Speech on the 'Electricity sector reform in the Ukraine' event organised by the European Policy Centre (EPC) in Brussels.
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Honourable Member of the Rada and Head of the Energy Committee,
Dear Ladies and Gentlemen
Welcome the discussion on this important topic for the future of Ukraine's energy sector. As you can see Ukraine and energy issues continue to be on the top agenda here in Brussels. Just one month ago, we discussed the role of Ukraine as a gas gateway for Central and Eastern Europe. In two weeks, we will have the EU-Ukraine summit, addressing also important topics related to energy.
The current climate of affairs focuses clearly on the gas issues. While the attention on it is currently very high for many reasons, the electricity market reform is no less important.
It is a multifaceted issue, as we have many sources of electricity. One can therefore argue that electricity reform is even more important than in the gas sector. Today, Ukraine's electricity generation comes in 56% from nuclear and in 39% from coal. There is a vast untapped potential to move to clean energy sources from renewable electricity.
II. Electricity reform is a gateway to renewable energy
Let me first say a few words about the importance of this sector for the EU and Ukraine. I will then focus on the challenges of reform in Ukraine and our cooperation in this respect.
A proper electricity framework is key to fostering clean energy use in the country, to decarbonisation and to growth and jobs in the sector – local jobs that cannot be moved to other countries.
In other words, an open and competitive electricity market is the gateway for Ukraine's modern energy policy that complies with the climate commitments made in the Paris Agreement.
In the EU, it is a stable and competitive electricity market framework that fostered the development of renewable energy and contributed to a rise of growth and jobs. It is the basis for our clean energy efforts, reinforcing energy security, market integration, energy efficiency efforts, decarbonisation and innovation.
Reflecting the evolution that the EU electricity market has undergone since the 2009 Electricity Directive, the Commission made in November 2016 new proposals under the Clean Energy for All Europeans package to further modernise our electricity framework and notably adapt it further to the rapidly changing landscape for renewable energy production.
This is also why I welcome very much the positive outcome of the negotiations between the Council and the Parliament on the new Renewable Energy Directive and the binding 32% target for 2030, agreed on 14 June. This is one of key deliverables of the EU's Clean Energy Package for All Europeans, and of the Energy Union, which is one of the top priorities of this Commission. On Wednesday morning, both co-legislators also agreed on our legislative proposals concerning energy efficiency and governance, two additional key pillars of our Energy Union strategy.
Our ability to advance the renewable energy market has been possible because we first put in place a solid electricity market framework, based on competitive forces, and we could also learn from our mistakes.
This is the task ahead of Ukraine today and it has a great opportunity to learn from this EU experience.
We should not forget, however, that today electricity is produced not only from renewable energy sources such as solar, wind, hydropower or geothermal.
In many Member States, nuclear power plants are still a key source of electricity. In some others, coal-fired power plants dominate the landscape, underscoring the triple challenge of switching to more sustainable energy sources leading to decarbonisation, ensuring clean air and addressing the social impact of the transition.
Managing the electricity market also means addressing nuclear safety, as the safety of nuclear installations and sustainable management of nuclear waste is a key concern for all of us.
Also, the EU has put in place a Coal Regions in Transition Platform to help those Member States that still rely on coal for its electricity production, to shift away from this commodity. Decarbonisation is the EU's key objective if we want to mitigate and reduce global warming. The Commission is currently working on a long term Decarbonisation Strategy 2050, scheduled to be adopted at the end of this year.
III. Ukraine's electricity sector reform – challenges ahead
Ukraine has committed to reforming its electricity sector in several ways: through the Association Agreement, the Energy Community Treaty and the Memorandum of Understanding on a Strategic Energy Partnership.
The first key objective is to create a competitive electricity market at wholesale and retail market to the benefit of citizens of Ukraine, ensuring that the sector is open to new entrants, transparent in terms of its management, and gives a real choice to consumers, based on lower tariffs.
This agenda is vast and it is very ambitious, considering Ukraine's starting point. Ukraine also started only very recently so the momentum for this reform still needs to be reached.
In 2016 Ukraine adopted the Law on Energy Regulator and in 2017 the framework Law on Electricity Market, which lays a good basis for introducing market liberalisation, based on the EU's Third Energy Package. This is a key and welcome development.
Minister Nasalyk will certainly confirm the challenge that now lies ahead of Ukraine to implement this Law, as it requires a sustained and dedicated effort to create all secondary rules for its good implementation.
The EU is assisting Ukraine with this task notably via the Support Group for Ukraine, the EU Delegation and several international donors. The Energy Community Secretariat is providing the bulk of technical advice to help achieve results. Indeed, we acknowledge that creating all these new rules from scratch is not easy.
The key challenge is to unbundle the production from transmission and distribution of electricity. Price-based competition on electricity market is a must, if the reform is to deliver results for consumers.
Completing the corporate governance reform of Ukrenergo is a key task in this regard. It needs to be equipped, including the necessary assets, in order to perform properly its function as a transmission system operator.
In order to make the distribution sector truly competitive, Ukraine needs also to ensure proper transparency and accountability of the regional distribution companies.
I take note of the objective of the Electricity Market Law to liberalise the market by 1 July 2019. If this schedule is to be maintained, significant efforts are still required. In this context, a strong, competent and independent energy market regulator is crucial.
I welcome in this respect the appointment of new members to the board of Ukraine's National Regulator. We need to work closely together to make sure that it has the best possible capacity to properly frame the market.
The Regulator can tap on the vast EU practice to find the right solutions for the regulation that best fit the current Ukraine situation. A case-by-case analysis needs to be made, for example on electricity tariffs, to ensure a good match, given a variety of practices across the EU Member States. There is no one-size-fits-all solution for the specific aspects of the electricity market. Due diligence is a must, because these decisions impact directly the consumers.
The second key objective is investment in infrastructure, which is a crucial challenge for the stability of the grid and mitigating the risk of blackouts. This needs to become a priority, if Ukraine's objective is to synchronise its electricity grid with that of the EU and of the Republic of Moldova. This is also relevant from the point of view of cybersecurity.
I welcome in this respect the agreement reached last year between Ukraine's electricity transmission operator Ukrenergo and ENTSO-E to work toward a future synchronisation of Ukraine's electricity grid with that of the EU. This is a longer term work, for which the foundations lie both in a functioning electricity market and a proper, solid infrastructure. The Commission engaged to assist Ukraine and Moldova in this task and we will do so accordingly, based on a realistic planning and identification of issues to be addressed.
The third key objective is to ensure that Ukraine has a solid and sustainable framework for renewable energy production. This requires both a functioning competitive market and a solid infrastructure framework that enables integration of renewable capacity into the grid.
This is an area with great opportunity but it also represents certain challenges. The EU has quite some experience with the windfall profits of certain producers who benefitted from unsustainably high feed-in tariffs or green tariffs. While these were necessary to stimulate the private sector investment, they represented a huge burden on the state finances. Ukraine needs to take this experience and find the right balance, taking into accounts its financial means.
I welcome in this regard the efforts of the Rada and in particular of its Energy Committee with Mr Dombrovskyi – who is with us here today – to prepare a new investment framework for renewable energy that meets the objective of sustainability.
This topic requires careful attention of all relevant stakeholders of Ukraine, and there is no reason to repeat today the mistakes of the past. Ukraine can, and indeed should, learn from the EU experience in this regard.
Last but not least, the reform of the electricity market touches on the nuclear and coal sectors, since they are Ukraine's main electricity generators. This means that Ukraine needs to be comprehensive in its approach to the market and infrastructure and the impact of both sectors on the electricity market.
I welcome the objective of Ukraine to decarbonise its economy, as stated in its Energy Strategy 2035. This means a careful and thoughtful approach to the challenges of the coal sector, including the closure of inefficient or dangerous mines. This is another area where the EU can assist with its experience as many countries have successfully transited from a coal-centred economy, to name the UK or Belgium.
With this in mind, we have invited Ukraine to be associated to the EU's initiative Coal Regions in Transition, in order to share the experience and know-how on both technological and social aspects of the necessary reform. Here, just like for renewables, there is no reason for Ukraine to not tap on our Member States' vast experience in transition from coal.
Regarding the nuclear power generation, the safety of installations based on the latest available technology and a modern regulatory framework are absolutely essential. Ukraine should ensure that its latest legislation on Strategic Environmental Assessment and Environmental Impact Assessment is duly applied to any new installation projects.
In this respect we still await the adoption of a law that will reinstate the capacity of the nuclear safety inspectorate to inspect all relevant sites. This is an essential issue where we still await progress.
I also urge Ukraine to treat the nuclear safety upgrades as a key priority. We expect indeed that this task be accomplished by 2020, as agreed.
To conclude, let me give you some some figures from our own EU experience, and which could serve as an inspiration for our Ukrainian friends and partners:
Electricity from renewable sources already in 2015 saved the EU €16 billion in fossil fuel imports. We expect that this saving will increase to €58 billion in 2030.
More than 1 million jobs was already created thanks to renewable electricity production. Our renewables industry has had a turnover of some €144 billion in recent years.
Many EU citizens today are no longer only consumers, but producers of electricity. We call them "prosumers". This is the future that is possible for Ukraine as well, with the will and determination. Ukraine can count on the EU's full support in advancing the reform process.
Thank you for your attention !