ENERGY INDEPENDENCE FOR UKRAINE?

22/12/2014 / Kaj

Issues of energy efficiency and sustainable energy production may have featured less prominently in the recent unrest, but they may present the greatest long-term opportunity for Kiev to seize control of its own fortunes. European investment can also play a crucial role in encouraging energy (and thus political) independence, for the country.

In Ukraine´s third largets city Odessa, for instance, the Swedish company Alfa Laval has revolutionized the way that district heating is delivered. Odessa’s total energy consumption has been reduced by 50 percent, with electricity use down 40 percent and water usage decreasing by an astounding 95 percent. Not only have the direct system costs also fallen by 30 percent, carbon dioxide emissions are now 3,800 tons lower per year. Such energy efficiency projects have the potential to ensure better resource security, according to Professor of Energy at Halmstad University, Sven Werner.

“[This type of] investment in district heating meets all the requirements that the politicians have set up for the future energy supply,” he says. “Including that it contributes to more power production.”

The political risks of a continued reliance on oil and gas stretch beyond the sphere of immediate international diplomacy.

There are growing fears of a fossil-fuel bubble that, when burst, could financially cripple countries like Ukraine and thrust them further into the hands of larger states.

Globally, pension funds and other financial institutions are now beginning to move money away from fossil fuel industries towards renewable energy.

As Ukraine seeks to redefine its relationship with both Russia and the EU, the public debate in the country has been, understandably, one of national identity. But with so many political disputes, there is a pivotal geo-political factor that underpins these broader questions – energy supply.

With Moscow seeking to win allegiance through gas prices and Russia’s opponents looking toward American fracking deals, one thing is clear – neither offer Ukraine independence.

Governments too are beginning to realize the risks of remaining overly dependent on fossil fuels that may soon become unprofitable. They often reap the returns on the fossil-bearing plants, taking about 90 percent of income in the form of ownership and taxation. So diversifying with more sustainable and renewable investments can help alleviate their exposure to increasingly volatile energy markets. The overall savings could also be huge.

Greater investment in more efficient district heating and other state-level energy-efficiency schemes saves an approximate €100bn a year in Europe, according to a 2013 study by researchers at universities in Halmstad, in Sweden, and Denmark’s University of Aalborg.

Even more could be done if the European Bank for Reconstruction and Development (EBRD) acted more forcefully. Currently, the targets it sets on energy savings when making project specifications are not tough enough, meaning that any local company can, and will, offer a simple and cheap solution. In countries like Ukraine, this stunts the development of new technology in district heating provision.

When banks loan money for energy efficiency they should also incentivize the development of the future technologies to match. Nordic countries provide a world-leading model of using these efficiency savings to secure greater energy independence.

With 25 million people and a combined GDP of about USD$1trillion, they are both improving their own standing and inspiring similar moves in Europe and around the world.

Innovations in district heating remain some of the most pertinent examples from Nordic countries that countries like Ukraine can learn from. Accounting

for half of Swedish heating, it has gone from being almost exclusively powered by fossil fuels in the 1980s, to now being about 80 percent renewable and recycled heat. It uses waste, as well as waste energy from industries – partly by taking advantage of this excess heat and power, but mainly by transitioning to biofuels. Biofuels, largely those is left over as waste from deforestation, accounts for 44 percent of the energy supplied, according to

Ulrika Jardfelt CEO of Swedish District Heating. “There is much that is unclear about what will happen in Ukraine, but what we do know is that many of the EU member countries need to reduce their dependence on imported energy,” she explains. “In Sweden, we have managed – through local government spending on infrastructure — made it possible to switch to renewable fuels.

And now we’re taking it a step further by using the net to deliver heat from those who have surplus heat to those who need it… In Europe, we can see that the greatest benefits are linked to district heating,” says Jardfelt, who urges the European Commission to talk more about the subject heat. Such calls are slowly being heard by European decision-makers, with more talk about energy efficiency and renewable energy.

According to the EU’s own longterm trend analysis, a policy that continues ‘business as usual’ cannot achieve the goal of a de-carbonized EU by 2050 or keeping rising temperatures of less than 2 degrees Celsius.

Fears of a fossil fuel bubble only increase as investment continues to flow into both the gas and oil industries. But we are also beginning to see positive climate change decisions that are increasingly connected to the markets —pension funds and other financial institutions are starting to opt out of investments in fossil fuel industries and invest more in sustainable energy.

Nonetheless, vast challenges remain. Annually on the world markets, investment in renewables amounts approximately USD$1,000 billion. But estimates suggest that this sum needs to be closer to USD$8,000 billion a level if we are to achieve the aforementioned 2 degree Celsius target.

The risks facing those government that enjoy substantial income from fossil fuels are increasing as it becomes less and less profitable to invest in dirty energy. Governments taking upwards of 90 percent of their income through state ownership and taxation will be able to better control their huge exposure with diverse sustainable and renewable investments.

The model found in Sweden (which is in many ways a largescale version of what we have seen in Odessa) has redeveloped infrastructure in a manner that should serve as an example for other European cities.

The 1991 carbon dioxide tax, consistent political support for renewable energy and a strong forestry sector have all led to the growth of the now thriving bioenergy sector. This energy source is now a more important resource for the country than fossil fuels, argues CEO of The Swedish Bioenergy Association, Gustav Melin. “By far the greatest contributor to Sweden’s renewable revolution has been bioenergy,” he says. “Biomass, such as municipal solid waste, demolition wood, black liquor, firewood, bark, sawdust, industry by-products, wood chips, pellets, briquettes, ethanol, methanol, bio-diesel, bio-oil and bio-gas, accounts for most of Sweden’s renewable energy.”

In the eastern city of Norrköping the municipal government has, alongside E.ON, Lantmännen Agroetanol and Swedish Biogas, invested nearly USD$1.5 billion in a plant that produces steam (which is used in the production of fuel ethanol), electricity and heat from biomass.

While in the west of the country, in Värmland, a USD$540 million plant is being planned which will produce bio-methanol using raw materials from nearby forests. There are countless more instances of Swedish organizations implementing sustainability projects and, in the process, reducing the country’s dependency on outside supplies.

The northern city of Luleå has managed to provide the country’s lowest heating costs for its residents, largely thanks to the use of waste energy from the local ironworks/steel mill. The project is, according to Anna Blomborg, Marketing Manager of Alfa Laval “a good example of successful cooperation between local industries and the district heating company.”

Another inspiring example can be found in wind-power company Vattenfall’s city partnerships, such as its work in Sweden’s fourth largest city, Uppsala. Vattenfall is participating in the Uppsala Climate Protocol, in which companies and organizations work together to secure the city’s ambitious long-term climate and energy goals, such as reducing the city’s CO2 emissions by 45 per cent by 2020. Now, almost 95 per cent of homes and businesses in Uppsala’s urban areas are heated with district heating from Vattenfall. Vattenfall is committed to supporting the city of Uppsala in its climate ambitions.

A new combined heat and power plant – which uses biomass – will be built by 2020, says Director of European Affairs at Vattenfall, Sabine Froning. Uppsala is likely to exceed its target of a 45 per cent reduction in CO2 emissions. “We are working systematically on energy savings, reducing CO2 emissions and supporting the use of renewable energy,” Froning explains.

The district heating sector has grown for a third consecutive year, with pioneering projects springing up around the country.

In Stockholm, the capital of Sweden, Fortum Värme has invested USD 680 million in a new bio-fuelled combined heat and power plant, which is now under construction. The environmental benefits will be huge, and carbon emissions will decrease localy by 126,000 tons and globaly by 650,000 tons annually, says the company’s CEO, Anders Egelrud. “We are now focusing on meeting the 2030 target of providing the greater Stockholm area with 100% renewable and recycled energy,” he explains. “In a few years, nine out of every ten households in Stockholm will provided with carbon and resource neutral heating. We take pride in the fact that Fortum Värme has no small part in making Stockholm one of the cleanest capitals in the world, and in 2010, Stockholm was appointed world’s first ‘Green Capital’ by the EU.”

In this area there are promising parallels with Eastern European countries. As in Sweden, many of Eastern Europe’s district heating plants are owned largely by state or local authorities, giving governments the power to drive forward change. Indeed, 75 percent of Ukraine’s are state-owned at a national or municipal level.

This also means, however, that democracy and decision-making effectiveness both come into play.

Corruption in Eastern Europe is well documented and poses a potential threat that will be taken into consideration when investing in new energy-efficient infrastructure. But at the same time, procurement of these new technologies can, with the help of European capital, itself help combat corruption. The shared focus should now be about encouraging innovation with technology solutions that can enhance the efficiency of Ukrainian plants.

There are encouraging signs

The European Investment Bank (EIB) has now introduced its first initiative to support climate-related investments across the continent. It has introduced a GBP- 500mil bond investment opportunity for projects that demonstrate that heating energy efficiency and renewable energy are key priorities, explains Director and Head of Capital Markets

Department at EIB, Eila Kreivi. “This initiative was driven by an increased interest in the emergence of social responsibility portfolios among the large mainstream investors,” she explains. “Maybe this is a start of a new step to increase investment in the field of cities’ energy infrastructure and new district heating models that also bring more values than technology.” Such interest in Energy projects from European institutions may hold the key to shifting the power balance in Ukraine, as well as other countries in which dependence on fossil fuels, and other states, dominates. Whereas Russia threatens Kiev with the stick of energy prices, Europe is instead dangling the far more appealing carrot of self-sustainability.

Kaj Embrén

This article –  was written for the Swedish Magazine Green Solutions from Sweden edition 6 which was published in December 2014 – Read more articles in the magazine – order the magazine through kaj@embren.com

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