Ukraine's Renewable Energy Production Potential Remains Largely Untapped

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 |  Includes: FSLR, JASO, JKS, SMTGF, SUNEQ, TSL, YGE
by: Livio Filice

Summary

Recent Russia-Ukraine events have lead Ukraine to re-imagine its energy landscape to include renewable energy.

Ukraine's current solar energy installation capacity and projected growth figures prior to the annexation of Crimea region.

Global suppliers who can benefit as Ukraine moves away from Russian gas supply.

Recent events between Russia and Ukraine have put the world on edge, while Ukrainian policy makers imagine Ukraine becoming entirely self-sufficient for their energy requirements, with a significant portion of that to come from renewable energy. Russia has stated that Ukraine must pay back the natural gas debt owing to Russia or it will no longer extend credit terms to Ukraine, meaning that Ukraine will have to pre-pay for their natural gas needs. This event has triggered Ukraine to buy up as much natural gas as possible from Russia, which is a short-term solution to a much deeper issue not only for Ukraine, but also for Europe as a whole. Ukraine acts as a buffer state between Russia and Europe. Today, Russia provides over half of the European Union's fossil fuel import, as the EU simply does not have the fossil fuel resources to meet its own energy needs.

Although renewable energy only accounts for less than 10% of Ukraine's energy consumption, it is no stranger to solar power. In fact, Ukraine's solar PV power industry has been growing by leaps and bounds since 2011. The main drivers for the growth in Ukraine's solar PV market have been the introduction of a Feed-In Tariff (FIT), along with the significant decrease in cost for solar PV modules.

One of the more active solar companies in Ukraine is Austria-based Activ. Activ has been developing large-scale solar PV projects, and its website offers some details on the extensive network of projects it has included in Ukraine. Several notable projects completed between 2011 and 2013 include the 100MWp "Perovo Solar Park", the 82MWp "Ohotnikovo Solar Park", the 54MWp "Priozernaya Solar Park", and the 69MWp "Nikolayevka Solar Park". With Russia completing the annexation of the Crimea region of Ukraine in March 2014, questions have been raised regarding the existing solar PV energy production in Ukraine, because the majority of Activ's solar farms are located in Crimea and in Odessa, another hostile region of Ukraine that many speculate could be invaded by Russia. Activ, which is one of the only companies that has completed utility-scale solar park projects in Ukraine, has had a focus on developing projects throughout Europe geared towards institutional investors. The company has developed a module in which it is investing equity to the tune of 30-30% of the total project cost, with the balance of the debt funding coming from Moscow-based VTB Bank and Sberbank of Russia.

For obvious reasons, doing business in Ukraine comes at a cost of around 10% loan interest rate, although this has been partially offset by the generous Ukraine FIT rates. Throughout 2012 and 2013, the Global Solar industry was bullish on Ukraine's short-term installation capacity; however, no new industry reports have been released since the uprising in Ukraine. Analysts had projected Ukraine would construct and commission new solar PV facilities with cumulative capacity of 1.8GW by 2016; breaking it down, 2012 and 2013 would see 400MW of new PV capacity, and in 2014 and 2015 new installed capacity would be bumped up to 500MW in each year. A report by the Association of Alternative Field and Energy Participants of Ukraine showed that in July 2013, Ukraine had reached a total installation capacity of 494MW, which was significantly lower than the optimistic analyst reports, but still showing noteworthy progress since it launched its solar PV initiative in 2011.

Renewable sources of energy, which account for less than 10% of Ukraine's energy mix, can play an important role in meeting Ukraine's energy needs and generating "green" growths. Taking into account the current political and military events with Russia, including the massing of 40,000 Russian troops along the Eastern Ukraine border, along with the potential increase and removal of trade terms with Russia, the transition to renewable sources of energy production is highly supported by Ukraine. To support this view, Olexander Motsyk, Ukraine's ambassador to the USA, has recently kicked off a road show with the goal to attract investors to Ukraine's renewable energy market. "Russia's aggression towards Ukraine indeed brought energy security concerns to the fore," Motsyk said at a renewable energy conference at the Ukrainian embassy in Washington. "I strongly believe the time has come for US investors to discover Ukraine, especially its energy."

Until the dust settles with regards to Russia's military actions in and around Ukraine, it is highly unlikely that any major capital will flow into new Ukrainian solar PV projects. However, the IMF's $18 billion aid package announcement has demonstrated that the world is willing to assist, albeit with strict terms. Large US-based multinationals could deliver significant value in assisting Ukraine to become self-sufficient. First Solar, Inc. (NASDAQ:FSLR) delivers financeable, utility-scale solar PV production plants with experience constructing and operating in geo-politically unstable regions. Through its global operations, SunEdison Inc. (SUNE) also constructs and operates financeable, utility-scale solar PV parks. Low-cost Chinese module manufacturers, such as JA Solar Holdings Co. (NASDAQ:JASO), Yingli Green Energy Holdings Co. (NYSE:YGE), and Trina Solar Limited (NYSE:TSL) will benefit the most, because they are capable of delivering high-volume, financeable, quality products to these emerging markets. Existing equipment suppliers, such as German-based inverter supplier SMA Solar Tech (OTCPK:SMTGF) and JinkoSolar Holding Co. (NYSE:JKS) will likely be beneficiaries as Ukraine moves away from Russian gas supply.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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