Ukraine must work with leading nations to build sustainable energy markets
Maxim Timchenko, CEO DTEK
- COVID-19 may have exposed weaknesses in current business models but it has renewed efforts to create a green economy.
- Ukrainian energy sector must embrace this new reality and adapt to be part of a resilient, sustainable economy.
- Clear regulatory rules are needed to define economic opportunities and ensure positive change.
The pandemic poses unprecedented challenges at global and national scale. It shows the vulnerability of political systems and business models. Although comprehensive analysis takes time, it’s already clear that the pandemic has created opportunities to rebuild the economy more sustainably: the Great Reset, which indicates the path to rewire the world’s economic foundations, focusing on creating long-term sustainable value. The global nature of the pandemic means that such a path is open for all, not just for a select few countries. The energy sector will be a frontrunner of the transition to a resilient green economy.
The Great Reset builds on experiences of overcoming previous turmoil. The global financial crisis of 2008-2009 propelled the sociopolitical debate towards more sustainable capitalism. The financial and banking sectors were first to reconsider their responsibilities towards society, with other businesses joining this movement. The scientific community highlighted threats posed by human-induced environmental degradation, climate change and associated global inequality. In less than a decade, this resulted in developing ESG criteria and making them, de facto, core to business strategies.
Ukraine on the right path
Although Ukraine was never shielded from global financial and economic trends, in the last decade our country has been facing structural challenges focused on domestic economic and fiscal recovery. ESG principles are yet to become mainstream for businesses in Ukraine, but DTEK is leading the charge in the energy utility sector. However, massive changes caused by COVID-19 place Ukraine firmly on the path of the Great Reset. Ensuring economic growth in ‘old ways’ is not an option: either from national competitiveness nor from a societal perspective.
What is increasingly clear to businesses in major developed economies still needs to penetrate in Ukraine. Namely, the values and principles that companies put in their strategies, business processes, and daily operations becomes crucial. Responsibility, openness, desire to improve, customer focus, and transparency should be both stimulated voluntarily by businesses and incentivized by the regulatory environment.
Energy sector contributes to recovery
Looking through the lens of the energy sector, at pivotal moments of recent years, utility companies were among the front-runners in changing their business models to prioritize decarbonization, decentralization and digitalization, as well as to redouble efforts on “walking the walk” on ESGs. Since the global coronavirus pandemic began in early 2020, the energy sector (particularly electricity) has played a critical role in the global response to the crisis. Without access to reliable and affordable electricity, the lockdowns introduced by governments to tackle the public health crisis would have resulted in far greater economic damage.
What's the World Economic Forum doing about the transition to clean energy?
Moving to clean energy is key to combating climate change, yet in the past five years, the energy transition has stagnated.
Energy consumption and production contribute to two-thirds of global emissions, and 81% of the global energy system is still based on fossil fuels, the same percentage as 30 years ago. Plus, improvements in the energy intensity of the global economy (the amount of energy used per unit of economic activity) are slowing. In 2018 energy intensity improved by 1.2%, the slowest rate since 2010.
Effective policies, private-sector action and public-private cooperation are needed to create a more inclusive, sustainable, affordable and secure global energy system.
Benchmarking progress is essential to a successful transition. The World Economic Forum’s Energy Transition Index, which ranks 115 economies on how well they balance energy security and access with environmental sustainability and affordability, shows that the biggest challenge facing energy transition is the lack of readiness among the world’s largest emitters, including US, China, India and Russia. The 10 countries that score the highest in terms of readiness account for only 2.6% of global annual emissions.
To future-proof the global energy system, the Forum’s Shaping the Future of Energy and Materials Platform is working on initiatives including, Systemic Efficiency, Innovation and Clean Energy and the Global Battery Alliance to encourage and enable innovative energy investments, technologies and solutions.
Additionally, the Mission Possible Platform (MPP) is working to assemble public and private partners to further the industry transition to set heavy industry and mobility sectors on the pathway towards net-zero emissions. MPP is an initiative created by the World Economic Forum and the Energy Transitions Commission.
Is your organisation interested in working with the World Economic Forum? Find out more here.
According to the IEA’s World Energy Outlook 2020, the energy sector suffered more disruptions from COVID-19 than any other event in recent history, the level of resilience and adaptability of the sector is truly remarkable. The level of cooperation and mutual trust within the sector in addressing challenges could be one of the explanations. The World Economic Forum plays a galvanizing role through its Electricity Industry Action Group. This format engages top-management of energy companies all around the world (Europe, North America, Brazil, South Africa, India and China) to share their responses to immediate crisis management.
Most importantly, in collaboration with Accenture, it resulted in developing a framework that quantifies and qualifies the “system value” of solutions that drive sustainable economic and energy system recovery (Path to Reset through System Value). The Forum’s System Value approach—whose core elements include renewables expansion, grid upgrade and interconnection and efficiency—demonstrates how specific electricity sector policies can create employment and make an important contribution to post-COVID economic recovery, as well as helping to advance the clean energy transition.
Renewable investment opportunities
The electricity sector in Ukraine suffers from a number of restrictions and manual short-sighted interventions which significantly limits the effectiveness of market operation. These dysfunctions delay the green energy transition and jeopardize the country’s commitment to energy market integration with the EU. Even more crucially, they undermine the economic and financial sustainability of the electricity sector. As part of the Forum’s Electricity Industry Action Group, DTEK promotes incorporation of the “system value” concept in Ukraine, specifically integrating it into the national recovery strategy.
Apart from the anticipated financial benefits outlined above, there are also increasing financial resources which could be available to Ukraine (as to any other country seeking to accelerate its sustainable recovery). Firstly, according to the Global Landscape of Renewable Energy Finance 2020 report, co-developed by the International Renewable Energy Agency (IRENA) and Climate Policy initiative, annual investments in renewables must nearly triple to US$800 billion by 2050 (from US$300 billion currently) in order to fulfil key global decarbonization and climate goals. Secondly, according to EY, the global energy sector is expected to spend US$15 billion on digitalization by 2024 to enable smoother transition to carbon neutrality.
Joining forces for a better future
Hence, there is a strong business case for Ukraine to move quickly and consistently to ensure that these financial opportunities are duly captured. There is a role for businesses in being transparent, reliable and conscious market players. There is also a decisive role for the authorities to ensure that the regulatory environment is geared towards using these opportunities, which are realistically possible to achieve in the medium term rather than locking the country in the myopic ineffective practices of the past.
As more Ukrainian companies follow European principles in diligently managing their responsibility to society, more international companies will enter the market and ensure that this trend is irreversible. Through such free and fair competition Ukraine will more quickly overcome the pandemic and move on to sustainable economic growth – to the Great Reset.