Ukraine’s biomass energy has ways to weather green tariff crisis

“Kiev Post” by Alexander Query. Published Nov. 19. 2020. An aerial view of the biogas complex build by Ukraine’s largest poultry exporter Myronivsky Hliboproduct (MHP) in Vinnytsia, a city 250 kilometers west of Kyiv. The $15 million complex will generate 20 megawatt of green energy and may eventually become the biggest biogas complex in the world, according to MHP.

The abundance of agricultural and forestry waste in Ukraine makes biomass a promising alternative energy source. There’s only one problem — the green tariff crisis scares away potential investor in renewables, including biomass.

According to Sergiy Savchuk, executive director of Ukrainian biomass producer Clear Energy, not a single project on biomass for electricity and heat production has been commissioned this year. The companies cannot attract investors to a country where the government owes big green energy producers as much as $780 million, which it can’t pay.

“The crisis and absence of stable payments to biomass energy producers have seriously impacted the industry overall,” Savchuk said.

At the same time, most of the current biomass power producers generate heat — not electricity. And since Ukrainians pay for heating through their utility bills, current biomass producers feel more stable than other renewable power makers.

Green tariffs

While a small part of Ukraine’s overall energy supply, biomass is the most important renewable energy source in Ukraine.

It represents roughly 6% of the total supply and 76% of the renewable sector, according to a report released in May 2019 by the Organization for Economic Cooperation and Development.

Biomass and biogas electricity producers account for 200 megawatts on the market, and they stopped receiving money in March from the state-owned Guaranteed Buyer, which, under the green tariff policy, is required to buy all green power in Ukraine.

Guaranteed Buyer couldn’t continue paying due to the coronavirus crisis — it found itself unable to fulfill its promises, which enraged investors and put the industry at risk. Today, with a debt of $780 million, the state doesn’t have any clear plans for payment.

It is even worse for biomass energy because biomass producers need to buy raw material to burn it, according to Georgii Geletukha, head of the board of the Bioenergy Association of Ukraine.

“The sun and the wind are free, but we need something to burn and this something is not free,” Geletukha said.

Under these circumstances, the only way for a producer to operate a plant is to use its own source of biomass fuel. This, however, is only applicable to companies that operate biomass power plants as part of their larger business in agriculture of forestry.

Big players

Ukraine currently has 15 biomass power plants, and most of them are owned by big agribusinesses that use their own residues as biomass fuel.

Geletukha cited the example of Myronivsky Hliboproduct (MHP), Ukraine’s biggest poultry exporter and a near monopolist on the market, which exported over 729,000 tons of poultry in 2019 to 80 countries.

In 2017, MHP launched the construction of an enormous biogas power plant worth $27 million in Vinnytsia, a city of 370,000 located 260 kilometers southwest of Kyiv.

The plant, due to be finished at the end of the year, already produces 12 megawatt of biomass energy thanks to bird dung produced by the poultry MHP sells. “They are owners of their residues and use that to create biomass, which gives them a huge advantage,” Geletukha said.

Moreover, many of the big players are financed by international development banks, according to Andreas Biermann, an expert in energy at the United Nations Development Program.

For instance, in February 2019, the European Bank for Reconstruction and Development arranged $56 million in funding to oilseed producer Kernel Group to build four biomass power plants in Ukraine.

But the company is already Ukraine’s largest vertically-integrated agribusiness, as it trades crops and provides shipment as well as storage services on its own.

“It will be important to develop a strong local market of investors and financiers to grow biomass as a source for energy in Ukraine” for smaller biomass energy producers, Biermann said.

Haystacks lay in a field before they are burned as biomass to generate energy. Due to its strong agriculture, Ukraine can collect a lot of hay, sunflower husks or livestock manure to produce green energy.

Raw material

With 42 million hectares of agricultural land, Ukraine’s agricultural sector can harness biomass from crop residues like sunflower husks, livestock manure or wood pellets.

Biomass power producers generate more heat than electricity (over 5,000 megawatts of thermal capacity). As a result, they don’t depend as much on Guaranteed Buyer as the rest of renewable energy producers.

Besides, he said, the bioenergy sector seems to be in a better position when it comes to producing heat because biomass is generally cheaper than natural gas. However, its price depends on the cost of raw materials from farm and suppliers and, at times, can be more expensive than gas.

On the upside, using bio-waste that usually ends up in a landfill is good for the environment, and this is the strategy Savchuk chose for his Clear Energy group.

Since 2017, Clear Energy started using gas from solid waste through a waste-to-energy process called degassing. The company drills close to a landfill, install tubes and collects biogas produced by rotting wastes. Sewage and agricultural waste is put into high-temperature digesters to rot quicker. The gas is then captured and used as fuel.

In Ukraine, 94% of solid waste is disposed in landfills. But with the available space shrinking, cities are looking for alternative ways to process garbage and potentially use it as an energy source.

Landfills already take up 12,000 hectares of land, creating opportunities for Clean Energy’s Savchuk, who is working on a degassing plant at a landfill in Odesa. The plant will produce 10 megawatts of power and 20 megawatts of heat by using up to 330,000 tons of municipal waste.

When it comes to selling, Savchuk still believes in the green tariffs policy to sell his energy. He said the guaranteed price for biomass projects can be obtained by projects built by January 2023 at the price of 12.4 euro cents per kilowatt. The tariff will remain until 2030.

Athough nearly every big city in Ukraine has installed degassing facilities at big landfills, Geletukha said degassing plants account for only 30 megawatts of power today — much less than wood or agriculture biomass.

Big potential

In 2019, the majority of raw materials was wood pellets, equal to 2.4 million tons of oil. But Geletukha says hay will take the lead by 2035. Wood and energy crops would follow.

If the country’s agricultural byproducts, residue and waste products are managed properly, biomass could become a steady year-round source of energy and eventually replace natural gas, Geletukha said.

“The prognosis is quite favorable for biomass,” he added.

The share of biofuels in Ukraine’s energy supply could reach 4 million tons of oil equivalent in 2020, and 11 million by 2035, helping the nation’s drive to energy independence.

Another advantage, he said, is that biogas can be transported in natural gas pipelines.

“Biomass is a big sector with big growth prospects,” Geletukha said.