By Jevgenijs Steinbuks 2020 #Infra4Dev Conference: Decarbonizing Infrastructure www.worldbank.org/infra4dev2

1. Decarbonizing ENERGY: lighting Talks
jevgenijs STEINBUKS, The World Bank
JAVIER Iñón, THE WORLD BanK
How MUCH DID Feed-In-TarifFs Cost UKRAINE POWER SECTOR?

2. Motivation & relation to literature
0
100
200
300
400
500
600
700
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
$/MWh
Feed-in-Tarriffs, Solar PV in Selected Countries
Germany France United Kingdom Ukraine
Source: OECD.Stat.
OECD countries abolished Feed-in-Tariffs for onshore wind and solar PV as technological progress drove costs down
… but some developing countries, including Ukraine, still rely on FiTs as policy instruments …

3. Motivation & relation to literature
Source: Ukrenergo
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
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1000
2000
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4000
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6000
7000
12/2015
12/2016
12/2017
1/2018
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1/2019
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01/2020
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08/2020
09/2020
Capacity,MW
Installed VRE Capacity in Ukraine 2015-2020
Solar Wind VRE Share of Total Generation Capacity
• As the size of FiTs for solar PV exceeded LCOE by 3X, investment in
solar PV capacity increased by 6.5X between 2018 and 2020.
• In 2020 Ukrainian government made drastic reductions in FiT
schedules and retroactively amending existing renewables PPAs.*
• The economic inefficiencies of FiTs due to inflexibility and incentives
problems are recognized theoretically by the literature:
• del Río and Mir-Artigues (2012) - Spain
• Frondel et al. (2008, 2014) – Germany
• This study offers first comprehensive sector-level assessment of
costs due to inefficient FiTs
• Cost benefit analysis extends beyond direct costs
* All details of Ukraine’s new feed-in tariffs for PV: On July 21, 2020, the Law on Feed-in Tariff Restructuring was passed by the Verkhovna Rada
of Ukraine 08/06/2020. https://www.pv-magazine.com/2020/08/06/law-on-feed-in-tariff-restructuring-passed-by-the-ukraine-parliament/

4. Methodology
Scenario Organization
BAU: baseline assumptions
High Demand: 5% above the BAU forecast.
ENTSO-E: Ukraine integration in pan-European grid
VRE Mandate: Government RE targets met
CO2 tax: 30 EUR per ton
Flat Coal: Coal prices stop declining trend and stay
same between 2020-2040.
Techno-economic
characteristics of
existing/future power plants
Yearly generation
capacity mix
Zonal transmission
constraints (not entire
network is modeled)
Demand hourly profile &
growth projection
wholesale prices
Energy traded
among zones
System total cost
Yearly generation
energy mix
input output
T
D
h
p
h
$
MW
Future committed
(de)commissioning
power plants
Characteristics of future
option generation
technologies
Optimization
in
timing/capacity/technolo
gy of generation addition
GWh
World Bank EPM model (Chattopadhyay et al., 2018): optimal power sector expansion over the period 2020-2040
Method of Solution [based on Hertel et al., 2015]
Step 1: Solve the model based on 2018 input data
Step 2: Solve the model based on 2019 input data
Step 3: Difference the results to obtain the effect of
FiTs on capacities, energy mix, costs,
wholesale prices
Step 4: Repeat 1-3 for different scenarios
Model is calibrated based on highly granular data from Ukraine’s
government agencies (Regulator, TSO) and energy utilities.

5. Capacity misallocation OF Ukraine’s Feed-In-Tariffs
• Under the BAU scenario there is
an excess investment of 9GW
of RE capacity by 2040
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-
-
-
-
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- - -- - - - - -- - - - - -- - - - - -
2.71
4.41
4.94 4.94 4.94 4.94
0.62
1.21
3.42 3.42 3.42 3.42
0.05
0.08
0.15 0.15 0.15 0.15
0.00
0.30
0.69 0.57 0.59 0.61
3.4
6.0
9.2 9.1 9.1 9.1
-
1
2
3
4
5
6
7
8
9
10
2019 2020 2025 2030 2035 2040
ChangeinInstaledCapacity,GW
Difference in Installed capacity by Technology Type (GW), BAU2019 vs BAU2018
Storage
Biomass
Wind
PV
CHP
Hydro
CCGT
CT
Coal
Nuclear
Total

6. NPV COST OF Ukraine’s Feed-In-Tariff 2020-2040
-4000.00
-2000.00
0.00
2000.00
4000.00
6000.00
8000.00
10000.00
12000.00
BAU High Demand ENTSO-E VRE Mandate Carbon Tax Flat Coal
NPVCost,USDmillion
Capex Fixed O&M Variable O&M Total Fuel Imports Exports Unmet Reserve CO2 cost

7. conclusions
References
Chattopadhyay, Debabrata, Fernando de Sisternes, and Samuel Kwesi Ewuah Oguah. "World Bank Electricity Planning Model (EPM): Mathematical Formulation." (2018).
Frondel, Manuel, Christoph M. Schmidt, and Colin Vance. "Revisiting Germany’s solar cell promotion: an unfolding disaster." Economic Analysis and Policy 44.1 (2014): 3-13.
Frondel, Manuel, Nolan Ritter, and Christoph M. Schmidt. "Germany's solar cell promotion: dark clouds on the horizon." Energy Policy 36.11 (2008): 4198-4204.
Hertel, Thomas W., Jevgenijs Steinbuks, and Wallace E. Tyner. "What is the social value of second generation biofuels?." Applied Economic Perspectives and Policy 38.4 (2015): 599-617.
Del Río, Pablo, and Pere Mir-Artigues. "Support for solar PV deployment in Spain: Some policy lessons." Renewable and Sustainable Energy Reviews 16.8 (2012): 5557-5566.
• Excessively generous Feed-in-Tariffs would cost Ukraine Power Sector between 4.7 and 7.9 billion dollars over the
period 2020 -2040 (235 – 397 million dollars per annum).
• Limited gain due to carbon benefits and lower fuel costs is outweighed by higher CAPEX, O&M, and balancing costs
• These estimates are likely the lower bound of the costs because
• Power sector is not necessarily optimally managed
• There are indirect costs to the rest of the economy
• Policies to support energy transition in developing countries require more flexible schemes, like energy auctions