July 2017 – As a first step towards securing the country’s long-term energy independence, Ukraine’s parliament has adopted draft legislation to improve energy efficiency.
On 8 June 2017, parliament adopted the Bill on Energy Efficiency Fund (No. 5598), followed by the Bill on the Energy Performance of Buildings (No. 4941-d) and the Bill on the Commercial Metering of Utility Services (No. 4901) adopted on 22 June 2017.
Around USD 3 billion, or 60% of the cost of Ukraine’s current energy imports, could be saved annually if Ukraine fully implements energy efficiency measures.
Energy Efficiency Fund
Currently, retail gas prices in Ukraine remain regulated, although starting from 2015 the price level has substantially increased, bringing to an end the complete distortion of the price mechanism that hampered energy efficiency efforts in the past. Prices for utilities have also skyrocketed, making it cumbersome for the majority of Ukrainians to pay their monthly utility bills.
In a previous attempt to tackle the problem, the Ukrainian government passed two initiatives. It launched a rather generous subsidy scheme and also introduced the “warm credits” program designed to support energy efficiency measures. Under the “warm credits” program the state reimburses between 20%¬ – 35% of loan amounts to owners of private houses implementing energy efficiency measures, 40% of such loan costs to housing cooperatives, and up to 70% – to housing cooperatives with state-aided residents. Importantly, in 2016 the government spent 70 times more money on subsidies for public utilities than on its energy efficiency program.
It is expected that the “warm credits” program will remain in place as a parallel program for smaller projects, while the Energy Efficiency Fund to be established by the new bill will cover large-scale thermal modernisation projects. For these purposes, the Fund will accumulate funds from the state budget, donors and private investors. All contributions will be utilised exclusively for energy efficiency measures.
While it has been estimated that over the next 15 years Ukraine will need to invest approximately EUR 55.5 billion in the thermal modernisation of buildings, only UAH 800 million (around EUR 27 million) was budgeted for the financing of energy efficiency measures in 2017. It is evident that without the aid of foreign partners such as the World Bank, IFC, EBRD, USAID and GIZ – which have approved Ukraine’s initiative – progress in this area would be much slower.
In addition, the bill implements a mandatory energy audit as a precondition for the allocation of funds from the Energy Efficiency Fund for energy efficiency measures. Consequently, it is expected that at least 75,000 well-paid jobs will be created and that the state budget will receive up to UAH 10 billion (approx. EUR 340 million) in additional tax revenues each year.
Energy performance of buildings and metering of utility services
The Bill on the Energy Performance of Buildings seeks to harmonise Ukraine’s legislation with EU Directive 2010/31/EU and introduces a mechanism for obtaining an energy performance certificate for buildings, which will form part of the construction documentation. The validity of the certificate is ten years, as in most EU countries.
In addition, the bill establishes minimum requirements for the energy efficiency of buildings and provides a clear-cut list of objects for which energy efficiency certification is mandatory. This includes construction objects (both new, under reconstruction and full repair) with medium and significant impact on people' health and life pursuant to the Law of Ukraine on the Regulation of Urban Planning; state-owned buildings with a total heated area of over 250 square meters, often visited by citizens or hosting state and municipal bodies; and buildings that implement energy efficiency measures with support from the state.
Certain buildings are exempt from certification and compliance with the minimum requirements, namely: industrial and agricultural buildings; energy, transport, communication and defence objects and warehouses; private houses; buildings for worship and religious rites; cultural heritage objects; etc. The list of such buildings shall be determined by the Cabinet of Ministers of Ukraine.
The bill becomes effective in twelve months upon its signing by the President of Ukraine and promulgation. However, the implementation of some provisions of the bill, e.g., on mandatory certification of certain types of buildings and inspection of engineering systems modernised at the state's expense, is postponed until 1 July 2019.
To ensure the rational use of natural resources and facilitate transparent and beneficial relations between customers and service providers, parliament has also adopted the Bill on the Commercial Metering of Utility Services, which implements compulsory metering of heat supplies.
Consequently, there is only one bill, which still needs to be adopted for the Energy Efficiency Fund to start running at full capacity. This is the Utilities bill (No. 1581-d), which aims at fostering competition in the market and allows consumers to conclude transparent contracts directly with service providers. It is also important to fully monetise subsidies, i.e., instead of receiving a “discount” for payment of utility services, customers will receive cash as an incentive for savings.
These measures are aimed at fulfilling the objectives of the Energy Efficiency Action Plan adopted by Ukraine in 2015, according to which Ukraine’s overall national energy savings target constitutes 9% of total energy consumption (6.5 Mtoe) by 2020.
For more information, contact Olena Kuchynska, Counsel, at , or Mariana Antonovych, Associate, at .