Ukrainian energy: efficiency and independence

Domestic energy efficiency drive holds key
to greater economic and geopolitical security

Volume 6, issue 05 June-July 2012

Ukraine’s lack of energy independence has been a constant theme throughout the country’s 20 years of statehood. Despite hopes that the advent of the Yanukovych presidency in 2010 would yield more favourable energy terms from the Kremlin, Ukraine currently appears to be experiencing growing dependence on Russian gas. Meanwhile, multiple declarations by state officials in Kyiv stressing the need to diversify Ukraine’s energy supplies have so far failed to produce any concrete results. While most attention has been focused on the debate over Ukraine’s energy supplies, European practice has shown that energy security actually begins at home. Stable relations with energy supply nations remains a necessity, but domestic energy policy – specifically efforts to reduce wasteful and inefficient energy consumption – would provide Ukraine with a stable footing on which to construct a viable energy policy in a world where ever-decreasing resources result in near-constant price increases. 

Heating costs dominate Europe’s energy consumption

It is common knowledge that building construction and maintenance rank among the biggest drains on energy supplies in any developed country. According to research by Germany’s Federal Ministry of Economics and Technologies, building construction and maintenance currently accounts for 40% of total energy consumption across Europe – making it comfortably the largest single consumer ahead of sectors such as manufacturing and transportation. Approximately 85% of the energy being consumed by building maintenance and construction goes on heating and the provision of hot water. Given the often wasteful energy infrastructure which Ukraine inherited from the Soviet era, it is apparent that there are potentially huge gains to be made by focusing reform efforts specifically on the country’s building sector energy efficiency.

Ukrainian MPs mull new law

The Ukrainian parliament has attempted several times to adopt separate normative acts specifically aimed at increasing building sector energy efficiency. In 2009 and 2010 draft laws were brought before parliament, only for one to be recalled by its authors and the other fail to win sufficient support among parliamentary deputies. The latest draft law on construction sector energy efficiency was introduced to parliament in January of this year and passed its first reading in May. This draft was initiated by the Cabinet of Ministers and is currently being fine-tuned by parliamentary committee ahead of a second reading before parliament. Opinion remains divided over whether a separate law specifically targeting energy efficiency in the building sector should be adopted. Many critics have pointed to the fact that Ukrainian legislation on the subject is already overloaded, leading in many cases to duplication and even contradiction. Any new law which addresses one specific sector in this manner would be particularly vulnerable to these inherent weaknesses and could end up dead in the water. Instead, they argue that changes to a range of existing laws would be sufficient to significantly increase energy efficiency in the construction sector.

Learning from the German model

As Ukraine’s lawmakers debate the issue of energy efficiency it is worth considering the experience of the country’s European neighbours. Germany in particular offers a model for better energy efficiency which could provide Ukraine with a blueprint for its own energy evolution. Germany’s energy efficiency tradition dates as back as far as the early 1970s, when a global oil crisis forced the West German government to rethink its energy policy in order to reduce its exposure to such unwelcome outside shocks. Ever since then, Germany has remained a world leader in the use of new technologies to improve the energy efficiency. The advanced German economy has been relatively well-placed to adapt to the increasing requirements of the energy efficiency sector throughout the past forty years but nevertheless the country’s efficiency experience remains exceptional. Germany’s heating machinery industry plays a leading role not only in Europe but on global markets, while the country boasts a massive 90% global share of the market for renewable energy sourced building heating systems. In 2002 Germany adopted the Order on Energy Efficiency (EnEV) which provides wide-ranging benchmarks for energy efficiency. The federal government’s adoption of energy efficiency norms has supported implementation. This implementation has been made possible by support for technology and energy efficiency innovation. We can also witness strong financial support in Germany for energy efficiency initiatives. State owned German bank KfW Banking Group specifically focuses on financing the development of energy efficiency initiatives and counts on future energy savings creating increased revenues. Increasing legislative requirements and ever-tougher energy efficiency norms have created high demand for the reconstruction and redevelopment of existing buildings in Germany. This has served to create a new sector within the German construction industry, bringing with it new tax returns and revenues for the state coffers.

Energy efficiency certificates and implementation

There are signs that Ukraine is willing to learn from Germany’s successful energy efficiency experience. In Germany each new home must acquire an energy efficiency certificate which then serves as a key legal document in any future resale or tenancy agreements. Similar regulations are included in the draft law which is currently being prepared for its second reading before the Ukrainian parliament. Making energy efficiency certificates a legal requirement could open the door for the implementation of new energy regulations in Ukraine and raise the domestic profile of the efficiency issue considerably.  

Greater efficiency means greater security

In today’s world of limited resources energy is becoming more and more politically potent, as successive energy-dependent Ukrainian administrations know to their cost. In order to develop its competitiveness the Ukrainian economy needs to look to its own energy efficiency. This lesson applies just as much to big business and heavy industry as it does to the individual owners of private residences and apartments.

Dmytro Kiselyov ( a Senior Associate with Beiten Burkhardt in Kyiv. His areas of activity include real estate and construction law as well as commercial, contract and corporate law.