Page 35 - TURKRptJun22

bne June 2022 Cover story I 35
THE FOURTH RUSSIA
Green Ukraine
Ben Aris in Berlin
The energy crisis that has wracked Europe since the EU began to
cut itself from Russian energy
five years ago has had a silver lining. It has driven the transfer to renewables much faster than anyone could have hoped. And the biggest winner of this transformation has been Green Ukraine.
The war was a blessing in disguise for Ukraine as post war, all the conditions appeared to rapidly transform the country into a green energy powerhouse.
Ukraine was already home to heavy investment into renewable energy after former President Petro Poroshenko introduced extremely attractive
green tariffs to attract investment into the sector and reduce Ukraine’s reliance on Russian gas. Domestic and foreign investors had poured over $5bn into building solar and wind farms that already accounted for 15% of the country’s generation capacity at the time the war started.
Russia targeted much of Ukraine’s power infrastructure during its six-month campaign, most of which had to be
rebuilt from scratch. Part of the $150bn Marshall Plan, partly funded by seized Russian reserves under the so-called Bucha Mechanism, was targeted at developing renewable power capacity to bring the share of green power in the mix up to 50% within three years. But it was the investments into hydrogen that have proved to be a game-changer.
Today Europe still imports nearly 100bn cubic metres of gas per year from Russia, although this is now only 15% of Europe total energy needs, down from 35% before the war, and can be entirely covered by the expanded LNG supplied by the US and Qatar among others.
Pressure to cut off all Russia’s gas deliveries has fallen after LNG production expanded to the point where it can supply all of Europe’s needs should another war start, which has dramatically depressed prices and hence Russia’s revenues.
But increasingly gas is being replaced by hydrogen currently still mixed in with gas. Russia’s rising hydrogen production is still being pumped via
the Ukrainian pipeline system that
has largely replaced the 40 bcm of methane Russia has been sending to Europe since 2019. The transit deal was renewed in 2024, but with new strict restrictions and a requirement that half the gas in the pipelines be hydrogen.
Reservations about buying Russian hydrogen remain, as the country mostly produces blue hydrogen, from chemical processes that create a lot
of captured carbon waste, whereas Ukraine’s hydrogen is almost all green, produced by electrolysis using solar power. And Ukraine’s blossoming green hydrogen production is set to replace much of the Russian blue hydrogen supply in the coming years.
The decision to stop the flows through Nord Stream 1 in the middle of 2023 forced more gas transit via Ukraine, leaving Russia with little option other than to deal with Kyiv. Responsible
for 55 bcm of gas per year – a third
of all Russian gas exports to Europe – the decision to remove Nord Stream
1 exemptions from EU energy laws, and so in effect close the pipeline down, was a body blow to the Russian European gas business it is unlikely
to recover from. Russia renewed its gas transit deal, with Ukraine paying $2bn in transit fees in the process.
The compromise was welcomed in much of Central Europe, which maintained Russian gas supplies without having to find alternative sources, and the extra cash Ukraine earned took considerable pressure off the budget in the first
years of reconstruction after the war.
Ukraine has taken advantage of the changes to massively invest into hydrogen production. It has been buying Russian gas to use as feedstock for its own hydrogen production and as its own renewable generation capacity grows it is decreasing the amount of Russian gas used as feedstock and re-tasking its own 20 bcm of gas production as feedstock for its own hydrogen production,
which is gradually displacing the Russian methane-hydrogen mix that was part of the 2024 transit deal.
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