On February 22, 2024, the UN Global Compact in Ukraine together with ExPro, within the framework of the Ukraine Energy Initiative held an online discussion "Energy storage facilities in the energy system of Ukraine. Status and development prospects."
The purpose of the event was to bring together representatives of public and private companies, leading players in the market of Battery Energy Storage System (BESS), and the Transmission System Operator Ukrenergo to form a common vision of the prospects for the development of energy storage facilities in Ukraine.
The following speakers joined the online event:
- Maksym Zorin, Advisor to the Chair of the Management Board of Ukrenergo;
- Yevhen Didichenko, Co-owner of KNESS Group;
- Vadym Utkin, Head of ESF, DTEK;
- Oleksandr Dombrovsky, Deputy Chair of the MHP Management Board, President of MHP Eco Energy;
- Oleksa Konenko, Head of the Renewable Energy Department, Galnaftogaz Concern;
- Oleksandr Alyokhin, Senior Product Manager, Huawei Ukraine;
- Vitaliy Radchenko, Managing Partner of CMS international law firm in Ukraine;
- Vitaly Nikolaenko, Managing Partner, Voltage Group;
- Yaroslav Pak, Deputy Director of the Department for the implementation of innovative projects, and Pavlo Torzhevsky, Deputy Director of the repair department, Ukrhydroenergo
Over 400 listeners joined the event.
Speakers raised the issues of settlements in the balancing market and the market of auxiliary services, a dialogue between the state and business, planned projects and risks, related to their implementation, legal aspects of the BESS development in Ukraine.
PARTICIPANTS' POSITIONS
UKRENERGO
Maksym Zorin, Adviser to the Chair of the Management Board of Ukrenergo, during the event noted the relevance and timeliness of the topic of BESS development in the Ukrainian energy system. Transmission System Operator in the Evaluation report estimated that in the 10-year perspective, the Ukrainian energy system will require 800 MW of ESS, with an estimated investment demand of $0.7 billion.
According to Maksym Zorin, over the past two years, there has been a trend towards the interest of private investors in energy storages.
Ukrenergo focused on the need for distributed placement of energy storage units throughout Ukraine, taking into account optimal costs for the development of electric networks, regional needs for reliable operation of energy infrastructure.
Zorin identified delays in payments for energy balancing as risks to the investment attractiveness of projects of this type. According to him, timely payments are an important aspect for the provision of ESF balancing energy to ensure the provision of aFRR, since in the European model with a single platform for activating balancing energy aFRR (PICASSO), a significant amount of profit for BESS operator comes precisely from the price of the provided volumes of balancing energy. Ukrenergo expects to resolve debt issues in the balancing market as soon as possible after the adoption of relevant regulatory legal acts. At the same time, the TSO assesses the current situation in the auxiliary services market as attractive for energy storage plants, adding that there is no debt to participants in this segment.
KNESS
KNESS noted a deterrent to the BESS development in Ukraine: banking institutions are reluctant to consider financing such projects, as their business model is unfamiliar and insufficiently predictable. The solution to this problem may be the introduction of long-term auctions for auxiliary services market, for more than 1 year, and the Regulator's compliance with the current methodology for setting cap prices for support services, which are at the level of 2022. Currently, the cap price for the service is almost twice as low as it should be according to the methodology.
Additionally, according to Yevhen Didichenko, it is necessary to activate the market of replacement reserves.
"We believe that in the segments of the balancing market and the day-ahead market, the price arbitration does not yet independently ensure the payback of ESF projects. To bring the flexibility of ESF to these markets, cap price should be abolished and negative prices should be introduced, as is customary in most EU countries," Didichenko said. KNESS identified the connection of renewable energy sources and ESF to the power grid as an important market issue, without consideration of the operational modes of the corresponding facilities.
KNESS Group is currently working on a business model focused on the auxiliary services market. In 2023, the Group issued the first license to carry out economic activities for energy storage. The company has developed, designed, and manufactured its technological solution for ESF.
KNESS is currently implementing a pilot project of its investment in BESS with a certified capacity of 12 MW of RF service. It is planned that the first test megawatt will be launched on the ASM in the spring of 2024. In the current development of the Group, there are still 7 projects with a total connected capacity of about 200 MW.
MHP
Oleksandr Dombrovsky, President of MHP Eco Energy, defines energy storage systems as a key element that needs to be developed in the context of the green transition and the creation of decentralised systems.
MHP, as a large company, strives to achieve its energy independence and carbon neutrality. From the standpoint of the country's energy security, especially in the current conditions, accumulation systems are becoming a mandatory element, MHP is convinced. Therefore, there should be a system of motivation from the state for the development of energy storage.
The deputy Chair of the MHP Management Board noted the need for predictable and stable rules of the game in the electricity market, which is a decisive factor, including for investment.
"If the state formulates the right rules of the game, then investors will come, and then we will provide and primary and secondary services, and everything will develop rapidly. If these rules are not formed, then no internal or external investor will invest in either FRR or the FMR," Dombrovsky said.
According to Dombrovsky, MHP is currently working on optimal algorithms for attracting energy storage systems together with solar power plants at production facilities.
"We have set ourselves the task for 2024 to install at least 20 MW of EAS as part of our large industrial cluster. Today, we already have 9 solar generation systems of different sizes, some of them work with different BESS," Dombrovsky said.
GALNAFTOGAZ
Oleksa Konenko, Head of the Renewable Energy Department of the Galnaftogaz Concern, during his speech emphasized that the payback period for BESS is now low.
According to him, the balancing market is now completely uninteresting for potential investors, and the market for auxiliary services is very narrow. In addition, the requirements of the auxiliary services market (ASM) are prescribed for all types of systems in the same way; although ESF can and will technologically provide the service several times faster and better than participants with technically outdated capacities. As a result, the introduction of modern technologies in the ASM may be unprofitable in the future.
To attract additional funding, it is necessary to introduce a mechanism for covering military risk insurance.
Galnaftogaz is currently actively designing a 20 MW energy storage facility, and Iknet has been involved.
"When we started designing, we did not expect how many technical issues and unpreparedness there is in our Transmission System Code and some regulatory documents," Oleksa Konenko said, adding that the company plans to commission the facility at the end of the year.
DTEK
Vadym Utkin, Head of ESF at DTEK Energy Holding, during his speech noted that the decision of the Energy Regulator (Resolution No. 1958 dated 30.12.2022 on amendments to the Methodology for forming prices for auxiliary services), which fixes the cap prices for auxiliary services by the end of martial law, is harmful for the development of EAS.
According to him, the decisive factor for the development of energy storage in Ukraine is the market attractiveness in terms of pricing.
UKRHYDROENERGO
The state hydrogenating company, Ukrhydroenergo, is currently working on the project of 197 MW accumulation system at selected sites of the Dnipro cascade hydroelectric power station, with an additional 35.9 MW of solar power plants. According to Yaroslav Pak, the introduction of BESS will improve the integration of renewable energy sources into the Ukrainian energy system.
The scheduled completion date is 2026.
HUAWEI UKRAINE
Oleksandr Alyokhin, Senior Product Manager at Huawei Ukraine noted during his speech that the company offers storage units from 200 kW to 2 MW, and in 2025 a presentation of a 4.5 MW solution is proposed.
According to Alyokhin, there are at least 6 business models for EAS use: maximum self-consumption, network support, TOU (time of use), micro-networks, auxiliary services, and peak restrictions. A competent combination of each of the scenarios for EAS use can provide a better payback period, Alyokhin says.
CMS IN UKRAINE
Vitaliy Radchenko, Managing Partner of CMS international law firm in Ukraine, noted during his speech that the law of Ukraine No. 2046 dated February 15, 2022 "On amendments to certain laws of Ukraine concerning the development of energy storage facilities" fully complies with Directive 2019/944. According to Radchenko, Ukraine has a high market capacity potential and a legislative framework for development, but the option of financing projects remains the decisive factor.
VOLTAGE GROUP
Vitaly Nikolaenko, Managing Partner of Voltage Group, pointed out the priority of the rule of law and a transparent regulatory environment for attracting investment in new projects. Nikolaenko identified the following criteria used by potential investors for ESF projects: financial indicators (IRR, NPV, payback period, etc.), global trends in the development of renewable energy sources and accumulation systems, competitive field, involvement of human resources, stimulation of electricity production without CO2 emissions.
He also emphasized the importance of understanding how the investor will return the invested funds, and a PPA with a reasonable term is just this document. Nikolaenko is confident that the development of the electricity market in Ukraine with a new "green" generation is possible only with ESF integration to the Unified Energy System.
During the online discussion, the participants identified the main priority problems for the development of the energy storage market in Ukraine. They relate to military risks, regulatory hurdles, threats of debt accumulation in certain market segments, and pricing. Most companies define their business model as working in the market of auxiliary services, while large industrial holdings, in particular MHP, introduce ESF as an element of strengthening their energy independence.
There is a disagreement between market participants and the transmission system operator regarding the calculation of the business model and payback period for energy storage plants.
Stakeholders of the energy storage systems market in Ukraine highlight the following issues and obstacles to the BESS development:
- accumulation of debt in the balancing electricity market, lagging behind payments for the balancing energy;
- insufficient level of cap prices in the auxiliary services market and in the balancing market, which does not provide sufficient payback for energy storage plants;
- lack of predictable rules of the game in the Ukrainian market, which does not allow fully calculating a business model and project benefits;
- military risks and aspects related to insurance;
- technical obstacles to connecting energy storage systems to the grid. The panelists stressed the need to take such steps that should stimulate the ESF development in the Ukrainian energy system and strengthen energy security:
- introduction of a mechanism for insurance against military risks and state support in this area;
- solving problems with debt accumulation in the balancing market and preventing "deferred payments" in other market segments, in particular, in the market of auxiliary services;
- increase of the transparency of the regulatory environment and revision of cap prices for auxiliary services and balancing market;
- introduction of long-term auctions in the auxiliary services market for a period exceeding one year;
- start of an open dialogue between the state and business on the development and integration of energy storage systems to the Ukrainian energy system.
- activate the market for replacement reserves, which would affect the reduction of the required installed capacity of the ESF and cheaper aFRR services.