View from Brussels: Keeping the lights on at the neighbours

Ukraine is the largest country that is wholly in Europe. An aspiring member of the EU and Nato, it is still largely reliant on fossil fuels but can also boast a relatively high level of energy self-sufficiency.

Despite sharing borders with four EU member countries – Poland, Slovakia, Hungary and Romania – Ukraine’s power grid is not integrated with those networks, meaning that electricity cannot be traded or exchanged.

Ukraine has to rely on Russia to balance its grid as it lacks the proper infrastructure to achieve the feat itself. This creates a dependency on Moscow that Kyiv is understandably uncomfortable with, given the frosty ties that exist between the two neighbours.

By 2023, Ukraine intends to decouple its grid from Russia’s and link it to the EU’s, which should in theory unlock a whole host of benefits for both sides. A lot of work still has to be done in order for that to become a reality.

Investments will have to be made in mechanisms and networks that balance supply and demand, otherwise the entire stability of the EU grid will be jeopardised. Electricity market reforms and subsidies will also likely have to be implemented and tweaked.

Ukraine’s power grid has the ignominious accolade of being the first electricity network in the world to fall victim to a cyber attack. In 2015, hackers successfully disrupted power supply to nearly 250,000 people for six hours in places. 

That demonstrates how much catching up Ukraine has to do before the 2023 deadline announced by the government’s foreign minister earlier this year can even start to look feasible. But the advantages of pulling it off are too numerous to ignore.

According to Lukas Feldhaus, an analyst with the Low Carbon Ukraine Project, linking up with the EU grid could save Ukraine €1 billion every year, as surplus renewable energy could be traded more freely.

At the moment, wind and solar installations have to be shut down when power supply exceeds demand, due to lack of customers or storage options. That is also why coal power plants continue to operate, as they can be fired up and shut down more easily.

Increased supplies of clean power mean that “annual emissions in Eastern Europe would shrink by 18 per cent or 14 megatons of CO2, equivalent to the annual emissions of around 9.5 million modern cars,” according to the Low Carbon Ukraine Project.

Renewable energy produced in countries like Poland and Romania, which both have aspirations to develop more capacity, could also be shipped across the Ukrainian border during periods of increased demand.

In theory that should build a business case for more wind farms and solar installations in countries that face an uphill battle to meet the targets set by the EU’s Green Deal policies. That will include a 2030 EU-wide renewables goal of around 40 per cent.

More integration will also unlock more energy options for Ukraine, such as green hydrogen production, which can then be used to decarbonise industry and heavy transport. Given that Kyiv wants to go carbon-neutral by 2060, it will need to be bold in its policy-making.

All of this requires cash though. The EU sends regular funding to Ukraine as part of its neighbourhood outreach programme and the European Investment Bank also funds infrastructure projects to the tune of hundreds of millions of euros.

Germany recently brokered a deal with the United States that should see Washington stay out of the Nord Stream 2 gas pipeline affair, which risked unravelling when Joe Biden’s administration threatened to hit the companies involved in the project with sanctions.

The compromise will see Germany compensate Ukraine for lost gas transit fees – Nord Stream 2 will run under the Baltic Sea from Russia to Germany, bypassing Ukraine – with a planned initial donation of around €150 million.

Given that Ukraine nets around €2 billion every year in transit fees, it is likely that a financial shortfall is going to hit the government’s coffers as early as next year, when gas shipments start flowing, if more aid is not found from other sources.

Money is available, it just needs to be funnelled in the right direction. An EU programme last year allocated €720 million in grants to the Baltic Grid Synchronisation project, which aims to decouple Estonia, Latvia and Lithuania’s shared network from Russia’s by 2025.

Lithuania is desperate to unhook itself from the Belarusian grid too, as part of a cross-border dispute over a new nuclear power plant Minsk has built, which Vilnius says is unsafe and a disaster waiting to happen.

Preventing the power it supplies from reaching the EU market is part of a Lithuania-led push to make the plant financially unsustainable, and desynchronisation is crucial to the strategy.

The EU cash was easier to secure given that all three countries are member states, but if Brussels wants to be serious about its climate policy ambitions – which are now firmly the main concern of EU officials – they have to look beyond their borders.

Ursula von der Leyen, the president of the European Commission, regularly says that the EU’s ambition is to “be the first climate-neutral continent”. Taken literally, that includes Ukraine and several other countries.

Helping a big neighbour go green by investing now seems like a bet worth making, given how plentiful the rewards seem to be. Even if Ukraine does not end up going down the EU-membership path anytime soon, there is a huge win-win scenario up for grabs.