Ukraine: Ukraine's Energy Efficiency Fund

Last Updated: 7 November 2016
Article by Maksym Sysoiev

Efficiency dilemma

In common with other post Soviet countries, Ukraine suffers from very low energy efficiency and a high level of energy consumption in its economy. Key primary sources of energy are coal and natural gas (about 36 percent of the energy mix each), with nuclear power accounting for roughly 18 percent.1

The Ukrainian government has been aware of the efficiency issue for decades but has failed to make substantial progress. State officials felt no great incentive to take any meaningful active measures, as Russia always sold natural gas to Ukraine at low prices.

The mood changed dramatically in 2014 when the need for a long-term energy efficiency drive was made painfully obvious by the flare up of tensions between Ukraine and the Russian Federation. In particular, Ukraine's northern neighbor tried to pressurize the new administration and the state-owned company PJSC "Naftogaz of Ukraine" into buying natural gas at much higher prices than previously. This kick-started the Ukrainian government into taking a number of sporadic energy efficiency initiatives, such as partial reimbursement of loans to households to replace gas boilers, special ESCO legislation in the public sector, and special tariffs for producers of heat from alternative fuel.

While these measures had some effect, they were soon deemed insufficient, and both public officials and civil society realized that a more systematic approach was required, in particular in terms of providing financing for energy efficiency measures in the district heating sector.

This culminated in late 2015 / early 2016 with the government proposing that an Energy Efficiency Fund be set up to create sustainable financing for energy efficiency activities in district heating and related areas. Discussions ensued, resulting in the Cabinet of Ministers of Ukraine adopting a formal 'Concept for the Implementation of Mechanisms for Sustainable Financing of Energy Efficient Measures' by Resolution No. 489-p of 13 July 2016. The Resolution paves the way for the regulatory framework needed to establish the Energy Efficiency Fund, as discussed below.

Savings opportunity

The Concept estimates that the country loses out to the tune of US$3 billion annually through the inefficient use of fuel and energy in district heating costs, meaning that some 60 percent of energy resources are wasted. Household energy consumption is running at 20,384 Mtoe, which is almost 33 percent of total consumption in Ukraine ‒ 58 percent of which is natural gas.

Ukraine burns on average 18.6 bcm of gas per annum to meet its district heating requirements. If Ukraine enjoyed EU levels of gas consumption efficiency, it would save up to 11.4 bcm annually (equivalent to 60 percent of Ukrainian imports). This could be achieved through the following measures: (i) thermal upgrade of buildings (up to 7.3 bcm); (ii) replacement of residential boilers (up to 1.7 bcm); (iii) boiler upgrades (up to 1.1 bcm); and (iv) pipeline upgrades (up to 1.3 bcm).

The intensity of individual energy consumption in Ukraine is two to three times higher than in western EU member states. To achieve a comparable level of energy efficiency, an estimated UAH 830 billion (approx. US$32 billion) would need to be invested in thermal upgrades of buildings. Disappointingly, only UAH 893 million (approx. US$34 million) was allocated for these purposes in the state budget for 2016–2017. Given scant resources in state and local budgets, sustainable financing of energy efficiency projects in residential buildings is possible only with additional funding from international financial and donor organizations.

Creating the Energy Efficiency Fund

The Ukrainian government believes the Energy Efficiency Fund will successfully attract external financial resources. It will be based on the principles of transparent and efficient use of available resources and on the model European approach towards cooperation between state and international financial organizations.

The Fund should start operations in 2017 (most likely full scope operation will start in April 2017, according to recent statements by government officials) and optimal results are expected to be achieved in a 15 year horizon. Key goals include: (i) a reduction in the consumption of natural gas forecast at 1.5 bcm annually, saving UAH 9.1 billion (US$350 million) annually and improving stability of the local currency and energy efficiency; (ii) reduction in direct subsidies (UAH 5 billion annually) and other breaks for consumers with respect to utilities payments; (iii) creation of a new market for energy efficiency measures; (iv) creation of up to 75,000 new jobs; (v) increased tax payments of up to UAH 10 billion; and (vi) a reduction in household bills, and increased investment by households in their own energy efficiency.

The government plans that, initially, the Fund will use existing mechanisms of support available under state and local budgets. According to official statements, UAH 800 million (US$31 million) has been allocated for the Fund, and up to US$110 million is expected from international partners for 2016-2017.

The Cabinet of Ministers of Ukraine expects to create the Fund directly as a state establishment, as proposed under the Bill: Law on Energy Efficiency of Buildings No. 4941 of 11 July 2016, planned to be voted on in November 2016. The Fund will act on the basis of a charter approved by the government.

It is expected that the Fund will, in particular: (i) reimburse part of the interest payable on loans (or part of loans) obtained by individuals, associations of co-owners of condominiums and ESCO companies for energy efficient measures related to residential households, public establishments and organizations; (ii) provide technical support (energy audit, technical and economic feasibility, etc.) for projects aimed at enhancing energy efficient measures of residential households, public establishments and organizations and heating supply buildings; (iii) provide proposals for state policy in the sphere of energy efficiency and related instruments; and (iv) perform other functions in accordance with its charter.

The Ministry of Regional Development and Municipal Economies of Ukraine is currently working on the structure of the Fund, and the government is expected to approve its internal structure (financing, staff, etc.) after consultations with all interested parties in October–November 2016.

Footnote

1 https://www.eia.gov/beta/international/analysis.cfm?iso=UKR

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
4 May 2017, Seminar, Frankfurt am Main, Germany

The seminar is organized by WM Group with its brands Börsen-Zeitung and Wertpapier-Mitteilungen and and will focus on recent developments in the financial market regulation.

4 May 2017, Seminar, London, UK

Naomi Pryde and Tim Constable will discuss case law developments over the last 18 months in the area of tort.

10 May 2017, Seminar, Munich, Germany

The event serves as high-level networking platform and gives all related parties active in the M&A insurance market the opportunity to connect and share their views. It brings together M&A insurers, transaction lawyers and tax advisers, private equity and corporate investors, and investment bankers. The M&A Insurance Summit aims to inform about new market trends, recent product developments and further business opportunities.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.