Warsaw, 17 July, 2023

 

Memorandum ZPP: “Ukraine’s Resource Policy – Strategic Resources and Rare Earth Metals”

 

• Without strategic resources, it will be difficult to achieve the climate goals of EU countries, as they are essential for the production of photovoltaic panels, wind turbines, and electric vehicles.
• China supplies 98% of rare earth metals.
• 21 out of the 34 critical elements (identified by the EU) are found in Ukraine, where, simultaneously, 117 out of the 120 globally used materials are being extracted.
• The World Bank predicts a 500% increase in demand for rare earth metals by 2050.
• In 2021, the EU and Ukraine entered into an alliance to enhance technological and industrial cooperation in the field of rare earth metal extraction.
• It is assumed that the rare earth resources were one of the reasons for Russia’s aggression against Ukraine.

We present a memorandum summarizing the discussion during the IV roundtable of the ZPP Energy and Climate Forum, dedicated to Ukrainian energy, and conducted within the EUROPE-POLAND-UKRAINE REBUILT TOGETHER 2023 project in collaboration with the Embassy of Ukraine in Poland.

The participants of the debate were:

Anna Burkowicz, Specialist at the Department of Mineral Resource Management, Raw Materials Policy Laboratory, Polish Academy of Sciences
Roman Dryps, Chief Operating Officer, Center for Business Consulting, Polish-Ukrainian Chamber of Commerce
Roman Opimakh, President, State Geological and Subsoil Survey of Ukraine
Dr. Jarosław Szlugaj, Assistant Professor at the Department of Mineral Resource Management, Raw Materials Policy Laboratory, Polish Academy of Sciences
Seweryn Szwarocki, Director of Strategy and Sustainable Development, LW Bogdanka SA

Moderator:

Dominika Taranko, Director of the ZPP Energy and Climate Forum

Rare Earth Metal Resources in Ukraine

Roman Opimakh, President of the State Geological and Subsoil Survey of Ukraine, pointed out that Ukraine signed a memorandum of strategic partnership regarding rare earth metals with the European Union in 2021. At the same time, the EU outlined the EU Critical Raw Material Act until 2030, defining joint actions of the member states and necessary regulations that need to be implemented under EU law. Ukraine is currently a candidate for EU membership, and Ukrainians perceive themselves as Europeans, adhering to the same principles, values, and strategic goals. Therefore, Ukraine’s objectives in the field of rare earth metals align with the goals of the European Union’s policy. Ukrainians intend to remain a reliable and stable trading partner in terms of extraction, processing, and supply of rare earth metals, as well as components for the battery industry, as well as the disposal of used equipment with recovery of raw materials. Consequently, a concept of establishing an entire value chain within Ukraine for supplying the EU is being developed.

Extraction and production potential of Ukraine regarding critical raw materials is among the highest in the world. Ukraine is among the top 10 global producers of titanium, kaolin, manganese, iron ore, graphite, zirconium, uranium, as well as raw materials essential for modern technologies such as beryllium, aluminum, nickel, and cobalt. Ukraine holds resources for 21 out of the 34 minerals identified by the EU as critical. Therefore, the Ukrainian government has implemented an open-door policy for foreign investments, preparing a list of 100 regions in which licensing and acquisition of exploration and production concessions will be available. Another way to enter the Ukrainian market today could be through acquiring existing concessions through agreements with local companies, thus fostering cooperation within consortia. Cooperation within greenfield and brownfield investment types is being considered. For future investment needs, 1,200 deposits of rare earth minerals have been identified, and conceptual maps have been developed. There are locations where operations can already be conducted.

Titanium – Ukraine is among the top 10 countries with documented titanium deposits worldwide and provides 7% of global production (data from 2021). Currently, titanium is extracted in Ukraine along with ilmenite, rutile, and zirconium in six deposits, yielding 900,000 tons of concentrate containing 350,000 tons of titanium annually. Currently, the largest producer and processor of titanium in Europe, JSC United Mining & Chemical Company, is being privatized.

Lithium – Currently not mined in Ukraine, but its resources constitute 1/3 of Europe’s deposits. Three lithium oxide deposits have been identified for future development. One of the deposits is already under the concession of UkrLithiumMining LLC.

Other metals such as tantalum, niobium, and beryllium – have been identified in six deposits, with tantalum and niobium also occurring as by-products of titanium deposits. Beryllium is found in the Perzhanske deposit, where 15.3 thousand tons of beryllium oxide are located, along with tantalum, niobium, zirconium, tin, molybdenum, lithium, and zinc, among others. The concession for this deposit has been held by BGV Group since 2019.

Cobalt – It is found in 12 deposits containing 9 thousand tons of this element. Ukraine processes significant amounts of imported cobalt and nickel, which is handled by Pobuzhsky Ferronickel company.

Graphite – Ukraine possesses some of the world’s five largest graphite deposits, amounting to 19 million tons of ore with concentrations ranging from 5% to 8%. Currently, 5 thousand tons of graphite concentrate are extracted annually from six deposits. The concession for these deposits is currently held by the Australian company Volt Resources.

Ukraine has favorable geological conditions for the occurrence of rare earth metals. As part of the mentioned strategic partnership with the EU, a Roadmap for 2023-2024 has been defined, which incorporates environmental protection and “green mining” (low emissions in the mining industry) as priorities in the envisioned methods of resource extraction. Ukraine has also been involved in the process of creating EU regulations regarding the use of rare earth metals until 2030. In terms of cooperation, the Ukrainian Geological Survey has developed a geological map highlighting the extraction potential and has devised incentives for investors interested in the mining industry, including the extraction of rare earth metals.

Abundance of Rare Earth Metals in Poland

Dr. Eng. Jarosław Szlugaj, Assistant Professor at the Department of Mineral Resource Management in the Laboratory of Raw Materials Policy at the Polish Academy of Sciences, emphasized that his unit has been monitoring the management process of mineral resources for almost 30 years. They oversee all mineral resources located in Poland that are subject to trade and are simultaneously produced or consumed. A thematic publication titled “Balance of Poland’s Mineral Resource Management,” which covers over 100 types of resources, is being issued on the topic. The list of critical resources for the European Union continues to expand. Over the past 10 to 20 years, their utilization has become widespread, and today we are facing a new situation in which Poland, the European Union, and the world consume vast amounts of resources, many times greater than in past decades and centuries.

Poland consumes significant amounts of rare earth metals imported from abroad. Unfortunately, it does not have its own sources or deposits of rare earth metals, so reliance must be placed solely on imports. However, there is resource potential, especially in terms of resource recovery. With the dismantling of the Wizów Chemical Plants (where phosphoric acid was produced from apatite from the Kola Peninsula, enriched with rare earth elements), there is a repository of post-production waste from which rare earth metals can still be extracted. Currently, no recovery is being carried out because none of the tested technologies allow for it on an industrial scale.

As a result, Poland imports increasing amounts of rare earth metals (mostly in the form of oxides, not necessarily in separated form). They are mainly used as glass colorants, polishing agents, but also in batteries, electric motors, or permanent magnets. Poland only imports finished products, especially when it comes to permanent magnets.

The situation is similar with lithium. Thanks to foreign investments, Poland has become a significant producer of lithium-ion batteries, primarily used in the automotive industry. The entire process involves importing raw materials, processed in the source country of imported product. Semi-finished products reach Poland, where they are assembled to create finished batteries. Currently, Poland does not have domestic facilities utilizing these advanced technological processes and production methods. Everything relies on enterprises owned by foreign investors.

Strategic resources (according to the list of 34 identified by the EU) possessed by Poland.

Poland essentially possesses only two strategic resources that it independently processes on a larger scale. The first is coking coal, which is used to produce coke, a crucial component in steel production processes. The second is copper, recently added to the list.

On March 16, 2023, the European Commission published the announced draft regulation on critical and strategic raw materials for the European Union’s economy. The document also includes a new, updated list of critical raw materials (CRM). The CRM Act aims to stimulate the production of strategic resources by intensifying new activities related to extraction and recycling within the European Union. Furthermore, it seeks to increase awareness of potential threats related to raw material supplies, supply chains, and related opportunities among EU countries, enterprises, and investors.

The published new list of critical raw materials (CRM) in the document COM(2023) 160 final titled “Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL establishing a framework for ensuring a secure and sustainable supply of critical raw materials and amending Regulations” expands the list of critical raw materials for the EU (available in Annex II, Section 1).

Antimony	Fluorite	Helium	Nickel	Strontium
Arsenic	Phosphorites	Cobalt	Niobium	Tantalum
Bauxite / Aluminum	Phosphorus	Silicon metal	PGM – platinoids	Titanium
Barite	Gallium	Lithium	Heavy REE	Vanadium
Beryllium	Germanium	Magnesium	Light REE	Coke coal
Bismuth	Graphite	Manganese	Spodumene	Tungsten
Boron / Borates	Hafnium	Copper	Scandium

Table description: Critical raw materials for the European Union according to the European Commission (2023). New CRMs compared to the 2020 list are marked in red. Strategic raw materials for the European Union are indicated in italics.

Source of compilation: PIG-BIP.

In the process of preparing the document, 70 different substances were analyzed, assessing their economic importance and estimating supply risks. Ultimately, the number of identified elements was increased from 30 to 34. Although the document refers to “34 critical raw materials,” there are actually more, as rare earth metals are presented as two resources: HREE (heavy rare earth elements) and LREE (light rare earth elements), aside from which, PGM (platinum group metals) account for an additional 5 noble metals. The highest level of supply risk applies to heavy rare earth metals.

It is also worth comparing the proposed European list (2023) with the American list, which includes 50 items (2022 – https://www.usgs.gov/news/national-news-release/us-geological-survey-releases-2022-list-critical-minerals ).

In 2023, helium reappeared in the European register after being absent for the past three years, and the newly designated critical raw materials are copper, nickel, spodumene and arsenic. An interesting case is copper and nickel, which, although they do not meet the CRM thresholds, are included in the list according to the Critical Raw Materials Act. Conversely, indium and natural rubber have been removed from this year’s compilation. A novelty is the identification of several strategic raw materials within the critical raw materials (16 out of 34). The list is updated every 3 years. The strategic importance is determined based on the material’s significance for green transformation, digital technologies, defense applications and space exploration.

Among the newly added CRMs, Poland has mineral deposits and prospects for further documentation for the following resources:

• Raw spodumene materials (mostly in Lower Silesia, but also in Lesser Poland)
• Helium (Wielkopolska) – recovery from natural gas
• Polymetallic deposits, primarily copper (Lower Silesia and Lubusz Land)
• Arsenic (Lower Silesia and as a co-occurring element in other deposits in Upper Silesia)
• Nickel (Lower Silesia)

The CRM Act document should help develop activities in the field of scientific research and innovation, negotiate trade agreements, and implement new projects related to the exploration and exploitation of critical raw materials.

Unfortunately, Poland does not possess resources for most strategic raw materials necessary for the production of devices related to “new energy,” such as wind turbines or photovoltaics. In the past, crystalline silicon, which is the basis for every photovoltaic cell, was produced in the country. However, production ceased after privatization and foreign acquisition.

Participation of foreign investors in the mining industry of Ukraine

In Europe today, the mining industry is no longer common, which is why Ukraine’s focus on the development of this sector has attracted the interest of foreign investors. Ukraine invites foreign investors to increase extraction activities on its territory due to its rich mineral deposits and the industry’s long-standing history. The State Geological Survey conducts concession procedures, concludes cooperation agreements, and possesses other instruments to encourage investors. Several major Polish companies operate in Ukraine, including Cersanit, which mines kaolin and conducts wide-scale market sales of ceramic products. Before the war, there were discussions with KGHM Polska Miedź SA regarding investments, and the Ukrainian authorities are ready to resume these discussions. The Ukrainian government seeks to provide comprehensive assistance to investors by conducting webinars, providing maps, mostly in an online format today. Additionally, a memorandum has been signed with the Polish Geological Institute, which is evidence of the development of a strategic Polish-Ukrainian partnership.

Ukraine can prove to be an attractive market for LW Bogdanka SA, which is seeking future directions for business diversification. Seweryn Szwarocki, Director of Strategy and Sustainable Development at LW Bogdanka SA, emphasized that Lubelski Węgiel Bogdanka SA is the most efficient coal mine in Poland. In the face of the armed conflict in Ukraine, the demand for coal has increased, but the Management Board of LW Bogdanka SA, aware of the need for energy transformation associated with the new climate goals set by the European Union, has committed to phasing out coal production by 2049. The company is preparing for these plans to ensure the continuity of its operations.

As a result of conducted analyses regarding the possibility of mining other resources, on May 17th, the company published a new strategy. Its main objectives are to maintain production capacity, sustain high profitability indicators, selectively extract type 34 coal, diversify revenues by expanding the areas of operation, and identify, assess and document new reserves of type 35 coking coal.

The main goal of LW Bogdanka’s new strategy for the years 2023-2030 is to create an innovative multi-commodity corporation that drives green transformation and secures the economic development of the Lublin region and, more broadly, central-eastern Poland. Through business diversification, LW Bogdanka can potentially engage in the extraction of selected critical resources for the EU, including possibly in the Ukrainian market.

Given that the mining industry is capital-intensive and involves complex processes, Bogdanka SA has an advantage over its competitors due to its extensive mining experience. While the company’s current activities are focused on the Lublin region, new mining projects are being sought. The western lands of Ukraine stand out as a potential area, considering their rich mineral deposits, especially those utilized in the energy transformation process. However, due to the ongoing armed conflict on Poland’s eastern border, the current opportunities for cooperation are limited. Investments in a war-torn country carry the risk of uncontrolled destruction in the areas where the company operates.

Nevertheless, Bogdanka SA confirms that it is conducting analyses regarding the extraction of several potential resources, with the criterion being their inclusion on the list of critical raw materials for the European Union. LW Bogdanka also sees the prospect of cooperation with the existing mining industry in Ukraine, given the lower level of digitalization compared to its Ukrainian counterparts. The Polish company is also willing to engage in technological exchange. However, due to the nature of the company as a publicly traded entity, all planned investments have a long-term perspective, and the process of selecting investment locations can be time-consuming.

Considering the existing legislative difficulties related to the mining  of critical resources, there is a need for legal acceleration of investment processes. Additionally, an important aspect for deciding on the exploration, assessment and mining of a specific resource is the size of the deposit and the estimated level of extraction difficulty.

Adapting Ukrainian Geological Law for Mining Investments

Recently, the Ukrainian government has introduced a package of numerous legal changes regarding the regulation of the mining industry. The practices of European countries served as a model for the legislative amendments. The experts knowledgeable in this field were also consulted. Many outdated regulations have been removed from Ukraine’s legal system, which should facilitate business operations. In some cases, it will no longer be necessary to participate in tenders to start activities. The mining process can commence as early as one and a half years after obtaining an environmental impact assessment. Investment opportunities have been increased, among other things, by introducing electronic deposit maps. Upon selecting an area for investment, all necessary information about the area of interest can be obtained both online and in person.

The State Service of Geology and Subsoil of Ukraine expects increased international cooperation, especially with the EU, regarding planned initiatives. A cooperation agreement has been signed within the framework of a memorandum with the European Bank for Reconstruction and Development regarding a three-year program for the digitalization of services, particularly those related to geological information. Another important task for the project is to adapt Ukrainian counterparts of government portals to the English language version, aiming to professionalize international cooperation (as all information desired by investors is currently available only in Ukrainian).

Goals of the Industrial Alliance between Ukraine and the European Union

Anna Burkowicz, an expert from the Department of Mineral Resources Economy at the State Academy of Sciences’ Policy Laboratory, explained that Ukraine’s plans for cooperation with the European Union also involve rare earth metals, which have extensive potential applications. Rare earth metals, also called rare earth elements (REE) are a family of 17 chemical elements, including two scandium group elements (scandium and yttrium) and all lanthanides (lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, and lutetium). They occur in minerals and possess similar chemical properties. Due to their catalytic properties, they have numerous applications, including the petrochemical industry. Lanthanum and cerium, in particular, are widely used in the refining of crude oil for gasoline production.

Examples of applications for rare-earth elements (according to Wikipedia):

Scandium: alloys for aerospace and space industry

Yttrium: phosphors, ceramics, alloys

Lanthanum: batteries, X-ray films, catalysts in oil refining processes

Cerium: catalysts, alloys

Praseodymium: minor component in alloys used for magnets (corrosion prevention)

Neodymium: strong neodymium magnets, lasers

Promethium: beta radiation source

Samarium: magnets for high-temperature operation, control rods in reactors

Europium: liquid crystal displays, fluorescent lighting

Gadolinium: production of green phosphors in CRT screens and scintillators in X-ray imaging

Terbium: phosphors for lamps and displays

Dysprosium: strong magnets, lasers

Holmium: strong magnets

Erbium: lasers, optical amplifiers

Thulium: ceramic magnetic materials

Ytterbium: optical fibers, solar cell plates

Lutetium: x-ray-luminophores

In the United States, approximately 60% of lanthanides are used in refining, but REEs are utilized in a wide range of industries. These include ceramics, glazes, metallurgical alloys, rocketry, aviation, modern technologies, the IT sector, screens, lasers, diodes, the energy industry, and permanent magnets. The People’s Republic of China is responsible for 93% of the world’s production of all permanent magnets using rare earth metals, while Japan accounts for 6%, and the European Union for 1%.

The possibility of ending China’s monopoly for the moment is not realistic. According to participants in the roundtable discussion, unfortunately, the world’s economies themselves are responsible for the current state of the raw material market division, since the Chinese have built their current advantage de facto over the past several years. China naturally also has a huge raw material potential. In this context, the chance to return to European production may be provided by the very beginning of exploration of deposits in Ukraine.

Polish-Ukrainian Cooperation in the mining industry?

According to the opinion of Roman Dryps, the Chief Operating Officer of the Business Advisory Center of the Polish-Ukrainian Chamber of Commerce, which has been operating as a bilateral chamber for 30 years, the Polish government or Polish companies are unlikely to be Ukraine’s partners in the mining and processing of rare earth metals. Poland lacks the technology and the deposits themselves. There are only a few domestic enterprises that could be significant players in this area, including the already mentioned KGHM Polska Miedź SA and LW Bogdanka. According to the expert, Polish entrepreneurs working in the mining industry have had success in the field of new technologies, but mainly in the market of coal, liquid fuels, or gas extraction. Two main minerals, that were extracted in Ukraine until 2014 are coal and iron ore. The cycle of operation was simple – they were used for steel production or for energy purposes. At that time, most coal mines operated on a concession basis. The concessionaires of these mines were mostly owners of private machinery industry plants for mining machinery construction. Profit was simply the absolute priority at that time, and new technologies in the mining industry were not developed. The Polish-Ukrainian Chamber of Commerce actively collaborates with the Ukrainian Ministry of Energy, and based on unofficial information from “first-hand sources,” it is known that the coal mining industry will not be restored in the classic sense after the war. Furthermore, based on data presenting the resources on the territory of Ukraine, it can be learned that as of spring 2023, 63% of coal deposits, 11% of oil deposits, 20% of natural gas, 42% of metals, and 33% of rare earth metals were under the occupation of the Russian aggressor. Their overall value, according to geological studies, is estimated at 12.5 trillion US dollars. Therefore, it is difficult to avoid the impression that Ukraine’s natural resources could be a dominant factor that prompted Russia to launch a military attack.

Sources of financing of mining industry in Ukraine

The European Union (EU) has only recently begun working on support programs for investors to encourage them to invest capital in the development of advanced extractive and processing industries, particularly in the context of critical raw materials. So far, only recommendations have been issued at the EU level, regarding environmental decision-making related to the assessment of projects and concessions for the mining of rare earth metals. At the same time, it is likely that whether with the participation of EU programs, or even if there were none, or if they were insufficient, (assuming that the demand for these raw materials will grow, and thus, in the absence of supply), the price of these raw materials will increase and the profitability of these projects will also increase exponentially. This opens up the opportunity to obtain bank financing from European institutions in a situation where the elements in question are identified by the EU as key in the green transition and fit in with the requirements of sustainable development, or ESG strategies.

The Ukrainian public administration is currently undergoing a period of increased digitization, with a significant portion of public affairs being handled electronically. This will undoubtedly facilitate dialogue regarding potential financing and project cooperation as well.

Collaboration with the world of science

Scientists from the Polish Academy of Sciences utilize a wide range of literature in their studies on rare earth metals and stay up to date with the geopolitical situation regarding mineral resource economy worldwide. There is a possibility of assisting entrepreneurs in market research and identifying potential avenues of operation. So far, no Polish company has applied for a concession to operate in the Ukrainian market, which holds immense potential. In Poland, there are universities that educate mining engineers, metallurgists, and technologists.

By observing the specific nature of the mineral resource market, one can notice a decline in the trade of low-processed raw materials. For example, in the case of iron ore, concentrates are produced, and there are also technological changes occurring, with developed sintering and granulation processes for these ores. It is no longer bulk ore that would be transported over significant distances. With the next generation of resources, processing is increasingly concentrated in one place. In the case of rare earth metals, Chinese companies generate approximately 60% of global production, but their real advantage lies in processing, specifically separation. The ore is complex, consisting of several coexisting elements, usually around 7 to 8 types. China has specialized in individually extracting 7 to 8 minerals, rather than processing them comprehensively. In this situation, China has a monopoly in production, offering separated oxides and specific metals in the form of powders or semi-finished products worldwide. Recognizing the potential associated with deposit extraction in Ukraine, it can be observed that its owner, the State, should endeavor to establish comprehensive processing and ore extraction plants. However, this would not have significant implications due to China’s dominant position in the market. In Europe, at best, a concentrate could be produced, which would still need to be sent to China for further processing. China also holds a monopoly in battery and photovoltaic production due to low production costs. This has been the main reason for relocating facilities from the United States and Western Europe to China. Twenty years ago, the People’s Republic of China specialized in only a few resources. Now there are dozens, including those considered critical. Therefore, Ukraine certainly has potential, but parallel planning for the local processing and production market should be considered. In this context, collaboration with research and development is necessary.

Would synthetic elements be a solution?

Synthetic crystals such as silicon, sapphires, or synthetic diamonds are produced using the method developed by the Polish scientist, Professor Jan Czochralski. Synthetic products can serve as substitutes for natural ones. Synthetic diamonds, for example, are widely used in the abrasive and drilling industries. Materials engineering is rapidly advancing, and in this field, there is a vast potential for collaborative research that can contribute to the future reduction in the use of natural resources. Mining production may be minimized in the future. New composite materials are being discovered that have comparable strength to steel, but do not contain metal in their structure. One such example is the indium tin oxide alloy (ITO) used in touch screens. Indium used in production is not sourced from its own deposits. Therefore, if there is a forecasted increase in demand for this material, the mining process will need to be accelerated and expanded from the ore it is derived from. Forecasts related to the implementation of the Fit for 55 program suggest that demand for certain minerals may increase 50-fold. Some deposits will be depleted, making it impossible to meet the demand for certain elements. This opens up opportunities for the development of alternatives.

 

See more: 17.07.2023 Memorandum ZPP: “Ukraine’s Resource Policy – Strategic Resources and Rare Earth Metals”

 

Warsaw, 13 April 2023

The role of RES in the post-war reconstruction of Ukraine

The following is a Memorandum summarising the debate that took place during the 3^rd roundtable of the Energy and Climate Forum of Union of Entrepreneurs and Employers, dedicated to the Ukrainian energy sector and implemented as part of the EUROPE-POLAND-UKRAINE REBUILD TOGETHER 2023 project, in cooperation with the Embassy of Ukraine in Poland.

Renewable energy development in Ukraine:

• Over the last five years (prior to the war), Ukraine was able to attract approx. EUR 10 billion in investment in the renewable energy industry.
• According to a 2019 assessment by Bloomberg, Ukraine ranked 8^th out of 140 countries in terms of attractiveness for renewable energy investment.
• In terms of the pace of green energy development, Ukraine was among the top 10 economies in the world in 2019 and was in the top 5 European countries in terms of solar energy development in 2020.
• In the structure of electricity production before the war, renewable energy accounted for 8% of the overall energy balance.
• Solar power plants accounted for ca. 58% of renewable energy, wind power plants generated 32%, biomass about 3%, hydropower plants approx. 2%, and biogas close to 5%.
• Currently, over 50% of Ukraine’s energy infrastructure is damaged.
• As a result of the war, wind power has suffered losses and damage to 90% of the entire infrastructure.
• The share of renewable energy according to the “National Action Plan for Renewable Energy Development until 2030” and the “National Energy Strategy of Ukraine” should reach 25% by the year 2030.
• Presently, Ukraine has surplus green energy production and is capable of energy exports.
• The renewable energy industry in Ukraine is one of the few sectors that operated in a market-oriented and transparent manner even before the war.
• The Polish Investment and Trade Agency (PAIH) operates programmes to rebuild Ukraine’s energy infrastructure, which Polish companies can participate in, and the funds can reach up to EUR 100-200 million.

The following esteemed guests attended the debate:

Prof. Alicja Chybicka – Senator of the Republic of Poland

Ivan Grygoruk – Vice President, Energy Club

Janusz Gajowiecki – President of the Polish Wind Energy Association

Igor Krechkevych – Technical Director of the Energy Efficiency Fund

Karol Kubica – Head of the Foreign Trade Office in Kyiv, Polish Investment and Trade Agency (PAIH)

Konstantin Magaletskyi – Green Recovery Fund Ukraine

Olexander Podprugin – Member of the Board, Ukrainian Wind Energy Association and President of Elementum Energy

Anastasiia Vereshchynska – International Development Manager at Energy Act for Ukraine Foundation

Serhij Zasowienko – First Secretary of the Embassy of Ukraine in Poland

Moderators:

Dominika Taranko – Director of the Energy and Climate Forum, Union of Entrepreneurs and Employers

Hennadii Radchenko – Advisor, Ukraine Business Center, Union of Entrepreneurs and Employers

Current state of affairs of energy generation from renewable sources

The first person to be asked to speak was Ivan Hryhoruk, who discussed the current situation and pointed out that as of now more than 50% of Ukraine’s entire energy infrastructure has been damaged. Unfortunately, this also applies to renewable energy sources (RES), mainly photovoltaic and wind power. These were mostly located in areas where current or past military operations are taking place, as the largest number of solar and wind power plants were installed in the Zaporizhia, Kharkiv, Dnipropetrovsk, Mykolaiv, Kherson and Odesa regions. Some solar power plants survived and are still operational in certain locations, but most facilities were destroyed during military operations or were vandalised and looted. Wind energy production infrastructure was damaged by 90% compared to its per-war capacity. Power plants in central and western Ukraine are operating normally if the distribution network allows it. However, power sources in southern and eastern parts of Ukraine are severely limited. Overall, out of the installed capacity of 13 GW, only approx. 40% is currently in operation, and are experiencing serious limitations.

Plans regarding renewable energy production

In post-war conditions, the structure of energy production will change. Ukraine has opted for integration with the EU, and the national energy grid is being synchronised with the European one. The synchronisation processes are ongoing, and Ukraine is fulfilling all the commitments it has made regarding the development of RES in the energy balance structure. This trend will continue to develop. However, it will develop according to a slightly different concept, as significant relocation of production potential from the so-called “grey zone” to the western and central regions of Ukraine is taking place due to the war.

Structure of pre-war electricity production

Renewables accounted for 8% of the overall energy balance in electricity generation prior to the war. These were mainly large industrial power plants. Photovoltaic power plants accounted for around 58% of all energy produced from RES, wind power plants – 32%, biomass – approx. 3%, hydroelectric power plants – 2%, and biogas – ca. 5%. Total installed solar capacity amounted to almost 7 GW, while installed wind capacity reached 3.5 GW. Industrial installations required large areas of land. When solar energy began to develop in Ukraine, 2 ha of land corresponded to 1 kW of power. Over time, technologies became more advanced, surfaces decreased, in some cases rotating mechanisms were implemented, and to produce 2 MW, only 1.4 ha of land could be used. Due to the upcoming post-war relocation of many types of economic activity as well as the population’s “change of address” to western and central parts of Ukraine, such significant free land areas where large industrial power plants could be developed will likely no longer be available. The map of solar activity in western Ukraine practically corresponds to the southern part of the country, hence the potential for PV installations is still considerable. As for the wind energy, it is a little trickier, with winds of 6-8 m/s characteristic only of the Zakarpattia and Prykarpattia regions. There, thanks to the mountainous landscape, aerodynamic currents are created. In other regions, according to experts, it will not be possible to construct large wind power plants, since generators with a capacity of 5 MW or more require higher wind speeds. Therefore, large industrial power plants will not be built in western Ukraine. As for distributed generation, these are power plants up to 20 MW, and they should dynamically develop in the post-war structure of electricity production as distributed generation will be necessary for the future stability of the energy system and can provide electricity to both industry and infrastructure.

Ukrainian Energy Transformation

Currently, the Ukrainian energy sector is going through a difficult period of transformation. After the war will have ended, the situation should improve, but Ukraine is currently dependent on fossil fuel imports, whereas many thermal power plants are damaged and non-operational. Thus, it is necessary to urgently develop RES, such as photovoltaic and wind energy, to replace the consumed fossil fuels and reduce dependence on imports.

Nonetheless, one of the problems that arise from the production of energy from RES is their instability. Therefore, conventional energy and heat generation systems were used to oversee peak loads. Currently, most of them are damaged to a degree exceeding 50% and cannot play the same role in the post-war period. It seems that in spite of all that, they will be rebuilt, assuming that the energy consumption structure will change, and industry will start to develop again. Power plants will gain new importance and will play a crucial role in ensuring the reliability of local infrastructure and industry. Furthermore, actions will be taken to create energy communities and local distribution centres that will ensure the stability of the energy system at the local level. The aim is to create one distribution centre for every 1 to 3 regions, which could connect renewables, heat generation, and hydroelectric power plants. This way, such cooperatives will balance the power in the local energy system and also operate in all market segments: daily operations, next day, balancing, and ancillary services.

Settlements between market participants would take place within a day, so there would be no deficits in settlements for renewable sources, as was the case before the war. For effective use of small distributed power plants, distribution network operators will be appointed. Ukrainians are already switching to a higher voltage level of 20 kV to reduce electric energy losses during transmission. As a result, the quality of electricity supply services to customers will improve.

Legal changes to attract investment

Serhij Zasowienko, the First Secretary of the Ukrainian Embassy in Poland, pointed out that in recent years, thanks to the introduction of the green tariff model in Ukraine, there had been an increase in installed RES capacity. At the beginning of 2022, the installed RES capacity reached 9.5 GW, with investments in the industry exceeding USD 12 billion. Currently, about one quarter of the installed RES capacity is located in occupied territories. The situation is particularly difficult for wind power plants, with about 80% of installed capacity located in the occupied areas of the Kherson and Zaporizhia regions. About 20% of the power plants are completely damaged, many destroyed or looted by the occupying forces. Despite these circumstances, even during the war, Ukraine ensures the fulfilment of its obligations to investors in the field of renewable energy. This is one of the priorities of the Ukrainian Ministry of Energy. Regarding the future of the country, like the rest of Europe, the creation of future energy balances will be based on RES. According to the “National Action Plan for the Development of Renewable Energy until 2030” and the “National Energy Strategy of Ukraine”, the share of renewable energy should reach 25% by 2030. Currently, the parliament has submitted a package of laws to the government for consideration, such as “On Stimulating Local Production of Electricity from Alternative Energy Sources” and “On Improving the Conditions for Supporting the Production of Electricity from Alternative Sources” as well as further legislation related to energy projects. The Ukrainian Ministry of Energy is working on market solutions and facilitation for investors regarding the development of energy. The government is already inviting investors to become active players on the Ukrainian market, because with the end of the war, the physical reconstruction must begin, rather than just the administrative process.

The situation in wind energy

Olexander Podprugin pointed out that there are currently about 35 wind farms connected to the transmission grid in Ukraine with a total capacity of 1.7 GW. Energy is one of the most aggressive military frontlines. An energy war is being waged, with atomic blackmail and attacks on nuclear power plants. It is difficult to estimate the losses in infrastructure in a credible way, as many installations, including wind turbines, are located in hostile territory and are thus inaccessible. Only 20% of the turbines are located in the unoccupied territories of Ukraine. Ukrainian wind energy, which was operational last winter, made a significant contribution to the survival of Ukrainians, providing them with the basic minimum of energy and often being the only available source.

Despite the ongoing war, the construction and installation processes of wind power plants continue in a few locations. There are currently two projects in the pipeline, in Mykolaiv and in Odesa regions, with a total capacity of ca. 150 MW, expected to be launched in the spring. Unfortunately, for most projects, work is not being carried out due to occupied ports and blocked logistics.

The reconstruction of the Ukrainian energy system should be based on clean energy sources, primarily wind generation. The Ukrainian government’s recovery and development plan provides for a significant increase in wind and solar plants to at least 10 GW. As for green energy generation, over 30 GW of RES are planned for hydrogen production. Research conducted in various regions of Ukraine shows that many large power plants and fairly large wind farms using the best and most powerful turbines currently available can be built in Ukraine. We are talking here about both onshore and offshore wind farms. The potential for Ukrainian offshore wind power is immense and could theoretically be as high as 250 GW in installations located in the Black and Azov Seas, of course, after de-occupation and opening up investment opportunities. However, much still needs to be done to give this momentum, including regulatory changes such as reducing barriers to connecting new power plants, simplifying permit systems, and simplifying procedures for obtaining both environmental and construction decisions. Separately, many changes need to be developed in legislation concerning land and sea use, including connecting new wind power plants to the grid. From a technical standpoint, efforts should be made to increase the flexibility of Ukraine’s energy system so that it can accommodate more renewable energy.

Existing barriers that can be eliminated

According to our interviewees, administrative deadlines are also barriers to RES development, as power plants whose construction has been halted due to the war have missed their deadlines for commissioning. They will not be built on time and could be connected to the grid in the near future. Investors in Ukraine should be able to rely on promises being fulfilled, and capital and assets being protected. Therefore, a law should be adopted to extend the deadline for commissioning the planned power plants (on the same terms as in 2022). This may enable the execution of planned projects. Ambitious goals and a strategy according to which RES development will be based should be documented. Administrative decisions should have a validity period of 5-10 years and provide for conditional extension of the investment execution deadline. At the same time, the issuance of environmental documentation and construction permits should be expedited. It would also be worthwhile to implement regulations that allow investors to receive additional benefits for green energy.

Energy efficiency in the reconstruction of Ukraine

Igor Krechkevich, the technical director of the Ukrainian Energy Efficiency Fund, discussed the Fund, which is the only state organisation established by the Ukrainian government to stimulate energy efficiency and energy savings, mainly in the multi-family sector. Before the war, the fund successfully implemented the “Energodom” programme, which aimed to introduce energy-saving measures in the private and communal housing sectors. The organisation worked and is still working with residents’ self-government organisations, even during the war. Innovative programmes were implemented both from the state budget and with support from the EU, in particular Germany. After 24^th February 2022, the war forced changes in the fund’s activities, and thus began the search for possible ways to provide additional support to the people of Ukraine. The “Rebuild Your Home” programme was developed, which to some extent can also be called energy efficiency activities, as many apartments and multi-family residential buildings were damaged and continue to suffer from air strikes, missile fire, explosions, leading to broken windows, roof and façade damage etc. “Rebuild Your Home” is also co-funded by the European Union. The programme helps residents’ self-government organisations rebuild damaged homes, repair windows, façades and roofs. Fortunately, it is now spring, and the enemy’s plans to prevent Ukraine from surviving the winter failed to succeed. The energy network survived, and the process of stabilising it continues. Therefore, there is a developed programme that allows families without a roof over their heads to return to their homes. The energy modernisation programme, which also operated during the previous year of the war, did not stop and paid out over UAH 1 billion (Ukrainian hryvnias) for modernisation purposes. An example is the city of Mykolaiv, which continued modernisation efforts even during shelling.

The development potential of Ukraine

According to Bloomberg, Ukraine ranked 8^th out of 140 countries in 2019 in terms of attractiveness for investing in renewable energy. Investments lead to business development, influx of money, and profits. In this model, investment opportunities and an attractive rate of return are crucial. The Ukrainian government has already developed certain mechanisms and steps, while projects and laws are being created, and there is an understanding that RES represent a vast space for development and huge investment opportunities. Earlier in the text, offshore perspectives for wind energy were mentioned, which can only be developed with access to the Black Sea. Nevertheless, its potential is indeed enormous and has great significance in the European energy strategy, where Ukraine is a possible electricity supplier (especially to Germany, from which 75% of equipment imports originate).

The private residential sector is also active in the field of distributed energy, where small solar power plants are installed – not so much for business purposes as for powering homes. The war has shown that distributed generation and the development of energy cooperatives are necessary. They can develop basing on both multi-family residential buildings and private estates. There are already opportunities to work with the private sector in Ukraine, and after Ukraine’s victory over Russia, there will be an opportunity to enter a completely new market with new, investor-friendly rules. It seems that the scale of the planned investments will be sufficient to support Ukraine’s economy and help it transition to green energy. In western Ukraine, where there is less enemy shelling, preparations for the implementation of residential renewable energy are already underway. Ukraine has already been systemically integrated with the European market and had supplied energy to the EU market before the war broke out.

RES as a source of primary energy

Anastasia Vereshchynska, the Development Manager of the Energy Act for Ukraine Foundation, emphasised that the projects of the Energy Act for Ukraine Foundation are gaining attention not only in Ukraine, but also abroad. The foundation was established in response to the full-scale war in Ukraine and focuses on providing energy assistance primarily to Ukrainian civilian facilities, schools, and hospitals. The Energy Act for Ukraine Foundation focuses on a long-term, large, and very ambitious project to equip 100 schools and 50 hospitals in the country with hybrid solar power plants. The foundation is constantly looking for sponsors. The latest completed project was in a school in Irpin, where the installation had a capacity of 25 kW, satisfying a third of the school’s energy needs. The energy generated by the installed power plant also provides power for street lighting, so that children can safely return home from school, which is particularly important during winter.

On the other hand, the Energy Act for Ukraine Foundation installs hybrid power plants in hospitals to ensure the functioning of surgical theatres, maternity wards, and ICUs. Schools and hospitals participating in the programme are selected in cooperation with the Ministry of Education and Ministry of Health, which recommend institutions covered by the programme. These are chosen at a safe distance from the frontline and the Belarusian border. Investors do not want newly installed PV panels to attract the attention of the enemy, which could further endanger these facilities. One of the criteria for allocating investments is also having a bomb shelter at the school. Children and patients must be provided with safety.

The Energy Act for Ukraine Foundation’s programme also includes lessons on renewable energy and green solutions installed in schools. The organisation also informs why the development of renewables and conscious energy consumption is critical.

The third direction of the Foundation’s activities is the delivery of energy equipment to the civilian population. This is mobile equipment, mainly energy storage systems with PV panels that can be easily moved. It is important for hospitals located in strategic locations. Some of them have been delivered to field hospitals in the Donetsk and Zaporizhzhia regions. Polish and German donors were involved in the project. The Foundation also tries to draw attention to the fact that renewables can not only be a part of post-war reconstruction, but also an exceptionally effective way to provide immediate help. This need for help is urgent and desperate, and not as harmful to the environment as diesel generators. The organisation is not opposed to diesel generators, which it also buys when there is no alternative, but it draws attention to the existing proposals for energy storage systems that are a more forward-looking solution. The goal is to make energy consumers in Ukraine independent of fuels, so that people do not have to die due to a lack of access to electricity.

Polish perspective on RES in Ukraine in the context of health and safety

Senator Alicja Chybicka, Vice-Chair of the Health Committee, member of the Senate Committee on Climate and Vice-Chair of the Environmental Committee, noted that several laws related to RES are currently being processed in Poland, a national milestone. The entire world is striving to use renewable energy, which is currently the cheapest source of energy. We can use wind, water and sun. As we need wider access to the transmission grid today, we also need to learn how to store energy better. In the opinion of Senator Chybicka, it is important that children in Ukraine are taught about clean environment. Most diseases, not only cancer, have their origin in negative factors related to the climate and environment, not only universally understood, but also in what we eat and breathe. Cancer, which we now have a genetic accumulation of, needs an initiator to activate the gene – these can be found in the air, water or food.

The war in Ukraine has caused numerous countries to focus on RES development. Nowadays, we provide Ukraine with many generators, because we need to provide electricity to residents right now, but assistance must be planned in such a way that these green solutions remain in Ukraine after the war.

How does Polish business currently fare in Ukraine?

Karol Kubica, Manager of the Foreign Trade Office in Kyiv at the Polish Investment and Trade Agency (PAIH), assures that the economic cooperation between Poland and Ukraine is constantly developing. Poland is one of Ukraine’s most important trading partners, and Ukraine is also climbing higher in the national trade balance. The PAIH office has been operating in Kyiv since 2018. For the last 5 years, interest in Polish products and services has been steadily increasing. Polish businesses are also increasingly interested in investing in Ukraine and seek cooperation with local entities. Over the past 20-30 years, Poland has undergone a transformation and has been one big construction site. Now, our experiences can be useful to Ukrainian companies.

The issue of alternative energy sources is a topic that the entire world is currently facing, not just Ukraine. In Poland, there is quite a long investment process in RES, both due to legislation and investment schedules. For Polish businesses to enter into these investments in Ukraine, they must have guarantees, security, and prospects for adapting legislation for foreign investors provided by the government. The inquiries from the renewable energy industry received by PAIH represented a few percent per year, usually totalling about 700 inquiries. Despite the ongoing war, these trends are similar. PAIH educates and presents investment prospects, but representatives of the agency believe that education alone is not enough. So far, about 1,800 entities interested in rebuilding Ukraine have registered, of which 33% represent the construction and energy sectors. The renewables sector, which includes not only energy companies but also energy-efficient buildings, is a part of this sector.

Developing business in Ukraine

Polish companies may not be visible in the renewable energy sector on a daily basis in Ukraine, but they participate in the broadly understood RES supply chain. These are suppliers of equipment and technologies who offer their solutions. Both Polish state-owned companies such as Orlen, PGNiG or Unimot Energy, as well as other private sector companies operate in Ukraine. However, businesses also like stability and not always report to government agencies, implementing investment assumptions independently. PAIH often intervenes when there is a problem with the administration, such as when Polish factories operating in Ukraine face difficulties connecting additional power demand. An example of support from PAIH may be ensuring an increase in the capacity of power lines when, after investing, additional production lines are launched. Ukraine’s accession to the EU structures is still quite distant and will require, among other things, adapting legislation, which should in turn improve investment conditions. However, Polish sectors such as construction, food and energy are already present in Ukraine.

Money for investments in Ukraine for Polish companies

Tenders related to the reconstruction of critical infrastructure in which Polish companies can participate are announced on the website https://odbudowaukrainy.paih.gov.pl/ and on the website of the Ministry of Development and Technology. These are funds allocated for various purposes. The pool of funds can amount to EUR 100-200 million for a single grant.

Currently, Ukraine is declaring what it needs and what needs to be rebuilt in order for it to function properly. Without energy, there is no business, without business there are no taxes or jobs, and then economic emigration increases. On 1^st December 2022, PAIH held industry consultations for entrepreneurs, including those representing the energy industry. During such meetings, PAIH presents the scale of destruction and the possibilities of entering the market, but mainly emphasises that Polish businesses should cooperate with Ukrainian entrepreneurs, share their technology, use preferential loans offered by, among others, Bank Gospodarstwa Krajowego, and insure transactions with KUKE. We should not only be competitors on the Ukrainian market, but the best solution is to find a long-term partnership on the Ukrainian side. Poland and Ukraine together would be unbeatable in Europe. PAIH is already preparing domestic businesses for this.

Cooperation with private and state-owned companies in Ukraine

Konstantin Magaletskyi who represented the Green Recovery Fund Ukraine explained how a fund focused on investments in green energy in Ukraine operates. Its task is to rebuild damaged renewable energy installations and build new ones. From the perspective of Ukraine’s future, this is not only beneficial, because of the use of green energy, but also because of the possibilities of decentralising energy production. Ukraine has experience in this area from previous years, when it exported its green energy to European countries. According to Konstantin, it is best to invest in the private sector, because most of the funding currently goes through the public sector, which is more formalised. A good example may be the operation of a private port: while investment in a state-owned port is greater, the ROI is higher in a private port. The reconstruction of Ukraine will progress much faster with the involvement of the private sector than if only central administration were involved.

Ukraine is already producing surplus green energy and is able to export it. The prospect of damage to a RES farm is now negligible. Furthermore, presently, energy production in Ukraine is stable and it does not need to be imported from abroad. The green energy market is developing steadily. Due to the fact that Ukraine is a large country, there is a need for collateral from large financial institutions for investments planned in this country.

Polish experience in the RES industry vs. knowledge of the Ukrainian market

Janusz Gajowiecki, President of the Polish Wind Energy Association, stressed that the industry is counting primarily on the development of RES in Poland, for instance through appropriate legal regulations. Onshore wind energy will develop all over Europe, and Poland should be a powerhouse in this respect. At the same time, companies from the Polish renewables industry have relations with investors from Ukraine. This sector is well developed in terms of substantive and project-related issues. Industry-specific knowhow is already available in Ukraine, which is why bilateral talks are incredibly detailed and at a high level.

The issue of wind energy in the context of RES is critical. Its impact on the national energy system is enormous. The installed capacity of 10 GW often provides 30% or more energy to the system. Poland has become a kind of hub for foreign companies employing experts from Poland and abroad. The potential of wind power installations in Poland is the largest in the CEE region. Ukraine, Romania or Croatia have all a relatively smaller development potential than Poland, even though Ukraine to a certain degree also has this potential. All companies, private and state-owned alike, are looking at a package of laws that are to change the regulations and simplify investments on the Ukrainian market. They already have projects ready for implementation, the entire permitting is in place, including grid connection, along with analyses of the latest available technologies, which are both ground-breaking and can reach up to 50% of the achievable power. This means that a 6 MW turbine can produce 3 MW over a year.

The UN will also support the development of wind energy. A model of cooperation is currently in the works, with such issues as who is to own farms that are going to be built with European funds among relevant topics. Nowadays, the RES industry is aware of the mission to create something extraordinary, to revolutionise the Ukrainian energy sector. PWEA, hand in hand with the Ukrainian association, are implementing the project “Work service for Ukraine” which helps find a job in the industry.

Unless the 700-metres-rule for wind energy is liberalised, wind energy development will not reach its peak dynamics over the next 8 years. Then the solution for investors will be to engage their remaining capabilities in Ukraine. Possibilities of transmitting green energy from Ukraine to Polish companies are already being analysed. Soon, no foreign investment will stand a chance in Europe without green energy. Without 100% green energy, no Western company will think about opening a new factory in Poland or Ukraine.

Procedures for obtaining permits for RES construction in Ukraine

The issue of permitting in Ukraine is currently similar to how it functions in Europe. There are some good practices that have already been implemented. In Europe, there are presently efforts to simplify and shorten the entire process, as stated in the adopted Re-Power EU package published last year. The regulations indicate that processes related to, among others, spatial planning, duration, and the amount of documentation require to issue environmental decisions should be shortened. Time is of the essence here, because we will need green energy in the short term. This technology is already proven and environmentally safe, so certain procedures can be abandoned or proceeded in a template manner.

Ukraine is prepared when it comes to environmental conditioning specialists and other requirements. The RES industry is one of the few sectors in the country that is corruption-free and transparent. The number of companies operating on the market is large enough to avoid centralisation or monopolising activity in the hands of the state or oligarchs. Therefore, it is a safe part of the market and economy.

Poland has many companies that are not well-known, but produce equipment for wind farm construction. Practically every element of wind turbines in Poland involves Polish companies. They manage logistics, materials, and construction to a full extent. Despite the war, entities associated in PWEA receive many inquiries from Ukraine regarding the implementation of wind projects. These investments are carried out all the time, also with the help of Polish companies.

The energy structure in Ukraine is very outdated and looks similar to the Polish one in the 1990s. By rebuilding the infrastructure, which has been destroyed by 40-50%, Ukraine can create the most modern energy system in Europe, adapted to the EU system. At the moment, however, there are no funds for this purpose and unless the world and foreign institutions help, Ukraine will not recover.

 

See more: 13.04.2023 The role of RES in the post-war reconstruction of Ukraine