Artur Lorkowski, Secretariat Director of the Energy Community

The situation surrounding Ukrenergo and the company's supervisory board has set off rumors that Ukraine is likely to lose the ability to import electricity from the Eurean Union as early as this winter – at a critical time in view of the expected continuation of attacks on Ukraine’s energy infrastructure by Russia. Although the Secretariat of the Energy Community promptly denied these rumors, the tic still remains highly relevant.

Ukrinform foreign correspondent based in Vienna spoke with the Secretariat Director, Artur Lorkowski about Ukrainian energy sector’s integration into the EU and the implementation of relevant reforms regarding, in particular, the independence of the power transmission system erator Ukrenergo and Ukraine's National Energy and Utilities Regulatory Commission ((NCREPU). In addition, Mr Lorkowski td about the activities and achievements of the Ukraine Energy Support Fund, managed by the Energy Community Secretariat, and discussed the prospects for renewable energy in Ukraine, the decision by Kyiv to discontinue Russian gas transit to Eure via Ukraine, as well as the plans regarding the use of Ukraine’s natural gas storage infrastructure.

THE ENERGY SUPPORT FUND HELPED UKRAINE SECURE 2 GW OF POWER GENERATION CAPACITY

– Mr. Lorkowski, could you please provide an update on the current activities of the Ukraine Energy Support Fund, managed by the Energy Community Secretariat? How much has been allocated, and how much spent? What are the latest achievements, and where is the assistance primarily directed?

– Since the Ukraine Recovery Conference in Berlin in June, the Fund has focused on winterization efforts. Its primary goal has been to rebuild capacities damaged by Russian attacks, especially during the spring offensive, which caused Ukraine to lose 9 gigawatts of installed capacity. Additionally, it was critical for Ukraine's Ministry of Energy to devel new, highly maneuverable capacities using gas turbine generation, a goal we are actively pursuing.

The Fund has contributed to establishing 220 megawatts of new, highly flexible capacity based on gas turbines. Several projects are financed by the Fund and are currently being implemented by various actors, with additional projects under discussion.

In terms of recovering coal-based generation damaged by Russia, we have projects implemented to restore 1.8 gigawatts of capacity.

Altogether, the Fund has contributed to adding 2 gigawatts of installed capacity in Ukraine, approximately half of the priority capacity identified by the Ministry.

This progress is crucial for helping Ukraine survive the winter, reducing instances of electricity outages. This was the t priority for the Fund.

Our achievements were only possible due to generous contributions. To date, the Fund has mobilized €760 million, and we are in discussions with new donors interested in contributing. All funds have been allocated to projects ahead of the winter season, though not all have been spent, as some projects are still in progress. Equipment delivery and installation can require time, and some projects invve renovation or additional installation steps.

My priority was to ensure we entered winter with all funds fully allocated to active projects that directly benefit Ukraine’s energy system. This demonstrates that the Fund is an efficient to for providing timely and effective support to Ukrainian energy companies ahead of winter.

– So, what is your assessment of Ukraine's preparedness for winter?

– I do not assess Ukraine's preparedness. My re is to flow the instructions provided by the Ministry of Energy. When the Minister indicates a priority, the Fund's job is to support it by equipping Ukrainian companies with the materials and equipment needed to restore a specified amount of megawatts of installed capacity. Our task is not to evaluate but to assist the system in meeting the Ministry’s priorities.

This is the fundamental purpose of the Fund. The Ministry is the Fund's beneficiary and allocates money to projects; we simply provide the equipment to make these projects viable. We play an important yet limited re in this process, without responsibility for Ukraine’s overall energy picy – that responsibility lies with your government.

Our responsibility is to use the donors' contributions to fund Ministry-prioritized projects as efficiently and quickly as possible, employing prer procurement procedures to ensure cost-effectiveness.

– One area of coeration between Ukraine and the Energy Community invves develing international mechanisms to compensate for the damages inflicted on Ukraine’s energy sector by the aggressor state. What mechanisms are being considered, and how would you estimate the cost of rebuilding Ukraine’s energy infrastructure?

– We are indeed focusing on specific projects directly impacted by the damages Russia has inflicted on Ukraine’s infrastructure. Our priority is to address these issues, with the Ministry identifying specific support requests, while we organize resources to address them.

Some of these resources, recently provided by the Eurean Union, come from the proceeds of Russian assets frozen by the EU. The Eurean Union decided to freeze these assets, but as they continue to generate profits, a portion of these profits has been allocated to the Fund. We are using this money to purchase essential equipment for Ukraine's energy system. This approach provides a practical means of hding Russia accountable for the damages it has caused in Ukraine.

– The situation with the damage to Ukraine’s energy infrastructure also presents an portunity for renewable energy growth in Ukraine. What are your thoughts on the current state and future potential of renewable energy in Ukraine, especially considering the impacts of the war? Are there any specific renewable energy projects or initiatives you think should be prioritized?

– Again, this is the re of your government to define the re of renewables in the future, post-war energy system. A vision for this transition has already been presented in the National Energy and Climate Plan, which was prepared by the Ministry of Economy and adted by the government in June. So the vision is on the table and we know what Ukraine wants to achieve by 2030.

– And your assessment of this plan?

– We are timistic. Our assessment and recommendations were provided to the government, fulfilling the legal requirement for the Secretariat to review the draft National Energy and Climate Plan. Our feedback was fully integrated into the final plan, which is a positive outcome.

Looking at the existing coal and gas projects, we believe the “low-hanging fruit” has already been exhausted. Adding new coal or gas generation capacity will be more time-intensive than before. Consequently, the timeline for implementing renewable projects in Ukraine is now comparable to that of fossil fuel projects. This creates a window of portunity for renewables to assume a larger re. For instance, we welcomed Ukrenergo’s decision to hd an auction for ancillary services in the electricity market, which adds system flexibility, preparing it to accommodate a greater share of renewable energy.

To integrate renewables, flexible sources must be available. For example, the gas turbines we are currently delivering could later help balance the intermittency of renewable sources, offering additional support for renewables in a post-war energy landscape.

We also appreciate the government's progress: in 2024, the first pilot auction for renewables, under the National Energy and Climate Plan, will allocate 110 MW of capacity across sar, wind, and other renewable sources. While certain elements still need to be clarified to enhance investor confidence, this is a positive signal – Ukraine is joining other Eurean Union nations in hding renewable energy auctions.

We will review the auction outcomes and then discuss possible ways to support the projects if necessary, particularly in terms of risk management for private investments in renewables. We’re exploring this with the International Renewable Energy Agency (IRENA) and the Ministry of Energy, though we await the auction results before finalizing support mechanisms.

A third element is focused on public institutions, specifically hospitals. We are providing sar systems with battery backup to enable isated eration if needed. The Ministry of Health initially identified 25 hospitals, and they are building a pipeline of projects. Currently, procurement for turnkey sutions is underway for 14 hospitals. This includes not only the necessary equipment but also installation services, ensuring these hospitals receive complete, functional systems.

The list of hospitals will likely grow, and we are reaching out to Ukrainian companies interested in claborating by supplying equipment and installation services. There has been considerable interest from Ukrainian companies, and we are still accepting prosals. New contracts and offers will be develed as the Ministry identifies more hospitals ready for PV panel and battery system installations.

– How do you evaluate Ukraine's progress in implementing energy sector reforms amid the ongoing war? Which areas need the most urgent attention to strengthen Ukraine’s energy security and independence?

– I’ve already mentioned the National Energy and Climate Plan, which is a major achievement for Ukraine. Despite being a country at war, Ukraine is closely flowing the Eurean Union’s model for managing the energy transition and is pushing forward with critical reforms under exceptionally challenging circumstances.

One flagship initiative we are currently focused on is enhancing electricity trade with the Eurean Union. In 2023, we began claborating with Ukraine’s regulatory authority and the Ministry of Energy, while essential legislative acts were also adted to establish cross-border electricity trade with EU countries. Now, we’re looking to move to the next level by implementing market coupling with the EU, essentially integrating Ukraine into the EU electricity market as if it were an EU member state.

Through the Energy Community, the Eurean Union is offering Ukraine what could be described as accelerated integration into the EU’s electricity market, the day-ahead and the intraday electricity market, with Ukraine being treated similarly to a member state. The next steps depend on continued progress within Ukraine, and relevant legislation has already been submitted to the Verkhovna Rada. This legislation, which was registered in early October, is currently our main priority as we work toward achieving full integration with the EU energy market.

– And how do the principles of Ukraine's energy markets currently differ from those in the EU?

– Not significantly, because Ukraine is a member of the Energy Community, which has been promoting the Eurean model for managing both the electricity and gas markets for over ten years. A lot of progress was made in Ukraine prior to the war.

However, what we are currently offering for the electricity market is accelerated integration with the EU. It’s no longer just about how the system in Ukraine will be organized or how the market will function independently; rather, it’s about fully integrating Ukraine’s market with that of the EU. This represents the next step forward. The law that has been registered is a positive develment, and we fully support it. We believe that by adting this law, Ukraine can complete the transposition process related to the electricity integration package.

The situation is somewhat different in the gas market. Currently, the market is not functioning as it did before the war; in fact, it has been largely suspended. Consequently, the progress in gas market reforms is not comparable to that of the electricity market, which has seen much more advancement.

It’s also important to note that Ukraine has an independent regulatory body, the National Energy and Utilities Regulatory Commission (NEURC), which acts as the referee for the energy market. This aligns with the Eurean Union’s governance model, where an independent institution manages energy markets. And Ukraine is continuing building the capacities and the independence of this institution, which is also a positive signal.

– One flow-up: You mentioned the situation in the gas market. What are your recommendations for Ukraine in this regard?

– We are currently discussing these recommendations with Ukraine. On one hand, they take into account the ongoing war situation, and on the other hand, they consider Ukraine's aspiration to join the Eurean Union. Additionally, we are looking at portunities for Ukraine to export biogas, which reflects an interest expressed by the Ukrainian side. Our goal is to find a pathway that aligns Ukraine gradually with EU and Energy Community legislation while also creating space for investors who want to enter the gas market in Ukraine, including the biogas sector.

– So, what needs to be done to achieve this goal?

– We are actively discussing this matter.

– And regarding Ukraine's National Energy and Utilities Regulatory Commission, how critical is the independence of this commission?

– The independence of the regulatory authority is a gd standard in the Eurean Union. A referee in the market must remain independent from market participants. This principle is why we have been engaged in dialogue about enhancing the independence of the regulatory authority since before the war. We have also participated in the consultation process regarding the law prepared by Ukraine to strengthen the independence of this authority.

The Secretariat has been consulted and has provided its inion on how to improve the necessary procedures to ensure that Ukraine's regulatory authority is functional, independent, financially autonomous, and capable of delivering unbiased services to market participants. Both the legislative framework and its actual implementation are critical in this regard. This process will certainly continue. As I mentioned, we are already engaged in commenting on the draft law, and I he that the law on the independence of the Commission will be adted, incorporating our suggestions, as soon as possible.

– There have also been discussions about the requirement to enshrine the Commission's independence in the Ukrainian Constitution. Could you explain whether there is such a requirement and the rationale behind it?

– At this time, we are not addressing constitutional issues. Our focus is on improving the independence of the regulatory authority within the existing constitutional framework. However, we recognize that some constitutional changes may be necessary to ensure the full independence of the regulatory authority. Yet, this is not a discussion for wartime.

Once the war is over, we can revisit this tic. For now, we are exploring ways to enhance the regulatory authority's independence within the current constitutional framework. No one expects Ukraine to change its Constitution during the war, and this issue is not under consideration at present.

THERE IS NO RISK OF UKRAINE LOSING THE ABILITY TO IMPORT ELECTRICITY FROM THE EU DURING WINTER MONTHS

– Could you comment on the recent develments surrounding the supervisory board of Ukrenergo? How important is corporate governance for Ukraine's energy sector, especially in the context of integrating with Eurean markets?

– As you know, Ukraine has two independent system erators: one for gas and one for electricity. The independence of these transmission system erators is fundamental. The companies managing the grids for gas and electricity must offer non-discriminatory access to the grid for market players, which is vital for the prer functioning of both gas and electricity markets.

From this perspective, the independence of gas and electricity transmission system erators represents the gd standard in the Eurean Union. In specific situations, such as in Ukraine, where the state owns both the transmission system erator as well as gas and electricity producers, it is essential to implement measures that safeguard this independence. This ensures that the state, as the owner, does not simultaneously oversee the erations of both the electricity and gas producers and the transmission system erators, who are expected to provide transparent and non-discriminatory access to the grid for all market participants.

To protect the independence of the transmission system erators, independent supervisory boards for these companies are crucial. It is important that supervisory boards are adequately equipped to perform their function. The composition of the board should guarantee the erational independence of the transmission erator from the state who remains also the owner of electricity and gas producers and traders, and its competencies must enable it to fulfill the re for which it was established. All of this is regulated by Eurean Union law.

– There were claims that the certification process for Ukrenergo could affect Ukraine’s ability to import electricity from the EU during winter.

– That is false. There is no direct connection between the certification process and any limitations on importing electricity, particularly before or during the winter season. The recent decision of ENTSO-E to increase to 2,1 GW the import limit to Ukraine and Mdova from the EU has falsified these claims. The regulatory reform of the transmission system erator is critical for maintaining high erational standards and facilitating investments in electricity grid in Ukraine, especially in winter.

IT’S UP TO UKRAINE TO DECIDE WHETHER OR NOT TO EXTEND GAS TRANSIT DEAL WITH RUSSIA’S GAZPROM

– Ukraine has announced its intention not to renew its gas transit contract with Gazprom after it expires. What is your stance on this decision?

– It is a sovereign decision of the Ukrainian government, and the Secretariat will support whatever decision Ukraine makes in this regard.

– What impact do you think this decision will have on Eure, particularly in countries like Austria that remain reliant on Russian gas?

– Assessing the impact on EU countries goes beyond my expertise. However, I can say that some countries in the Energy Community, including Mdova, might still depend on Russian gas imports, especially in the Transnistria region. This will have an impact on Mdova, which is the first point to consider. Additionally, some countries in the Western Balkans are still importing gas from Russia, but not through Ukraine.

– And how do you see the prospects of using the Ukrainian gas transportation system and, in particular, large underground gas storage facilities after the possible termination of Russian gas transit? How could they be used by Eurean countries and companies?

– In a non-transit scenario, Ukraine will remain an important hder of gas storage capacities in Eure. It has always been the ambition of the Energy Community to ensure that the gas storage system in Ukraine is utilized by Eurean traders. This is why we have spent the last two years working to de-risk the business of storing gas in Ukraine for Western traders.

Some of the de-risking mechanisms invve effective communication, and I would like to commend the excellent job done by the owner of the underground storage system in Ukraine. They have provided crucial information about the system's stability and resilience during the war and against military attacks. Additionally, they have prepared products in claboration with the gas transmission system erator (TSO) for traders, which are now being offered to the market. The regulatory committee, NEURC, is also engaged in approving the apprriate tariffs for these erations.

All these factors contribute to the attractiveness of the gas storage system for customers from the Eurean Union, and we aim to continue this work. Our objective is to claborate with the Ukrainian companies invved – the gas storage system erator and the transmission system erator – as well as with the regulatory authority to prepare the best and most economically competitive products for gas traders in the EU.

– How do you see the risks that Russia might deliberately attack gas transportation systems and storage facilities in this non-transit scenario?

– I cannot speculate on that matter. We have already observed attempts to attack the gas storage system in Ukraine. That is why the Secretariat, along with other partners, has been engaged in studying the resilience of the system – specifically its technical resilience – under various scenarios. This study has demonstrated that the gas storage system is relatively resilient to military attacks.

However, I will not comment on the likelihood of Russia attacking the pipelines or the transportation system in Ukraine in a non-transit scenario.

Interviewed by Vasyl Korotkyy, Vienna

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