business: in part of the ownership of the land under the station. Meanwhile, members of the Parliament in their populist race year after year continue to hinder the launch of a full-fledged land market.

Environmental friendliness. Yes, the very production of energy from sunlight or wind is quite safe. As is, by and large, hydro or nuclear power generation. The question is in what is after. Solar cells do not last forever (declared by the manufacturer operation period does not exceed 25-35 years, depending on type), and the question of their utilization is quite acute – there are more than enough harmful substances in the panels. Same goes for batteries, without which the full-time job of some types of solar power plants is problematic. Batteries operate even less: not more than 6-7 years. Therefore, cleanliness and environmental friendliness of the solar station itself is balanced with the harmful production of components, and problems with the utilization of the old equipment.

Payback period raises the most questions. Economic calculations for the “green” energy are based on energy sales to the state on a “green tariff”. This tariff today ranges in the country (is set for each seller separately) from 15 to 19.5 eurocents per 1 kWh. Calculated in UAH, we get the price of “green” energy in the wholesale market: about UAH 5.63. For the consumer (including transportation costs, losses and premium of the marketer) the price rises already up to about UAH 7.5 per kWh. Of course, consumers do not pay this price – compensation of different tariffs is done at the expense of cheap energy from nuclear power plants, where the cost of kWh is about UAH 0.42-0.45, which is 13 times lower than the “green tariff”.

If nuclear power plants disappear and their capacities are replaced by power stations operating on a green tariff, the Ukrainians (both domestic consumers and industry) will be forced to pay for electricity at least 5-7 times more (given the alleged government plans to gradually reduce the green tariff).

If the special rates for green power are cancelled, the payback period of solar power plants will increase from a minimum of 5.5 years to 15-20 years. This automatically reduces the number of potential investors.

And finally, the thing which is most important: the level of technological development. It’s a pleasure to read about 48, 50, 60 new solar and wind power stations, which were planned to be build in 2016 (so far there is no information whether they were built – “Hvylya” editor’s note). It is equally nice to know that there is already more than 350 objects of “green” energy in the country. The problem is that most of them have a power of 10 kW or less. And, for example, 48 new stations will add nothing more than 120 MW to the electric power system of the country. One nuclear reactor produces 1000 MW. However, it is worth noting that in 2013 alternative energy already produced 200 MW in Ukraine, but much of this capacity had been lost in the Crimea.

Of course, alternative energy should be developed; it is the energy of the future. But, unfortunately, Ukraine cannot depend on the explosive nature of this development. In the chart above I have designated the maximum, very optimistic horizons. If suddenly within the next 3 years all the objects about which officials and businessmen said are completed, and if about 25% more brand new facilities are put into service, the total generation will not exceed 3 million kilowatt-hours per year in 2020. If we continue to be optimistic, and if we and assume at least 10% annual growth in generation (with rapid progress of up to 12-15% in some years), the production will be at the level of 18 billion kilowatt-hours of electricity by 2035. This is sorely not enough to cover the deficit of 75-76 billion kilowatt-hours after decommissioning of the most reactors at the Ukrainian nuclear power plants.

Unfortunately, it is not possible to develop thermal and hydro power plants very fast. Resource of the rivers is limited, and production, which is based on the combustion of fuel, requires supply of the fuel itself, either gas or coal. This brings us back to either the subject of dependence on the trade with the Russian Federation, or the development of our own production. It also should be taken to consideration that TPPs and CHP-plants in terms of ecology are significantly worse than the nuclear power plants, not to mention the hydroelectric generating stations, solar and wind power plants.

There is also another option – to build nuclear power plants. It is also not perfect as the accident price is very high, and the public opinion en masse is set against nuclear energy, and as the waste management issues and work with the decommissioned reactors require separate solutions, and, finally, there is a same long cycle of construction and payback.

NPPs are a very expensive pleasure. Construction of the station on a turnkey basis costs at least USD 5 billion per unit with power up to 1.5 GW. But the costs may rise twice higher. The term of the construction is also not small – from 10 to 12 years, it is the average world data. During construction of such a facility it is necessary to observe a full annual cycle only for the environmental impact assessment. For example, it is necessary to conduct geological examination, and then to observe the selected land and the climatic influence on it within a year. Therefore, a separate law is required for the construction of a nuclear facility. Yes, that refers even to a new reactor at the existing nuclear power plant. After that come the actual construction, installation and start-up. However, given the cost of energy, the payback period of one reactor even with today’s tariffs is not more than 10-12 years. If the reactor is working for foreign markets, the period is even less. A simple example: GW electric power exported to the EU provides FX earnings of about USD 2 billion per year. This is, by the way, a source of earnings of DTEK with “Burshtynsky Island” – the station works for exports to Europe, operates on subsidized coal, without which, as according to lobbyists, the blackouts are becoming a reality.

But let’s go back to the subject of NPPs. If you think about replacing reactors which have to be deactivated, then simple arithmetic gives the unpleasant details: with a 12-year cycle of the reactor construction a country has no time to replace the 2025 “shortfall” in power. The collapse of 2030-2035 in electricity generation can be offset only by beginning of construction of new stations already in 2018. Two questions arise:

1. Where to get USD 50 billion (10 GW units)?

2. Whose reactors to set (as cooperation with Russia seems to be not politically correct)?

The answers to these questions exist:

1. China. China bought reactor technology and has already built all the possible types of them on its territory: starting from the Russian VVER to American ACPR1000+. Besides, the Chinese have a similar right to build nuclear reactors in third countries. For China this means a possibility of investing into strategic industries, and with a proper dialogue the Chinese are likely to choose this option.

2. Czech “Skoda”. This company has a right to build the reactors, similar to Russian VVERs. In this case, there are projects of completion of 3rd and 4th units of Khmelnitsky NPP which was planned to be built together with Russia, but the cooperation terminated in 2015. Alas, but the nuclear power plant project does not provide a replacement of the type of reactor under construction, but the option of cooperation with the Czech Republic presents new opportunities. Given that the work on the project is completed by more than 50%, completion of two units will cost Ukraine about USD 5 billion (5 billion were already spent earlier) and will take no more than 5-6 years. And, there is no need to take a separate law and to consult with the public – the decision had already been taken earlier.

At the same time all the equipment except the reactor vessel can be constructed on the spot. This means that out of the required USD 5 billion only 600-800 million will go to external partners. The remaining costs will actually be a huge investment in our own industry: from the metallurgy to the mechanical engineering.

In this matter the completion of two own reactors at this stage looks more attractive than construction of the solar plants mentioned above, as most of the “investment offers” suggest the purchase of Chinese parts (up to cables and connectors), and on-site installation. This is despite the fact that the country has its own school and its own production – the company “Quasar”. But in the circumstances of absence of demand from large players it loses its own market to foreigners.

Quick commissioning of generating capacities in Khmelnitsky gives another opportunity – to earn in foreign markets and to invest in our own energy system. Khmelnitsky NPP was originally designed for the electricity supply to the countries of Eastern Europe. There are two transmission lines to Poland and Slovakia, which are not used and, alas, are not in the best condition. But they exist, and a relatively small investment can open the way to the markets where there will be lack of energy soon (in Poland, coal-fired thermal power plants with total capacity of 4 GW are to be decommissioned from 2016 to 2020). Thus, receiving even USD 1 billion profit from one unit, in 5 years it would become possible to pay back the construction of the two reactors and during the 6th year to get a free resource for investment. The decision on where to direct it has to be taken by the Ukrainians themselves. It can be nuclear power, recoverable types of fuel, green energy, as well as research and development. Total operation term of an NPP ranges today from 40 to 60 years.

After all, having an additional billion per year, one can think about the methods of stimulating our own producers. For example, it can be “Quasar” with its photovoltaic modules or turnkey solutions. For example – the state order for small power plants on the roofs of the cities’ skyscrapers as that is done in Slovakia.

What has to be done, regardless of preferences?

Any investment in the energy sector have long payback period. It requires a minimum of stable conditions and guarantees for investors.

For example, the development of solar energy, or the construction of new transmission lines are out of the question; until the problem of the land market is resolved, the investment in SES, NPP and CHP are meaningless. Land ownership may be one of the guarantees of implementation of energy projects. The same applies to the alienation of land for public needs: laying a transmission line means facing the ambition and wishes of hundreds of owners of “10-acres for beetroots”. If there is a single obstinate owner, there will no longer be an infrastructure project.

Taxation, guarantees for investors, assistance from the state – all these issues are solved at a legislative level. In neighboring countries, a special regime is used to stimulate the development of key sectors, which includes incentives, and guarantees in administrative matters. Ukrainian government so far states that the idea itself of even the simplest free economic zones is flawed: there should be equally good conditions for all. There should be, every new Cabinet says about these conditions since 2005. And nothing has changed since then.

But the main thing is to learn how to plan, and to see the future further than to the next parliamentary elections or to yet another political crisis. Politicians should analyze and plan; and citizens should ask a simple question: “What will happen in 15-20 years?” This time is coming really very soon.

Inna Gordienko

PR-director of the Ukrainian Institute of the Future

+380 44 537-17-78

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