Head of EU-backed agency seeks to ramp up financial and in-kind support for war-ravaged power sector.

International energy firms are being urged to provide more money and equipment to their Ukrainian counterparts as they scramble to rebuild war-damaged power plants.

With the clock ticking to restore electricity before demand surges later this year, a fund created to support Ukraine’s energy sector needs at least double the €500mn raised so far, mostly from European institutions and governments. Only about €10mn has come from the private sector.

“We have all the ingredients in place to increase generation,” says Artur Lorkowski, Director of the Vienna-based Energy Community Secretariat, which oversees the €500mn Ukraine Energy Support Fund. “What we need is the money which would allow Ukraine to rebuild and restore at least part of the lost capacities to help Ukraine survive the winter,” he told Newsbase in an exclusive interview.

The appeal for more help from energy firms and other private companies comes as Ukraine’s electricity companies struggle to find wartime financing to recover from a series of Russian aerial assaults earlier this year. Some industry executives say the country faces a production deficit of as much as 30% as demand starts to surge in October, with key thermal power and hydroelectric plants taking the brunt of attacks.

 

Artur Lorkowski, Director of the Energy Community Secretariat. Source: Energy Community

High-level appeal for help

Lorkowski’s office organised a meeting with potential donors on July 12 that included Kadri Simson, the European Union Energy Commissioner, and Svitlana Grynchuk, Ukraine’s Deputy Energy Minister. Simson, in remarks prepared for the event, appealed for either financial backing or in-kind donations of energy equipment, saying: “Ukraine cannot handle this situation alone. No country could handle such severe destruction of its power generation alone.”

Officials declined to say which companies had participated and how much they were asked to provide, either in direct funding or in-kind equipment. But they confirmed that international energy sector representatives were among those who participated in the videoconference, along with others from the private sector.

“This is a very dynamic situation so I cannot name the figure, because day after day we are receiving new requests,” Lorkowski said, not ruling out that at least double the current funding levels will be needed in the near term. The Ukraine Energy Support Fund “focuses on quick repairs. We are not talking about mid- or long-term building of the sector. Our objective is very short-term. We want to the maximum extent possible to prepare Ukraine for the winter.”

Bolstering the fund is a priority for Lorkowski, whose organisation was established in 2006 to bring Energy Community countries’ energy markets into line with EU standards. In addition to the energy fund, Lorkowski’s secretariat has dramatically expanded its mandate in other ways to support Ukraine’s wartime needs. It monitors transparency in the aid provided to Ukraine’s energy sector, launched a pro-bono legal programme to help energy firms seek compensation for war damages and provided logistical support to countries or companies donating energy-related supplies. The organisation has even helped coordinate the supply of protective barriers to shield energy assets from blast damage.

Despite rising levels of international help from Europe and other Ukrainian allies, some private energy companies have said more needs to be done to support their efforts to find urgently needed financing to repair damage, retain staff and meet debt obligations. The war has been costly for companies and deadly for their workforces.

Asked about the sector’s concerns, Lorkowski acknowledged the difficulties of obtaining financing in a high-risk situation but said the Ukraine Energy Support Fund was created to facilitate equipment and supply purchases in coordination with the government and energy providers. Of the €500mn that has been raised since the start of the war, more than half has been allocated or distributed.

 

Reforming Ukraine’s power and gas markets

Beyond donor assistance, Ukraine’s energy producers could also benefit from internal market reforms that Ukraine has committed to since becoming an Energy Community member in 2010.

The organisation has called for the gradual removal of Ukraine’s wholesale price caps on electricity and a blueprint for phasing out the current gas export ban. While acknowledging that such steps are not easy during a wartime energy crisis, Lorkowski says further progress on market liberalisation could provide domestic energy suppliers new sources of badly needed revenue and give investors more confidence in the market’s potential.

As for the gas export ban, it “is understandable under the current situation. But clarity on lifting [it] might encourage some people to start investing in gas production so at least in future there will be interest in increasing production of gas to be sold on the EU market,” Lorkowski said. Exempting promising developments such as producing biogas from agriculture, he says, could incentivise investment and generate income for the country.

With war testing the electricity sector’s resilience, Ukraine’s domestic gas sector has managed to reverse years of decline. Naftogaz reported earlier this month that it added more than 40 new wells and that commercial gas output grew 8% in the first half of this year compared to the same period in 2023, with production hitting 7.3bn cubic metres. The state-owned production and exploration company is also working to stabilise production in depleted fields and is ramping up its search for new fields. The country’s storage facilities, which are being used for both domestic and European supplies, have so far escaped serious damage.

Following a recent fact-finding mission in Ukraine, Lorkowski said the country is actively building new distributed capacities based on gas, “a completely new phenomenon in Ukraine” that can help it ease the winter heating and electricity emergency. However, nuclear and coal continue to dominate electricity generation, with recent estimates showing that gas accounts for less than 10% of power production.

Lorkowski praises Ukrainian energy officials for their determination to press ahead with their Energy Community commitments. Even with its power system in tatters, the government adopted a National Energy Climate Plan, a roadmap for decarbonisation that marks a step in the direction of its longer-term ambitions to join the EU.

But in a country grappling with rolling blackouts, policy documents seem a distant concern to the immediate task of supplying heat and electricity. For now, the Energy Community director says there are two immediate challenges – getting the equipment needed and making it operational when it is most needed.

“Even if you have tens of billions of euro available now, you cannot find the equipment on the market. You can start procuring it but it will be available in a year from now,” Lorkowski said. “A second issue is whether you are in a position to install the equipment before winter. That is why we need additional money to buy the equipment, deliver it, and make the quick installation so this equipment can start providing both electricity and heat for Ukrainian society.”