An alternative for the brave
How can Ukraine reduce its gas consumption?
The National Agency of Ukraine for Effective Use of Energy Resources (NAER) is changing its tactic. From now on, it will not only promote alternative sources of energy, but also deal with economic motivation. The NAER board announced this informal decision in Kyiv the other day.
No decision was taken, however, on incentives — much to the public’s chagrin, because no matter what consumers have been told about cheap energy derived from straw, rapes, wind, and small rivers, nothing has helped. It is only the brave who tap these sources of energy, and rarely at that. Our people are conservative, you know.
Indeed, Ukraine has been unable to cut fuel consumption for the last three years, although our energy strategy until 2030 calls for a step-by-step movement toward the reduction of power costs. As NAER chief Yevhen Sukhin forecasts, in 2007 Ukraine will consume at least 76 billion cubic meters of natural gas. Ukraine is now 60.7 percent dependent on deliveries of organic fuel from abroad, while in the EU the average figure is 51 percent.
Although industrialized European countries, like Germany and Austria (61.4 and 64.7 percent, respectively) do not have better results in this sphere, they are working to diversify their sources of fuel supply. At the same time, many countries have almost no energy resources of their own, but this does not preclude them from remaining the world’s most developed states. For example, in Japan and Italy locally produced fuels account for about 7 and 18 percent, respectively.
In Sukhin’s view, the main problem of Ukraine’s economy is high energy intensiveness of the gross domestic product (GDP) — 0.89 kg of fuel per $1, which is 2.6 times higher than the average energy intensiveness in highly-industrialized countries. Ukraine’s high energy-intensive GDP is the result of an essential technological lag in most industries and the housing and utilities sector, an unsatisfactory sectoral structure of the national economy, and the impact of the “shadow sector.” Sukhin estimates that a 1 percent drop in GDP energy intensiveness brings at least a 0.3 percent economic growth rate.
But there are several obstacles to tapping alternative sources of electrical energy. Yuriy Prodan, First Deputy Minister for Fuel and Energy, told The Day that no alternative sources will be utilized until electricity prices go up. Sukhin partly agrees. “There should be a worldwide price. The only question is how to bear it.” Indeed, as long as tariffs and those who set them are erratic, active promotion of alternatives can only cause excessive racket and confusion. This will benefit neither the Ministry for Fuel and Energy, nor Mr. Sukhin, who has been actively lobbying the establishment of Sintez-Haz Ukrainy.
Meanwhile, the state continues to fund this field. The 2006 state budget has allocated UAH 450 million to develop gas networks (which are loaded by 8-12 percent), one billion hryvnias for cutting electricity production, transmission and consumption costs in the regions, 250 million (from Kryvorizhstal and other state-run facilities) for projects to adopt energy-saving technology in various economic sectors, etc.
But how are these funds being utilized? According to Sukhin, regional schools and hospitals are being reorganized to receive alternative fuels, but not at the budget’s expense. He says that creditors, especially banks, are being actively invited to this area. According to Sukhin, a plant that converts sawdust into energy costs the same as heating a school for one year, i.e., about UAH 130,000. In other words, the payback period is rather short, and it would be beneficial for the budget to introduce this kind of innovation. The only question is whether what is now the exception may become a rule.
