Interview with the President of the Center for Global Studies “Strategy XXI”

— Let’s start with a simple question, which was practically never raised, because it was considered clear without explanation: is it easy to divide the energy system of the USSR, which was considered single, into separate systems of countries formed on its territory? After all, this is a direct demonstration of the geopolitical processes that have been taking place for almost three decades after the collapse of the Soviet Union, during which the Moscow leadership is trying to “get chestnuts out of the fire with other people’s hands”…

— It is not easy, but possible. But under one condition. If there is good will of the parties, and not the desire of one, the most powerful player — Russia, to maintain its influence and dominance in the new geopolitical realities after the collapse of the USSR. A striking example is the Czechoslovak Federation. When it ceased to exist in 1993, there were no problems in separating national energy systems from the integrated oil, gas and electricity federal ones. Of course, there were problems of technical, organizational, commercial nature, but they were resolved in the spirit of good will of both parties. The Czech Republic, as a much  more powerful member of the former federation, did not seek to impose its vision on Slovakia or gain any preferences or discriminate against it.

Everything was completely different in post-Soviet countries. Having recovered from the collapse of the Soviet Union, Russia immediately began to use financial and energy levers of influence on the newly independent states. Exactly in this combination. By imposing high-price energy contracts on them — using the market as an excuse, and by offering loans for their purchase, it created already in the early years of the new independent states their debt dependence in the addition to the energy resource one. Then a simple approach worked — conversion of Ukrainian dependencies into economic, military and geopolitical benefits for Russia. Need gas? First, pay your debts! Can’t you? Then part of your share of the Black Sea Fleet of the former USSR will be ours. Debt for gas? Give your GTS [Gas Transmission System], consolidate the stay of the Black Sea Fleet until 2017 in exchange for debt repayment. Get a discount for extending of the Black Sea Fleet’s stay until 2042.

— Does this mean that the national security of the newly formed states on the territories of the late USSR has really begun to be tested precisely by their energy supply?

— To a large extent — yes. First of all, this applied to those former republics of the USSR that did not produce at all or produced not enough energy carriers to meet the needs of their economies for own energy resources. That is, the Baltic states, Ukraine, Belarus, Moldova, Georgia, and Armenia have become dependent on energy supplies from Russia.

But to reduce the dependence that automatically arose after the collapse of the USSR exclusively to the resource factor would be a simplification. Even, I would say, primitivization. Independence is formed in the brains of the ruling establishment. If it is there, then despite energy dependence on the former union center, it will save the country’s independence even at the cost of certain economic losses. A clear example is Lithuania and Latvia, which are almost 100 percent dependent on Russia for all types of energy. Nevertheless, the self-worth of state independence did led these countries, despite Russia’s pressure and punitive actions, to NATO and the EU. Unlike Belarus, which chose model of Russia’s “geopolitical outpost” in Eastern Europe in exchange for cheap oil and gas, which led the country to total dependence on Russia and, ultimately, to the bankruptcy of the Lukashenko regime, whose agony we now can observe.

Ukraine is somewhere in the middle. On the one hand, the dependence was not total, because we do produce gas, coal and some oil. But on the other hand, mentally, the Ukrainian parasitic oligarchy and its political class were focused on obtaining cheap energy carriers from Russia at the cost of political concessions. The so-called pragmatism. Russia used this to create corrupt influences on Ukraine’s political establishment through its own and local oligarchs — suffice it to mention schemes such as Eural Trans Gas or Rosukrenergo, as well as a multi-caliber agents of influence and simply agents of Russian secret services.

— How civilly did the countries of the former socialist camp leave the COMECON energy supply system?

— After the collapse of the Warsaw Pact, the COMECON (Council for Mutual Economic Assistance) and the USSR, Russia was too weak to impose its conditions on the new, already non-communist governments of the former satellites. Moreover, the countries of Central Europe immediately announced their strategic goals — membership in NATO and the EU, receiving strong support from the West. The only exception is Bulgaria, which is still energy dependent on Russia and where the Kremlin is operating quite successfully, using both influence and corruption to maintain the status quo. The opposite example is Poland. Note that, despite Russia’s attempts to use the country’s dependence on oil and gas supplies from Russia, Poland has not only become a successful country, it has set a goal and is confidently moving towards it — to get rid of Russian energy carriers imports, to prevent implementation of the harmful not only for Poland, but also for the EU and NATO “Nord Stream” projects.

— For a long time we have been talking about the formation of a market in the state, where energy should be sold as a regular commodity. What is the reason for its having not been launched? And does everything really depend only on the introduction in our legislation of European norms that would help unite the Ukrainian energy market with the EU one?

— There is no “switch” to go from “non-market” to market immediately. The European Commission periodically criticizes even a number of its members countries, such as Bulgaria, Romania and even Poland, for having serious shortcomings in the functioning of energy markets.

Our main problems are that oligarchic groups in the country with a corrupt state apparatus distort the not yet formed competitive environment of energy markets in their favor, i.e. trying to preserve as much as possible monopoly or dominant schemes that bring them extra profits. The paralysis of the country’s legal system over the past year has led to the regression of the “rules of the game” of the quasi-European model, formed after the Revolution of Dignity, to the traditional oligarchic “game without rules”. Or to be more exact — to the standard principle of oligarchy economy: I hide incomes, I corrupt the power, I minimize taxes, all the profits — to me through offshore, debts and social problems — to the state.

Therefore, without restoring the functioning of the legal system of the state, real demonopolization, destruction of corruption schemes, neutralization of the enemy agents, no sectoral integration of energy markets with the EU will take place. No one in the EU will implant a cancerous tumor.

— What are the reasons for the surplus of electricity in Ukraine, which cannot be used — the collapse of the economy or unprofessional planning of the electricity production?

— On the one hand, there is an accumulated effect of deindustrialization of the country, reduction of production of energy-consuming products of metallurgy and heavy industry. Just one example. While in Ukraine in 1990 almost 55 million tons of steel were smelted, in 2010 — 30 million tons, in 2019 — less than 21 million tons. In January–May this year, steel production decreased by almost 11 %. It is clear that the production of 20 million tons of steel does not require as much generating capacity as 55 million tons do.

On the other hand, within the last two years, due to the green energy boom, solar and wind generation capacities have been created, which can be compared to building in Ukraine of another Zaporizhzhya NPP, the largest in Europe with 6 power units (1 GW each)!

The “black swan” in the form of the coronavirus pandemic sharply caused to fall the industrial production, energy consumption fell and thus the surplus of generating capacity became apparent. Well, then the laws of oligarchy economy began to work. As the Energoatom is a state-owned company, in the conditions of excess supply it began to be pushed out of the market by administrative methods in order to allow maximizing revenues of private coal and green generation with their more expensive electricity. As a result, the company is forced to shut down a number of power units. The share of cheap energy in the market has decreased. But this is exactly in the interests of a single oligarchic group that dominates in coal energy and has the lion’s share of alternative generation. In this way, in the face of reduced production, it is possible to make good money by offering more expensive electricity to the market and limiting access to nuclear generation.

— What to do now with excess generation capacities? To shut down nuclear power plants?

— No way… We need to turn the problem into an advantage. Excess electricity should be exported. We have long wanted to export electricity to the EU not only from the Burshtyn Energy Island. But just cannot synchronize United Energy System of Ukraine with the European one. This does not look promising in the coming years, and maybe in the foreseeable future, both in view of the share of dirty coal generation and in view of the connection with the Russian energy system, which is pulling us in the opposite direction. But there is an alternative. To use excess electricity to produce hydrogen by electrolysis of water. Europe is increasingly concerned with building hydrogen capacity to secure a decarbonized energy future. Europe needs hydrogen. Therefore, the right option is to export excess electricity in the form of hydrogen, which can be done through the existing GTS or through its liquefaction — in liquid form.

Burshtyn Energy Island. Source: https://biz.censor.net.ua/

— Has the world already proven the feasibility and benefits of such an option?

— Let’s look at Australia, at this island continent. The country has the world’s largest potential for clean energy production — solar and wind. But without land borders, Australia does not have the ability to export it via transmission lines. And this is at the time when the world’s largest energy consumers are a few thousand kilometers away — China, Japan, South Korea, India. Accordingly, it would seem to make no sense to develop renewable energy sources (RES) in Australia other than for own consumption. But no! A simple and ingenious solution was found. Since 2019, German Siemens has been implementing a project to build a combined solar and wind generation with a total capacity of 5 GW (equivalent to 5 such NPP units) for further hydrogen production using its own modern electrolysis technology Siemens Silyzer.

Why can’t we do something like this, given that it is in the south of Ukraine that there are excess capacities of both nuclear generation and renewable sources? At this stage, this is a powerful multifaceted task for the National Academy of Sciences of Ukraine — to develop effective models to use the surplus of generating capacity to resolve national problems.

Probably, at the state level we are not yet aware of the global competition of PtX mega-projects (Power-to-X solutions) for the production of clean energy with the aim of its further “materialization” and selling in the form of an energy product from the series of possible multiple solutions (X-solutions). For example, production of hydrogen by electrolysis and its export to consumers (developed countries). We are not visible on this map, but should be marked there like Spain, Chile or Argentina.

Various countries demonstrate strong potential for PtX-production/exports. Source: https://etipwind.eu/

It’s time for PtH-solutions (Power-to-Hydrogen) in Ukraine. This means creating a new clean energy industry for the new economy. New jobs here in Ukraine. Especially since life means constant changes.

— What will happen to the development of green energy in the context of excess electricity supply in the market and its high cost?

— It will develop, but, of course, not at the same pace as it was last year. The strategic mistake we made a few years ago, when we enthusiastically applauded the new solar and wind generation projects, was that the implementation of the generation projects was not rigidly tied to the simultaneous construction of energy storage capacities. This should now be done to protect the United Energy System of Ukraine from off-nominal modes of operation when the sun is not shining and the wind is not blowing. And most importantly — it fits well with nuclear energy, which does not emit CO₂, in PtH-solutions for the energy sector of Ukraine in the 21^st century — we generate electricity, convert it into hydrogen and export it to the EU.

— At those important events in Europe and the United States, where you happened to be an active participant, what do our foreign colleagues advise us about the problems with Ukraine’s energy supply? And do they always support us in our confrontation with the Russians?

— Friends of Ukraine, of course, support us. Suffice it to mention the joint Ukrainian-Polish-American cooperation in countering the anti-European and anti-Ukrainian Nord Stream 2 project. The struggle continues… Another example is the diversification of the supply of nuclear fuel to our nuclear power plants in cooperation with the United States and Westinghouse.

Of course, Advice One is to complete reforms in the energy sector. The last 5 years have shown that where they took place, there is success. Although not complete, but there is. Where reform has only been imitated, there is a setback. For example, Naftogaz of Ukraine’s reforms are more or less successful. This example is a demonstration of how a troubled state-owned company can be made profitable, win arbitration against Gazprom, and even deal a heavy blow to its mega-projects in Europe.

Advice Two — to restore the rule of law and put an end to corruption, because if we do not do it, it will put an end to us.

Advice Three — to determine the priorities in the energy development, to be included in modern technological chains of “greening” of the European economy. This is especially relevant in the context of the ambitious Green Deal adopted by the EU at the end of last year.

— What do you think after participation in a conference, round table or after your speech on radio or television, where the topic of Ukrainian energy is raised?

— At the end of such an event, I would like to remark: one can’t go forward with one’s head turned back, always remembering what it was like in the times of the USSR and the COMECON! Three decades ago, the world changed, and now the changed world is changing again. Our sails should be catching the wind of change, not the stench of the past, which already belongs to history.

Recorded by Oleh Makhno

The interview you can read in the
“BINTEL” Geopolitical Analytics Journal, Issue 2, 2020