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Cutting energy costs in Ukraine |
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Brittle cold already had a firm grip on Ukraine as Kiev and Moscow started 2006 in the midst of a dispute over the price of Russian gas exports to its western neighbour. “That’s all big politics,” says Vasyl Bogatyr whose job is at the front lines of industry and infrastructure in the Ukrainian government’s battle to reduce energy waste. “We at UkrESCO are engaged in simpler things that can eliminate a big part of our energy problem.” The simple solution lies in UkrESCO’s speciality: energy-efficiency technology and finance to reduce Ukraine’s out-of-scale ‘energy intensity’ problem. Compared with western Europe, Ukraine uses seven times more energy to produce each widget (or each unit of GDP). This puts a major dent into the country’s global competitivity. This inefficiency is rooted in the legacy of the former command economy of eastern Europe. From factories to hospitals to apartment blocks, socialist-era infrastructure that is still in use was not designed to save energy. Energy costs, while rising, are still subsidised, so people are less sensitive to the cost of waste. There is also an under-appreciation of how cost-cutting, in energy and other areas, can improve the bottom line. UkrESCO’s job is to show clients where and at what cost they waste energy, and then to provide and finance technical solutions to improve their energy efficiency. Cut imports in half In fact, Ukraine could reduce by half the 70 per cent of its gas supply it now imports, mainly from Russia and Turkmenistan, says Mr Bogatyr, general manager of UkrESCO. “But it would take tens of billions of dollars to plug all the holes,” says Mr Bogatyr. “Even though the country would save several multiples of that in reducing energy costs, it’s still not easy to sell energy efficiency.” UkrESCO was set up in 1998 by the government of Ukraine with a $30 million EBRD loan and €6 million in grants from the European Union’s TACIS programme. Why? “Our economy is growing faster than those in the West,” says Mr Bogatyr. “The energy we need for new things can readily be found in reducing energy waste. Otherwise we need new energy supplies, and it costs two to three times as much to produce a new kilowatt as to ‘find’ one through improved energy efficiency.” One example is the cool $3 million saved since 2003 at Ukraine’s biggest chicken feed factory, thanks to improvements in energy use that paid for themselves in 18 months. The solution was not just more efficient boilers to produce steam to transform grain into food pellets at the mill, located in Mironivka outside Kiev. UkrESCO’s experts brought in imported pelleting machines that produce higher-quality feed pellets with far fewer rejects than the old Soviet equipment. The factory is a mix of the old and the new that is typical of former centrally-planned economies. It is a multi-storey affair inside one of several antiquated grain elevators workers acquired in buying the enterprise from the state when communism ended. Visitors make their initial ascent in frighteningly creaky elevator; a few levels are later negotiated on foot in pitch-black stairwells. Care is taken to avoid slightly patched, very-worn electrical cables strewn across one bit of factory floor. But the staff/owners delight in their two shiny, new Buehler grain presses brought in from Germany to replace four old USSR models. Chief Engineer Sergiy Chepelyuk says the company has cut its steam use from four to three tonnes per hour while pelleting capacity has grown by 50 per cent. Rejects, which have to be tossed back into the presses and re-done, have fallen from 60 per cent of production to 10 per cent. Quick pay-off UkrESCO stands for Ukrainian Energy Services Company and is similar to a number of ESCOs the EBRD supports across the region to reduce energy intensity as an important bottom-line issue for all the countries in which the Bank works. “These cost-cutting investments typically pay for themselves within four years and can have a bigger impact on a company’s bottom line than introducing a new product line,” says Jacquelin Ligot, head of the Bank’s energy efficiency team. “But many companies in the region are so busy surviving today that they find it hard to commit to investments that will pay off tomorrow. Also they don’t always know how to calculate their true cost of energy, which may be hidden in sub-optimal production processes. They are surprised to learn the energy savings themselves often can cover all the loan repayments. ” Such is the lack of awareness of energy waste in the region that in most countries potential clients have to be wooed into investigating their energy costs by free energy audits funded by donor countries via the EBRD. In Ukraine, people are becoming conscious enough of the energy intensity problem that companies now pay for their own audits – and privately-owned ESCOs have started up, in competition with UkrESCO. The EBRD has invested in one such private firm, Energy Alliance. Mr Bogatyr is sanguine about the new private-sector competition. UkrESCO “provides the demonstration effect. Our company is a catalyst, setting the example. We couldn’t plug all the holes with our capital of $20 million from the EBRD,” he adds, referring to the new 2005 government-backed EBRD loan under which the government has committed to privatising UkrESCO in the near future. UkrESCO also helps reduce carbon dioxide and other greenhouse gases (GHG) emitted in energy production. Emission reductions can be sold under the UN Kyoto Protocol to fund energy efficiency improvements; Mr Bogatyr expects UkrESCO to do Ukraine’s first GHG trade next year. Contact: Energy efficiency team By Kate Dunn, Senior Writer Photos: Y. Nesterov 6 January 2006 |
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