Reducing emissions from thermoelectric stations in Ukraine by meeting the European Energy Community requirements

International Center for Policy Studies

Reducing emissions
from thermoelectric stations in Ukraine
by meeting the European Energy
Community requirements

Green Paper

Policy analysis document prepared for the project
“Ukraine’s integration strategy in the European Energy Community”

Kyiv 2011

This report has been prepared under the “Ukraine’s integration strategy in the
European Energy Community” project carried out by the International Centre
for Policy Studies (ICPS).
Project advisor: Ihor Bohatyriov.
Authors: Ildar Gazizullin, Larion Lozoviy, Olga Ivakhno, Vivica Williams, Iryna
Petrenko, Roman Zaika.
Authors would like to thank Iryna Verbytska (DTEK) and Yuri Trofymenko (NAK
“EKU”) for their feedback and other experts who participated in the discussions
undertaken in preparation of this report.

Design and layout: Publishing House “Optima”
English translation and editing: Lidia Wolanskyj

Contact information:
International Centre for Policy Studies
vul. Pymonenka, 13а, Kyiv, Ukraine, 04050
Tel.: (044) 484 4400, 01, fax: 484 4402
e-mail: office@icps.kiev.ua, web: www.icps.com.ua

Content
Overview 5
The Problem: Higher than permissible harmful emissions 6
What impedes compliance with air quality standards 8
Technological and structural factors 8
Outdated power generating and environmental technologies 8
Fuel consumption 9
Use of low quality coal 10
Environmental rules that favor polluters 11
Regulating heat-generated electricity rates 13
Dilatory reforms on the electricity market 14
Ineffective technical assistance 14
The economic and social impact of emissions 16
Dampened economic growth 16
Poorer quality farm products and lower land values 16
Additional costs to the healthcare system 17
Deteriorating quality of human capital 18
Reduced life expectancy 18
Loss of workforce 20
Impeding the development of Ukraine’s power generation 20
Greater risks for investing in heating plants 20
Complications with trading Ukrainian electricity on EU power markets 20
The growing cost of environmental programs in the future 21
Loss of status as a reliable international partner 22
A vision of the future of thermal power generation in Ukraine:
eco-friendly and safe for humans 24
The positive future impact of meeting EEC environmental requirements 24
The environment will remain a priority 26
Environmental standards will meet European requirements 26
Volumes of emissions will go down 26
Options for resolving the problem 28
Proposed solutions 29

Annex 1. Tables and charts 30
Annex 2. The value of a statistical life 37
Annex 3. EU environmental protection requirements in the Energy Community Treaty 38
Annex 4. Environmental fees and taxes 40
Annex 5. Territorial spread of emissions in Ukraine, 2008 42
Annex 6. Cross-border impact of emissions 43
Annex 7. Population centers within TES pollution zones in Ukraine 45
List of Abbreviations 47
Glossary of Terms 48

Overview
The purpose of this Green Paper is to identify key problems and obstacles in
reducing harmful emissions from heating plants, or thermo-electric stations
(TESs) as they are known in Ukraine, now that the country has joined the Energy
Community Treaty (EEC). The identification and detailed description of these
problems will be subject to discussion with experts and stakeholders, which will
make it possible to determine their positions regarding the prospects for bring-
ing thermo-electric generation in line with EU requirements.
This Green Paper looks at thermal power plants, which are governed by Di-
rective 2001/80/EC, which is a binding part of the Energy CommunityTreaty.
These are primarily large plants—thermo-electric stations (TESs) and combined
heating and power plants (CHPs), known as thermoelectric centrals or TETs in
Ukrainian—with total capacity over 50 MW. And it is these companies that emit
the greatest amount of pollution into Ukraine’s air every year. Besides thermal
generation companies, large combustion plants are used in district heating,
chemical and steel companies. Therefore, the combined analysis of problems
and obstacles presented in this paper can also be applied to other sectors of the
economy where large combustion plants operate.
This paper examines the impact of three groups of key pollutants emitted by
thermo-electric generation: sulfur dioxide (SO2), nitrogen oxides (NOx) and
dust. The issue of carbon dioxide emissions (СО2) is not raised as this pollutant
is covered by other framework agreements, including the Kyoto Protocol.
The Energy Community is allowed to expand the list of requirements for pro-
tecting the environment that its member countries must abide by. Currently, this
most likely means incorporating Directive 2010/75/EU, which came into effect in
January 2011 with the purpose of combining all major EU environmental norms
from the last few years with regard to industrial production. If this comprehen-
sive document is included in the list of environmental norms that are part of the
Energy Community Treaty or the Association Agreement between Ukraine and
the European Union, it will become binding on Ukraine as well.
Expert commentary provided during a public discussion of this Green Paper will
make it possible to clarify the problems raised here and the obstacles to resolv-
ing them and will become the basis for a subsequent White Paper. That paper
will contain recommendations for how approach the problem of the harmful im-
pact of thermo-electric power generation on Ukraine’s environment, based on
the requirements of Directive 2001/80/EC.

The two most complicated requirements are Directive 2001/80/EC and 96/61/EC (IPPC),
but there are a slew of other regulatory documents with regard to the use of emissions, the
production of organic solvents, and so on.

Overview

The Problem:
Higher than permissible harmful emissions
Today, Ukraine’s thermoelectric stations (TESs) emit between 5 and 30 times
more pollutants than EU standards allow. In fact, thermoelectric plants are the
main source of air pollution in Ukraine; this sector is responsible for nearly 80%
of all countrywide emissions of sulfur dioxide and 25% of nitrogen oxides. The
by-products of burning fuel, mainly coal, are solid ash particulates or dust, SO2,
NOx and carbon dioxide (СО2).
The harmful emissions of thermoelectric power companies have not decreased,
despite the fact that, over 2006–2008, Ukraine’s environmental standards be-
gan to approximate European ones. For instance, related Decrees issued by the
Ministry of the Environment generally correspond to European practice using
the best available techniques, in accordance with Directive 2001/80/EC. The
country’s power generating companies also pay taxes for emitting pollutants
into the atmosphere that are small compared to the damage these emissions
cause (prior to 2011, there was a fee).
What is more, according to market players, the emissions coming from TESs will
continue to be higher than the permissible levels through 2030 and further, even
though the deadline for meeting Directive 2001/80/EC in Ukraine has been set
for 2017.
For one thing, power companies are investing little or nothing in environmen-
tal measures on their existing units or in building new ones with the exception
of some filtration equipment reconstruction projects. The construction of new
power units that meet environmental norms is not planned for the foreseeable
future. According to some estimates, Ukraine needs to draw between US $5bn
and US $17bn in investment, depending on the number of power units it decides
to modernize (see estimates in Annex 1). This means that investments just to
bring TESs in line with EU environmental standards for air quality should be
several times more than the annual total amount of investment in thermal power
generation today.

Environment Ministry Decrees №309 dated 27.06.2006 and №541 dated 22.10.2008.

See I.A. Volchyn, 2010.

See, for instance, the draft Concept for a State Targeted Program for fuel and energy com-
plex (FEC) enterprises to gradually reduce the aggregate annual emission of pollutants into
the atmosphere at existing combustion plants in line with Directive 2001/80/EC dated
30.03.2011, for the period through 2030.

The Annex to this report provides data on concentration caps in mg/cu m for pollutants in
TES flue gases according to EU and Ukrainian norms.

The cost of harmonizing Poland’s thermoelectric stations to EU norms could reach EUR 20
billion. http://www.wbj.pl/article-50262-eu-directive-poland-must-halve-industrial-emis-
sions-by-2020.html

Reducing emissions from thermoelectric stations in Ukraine by meeting the European Energy Community requirements

How Directive 2001/80/EC is being met in EU countries
Some EU companies and countries are not meeting the requirements of Directive
2001/80/EC. For instance, in 2006, 40% of Poland’s thermoelectric stations still did not
meet the regulated levels of sulfur oxide emissions set for 2008. Today, 90% of Poland’s
TESs do not meet the emission standards for nitrogen oxides set for 2016. One of the
main reasons why countries cannot meet strict air quality standards is the age of TES
power units, which are 20-30 years old.

Because some countries, primarily Great Britain and Poland, were unable to meet the
requirements within the established timeframe, the practice of derogation or partial re-
vocation of the law has been introduced. This gives countries some breathing space to
pull together costly reforms. There are a number of ways to postpone the fulfillment of
requirements:
• A country can launch a transitional national plan that allows it to put off the deadline
for meeting standards to June 2020.
• Individual power plants can be exempted from the Directive if they operate less than
20,000 hours and are slated to be shut down by December 2015.
• Power companies can also be exempted from the Directive if they intend to operate
the equipment for less than 17,500 hours for the rest of its service life. This provision
will be in effect over 2016–2023.
• TESs that burn local hard fuel, such as lignite, may be exempted from the need to
meet standards for SO2 emissions until 2019, provided that the sulfur is removed
from the fuel.
This kind of practice is meeting criticism within the EU, as it could encourage countries
to continue not to meet standards. According to some estimates, the resulting air pollu-
tion could lead to 500,000 early deaths in the EU every year, in addition to damaging the
environment through eutrophication, increased acidity and the emergence of ground-
level ozone.
Sources: Сhrister Еgren, “Emission ceilings may be further postponed,” Air Pollution and Climate Secre-
tariat, December 2010, http://airclim.org/acidnews/2010/an3-10.php#fourteen; Evaluation of Member
States’ emission inventories for 2004–2006 for LCPs under the LCP Directive (2001/80/EC), European Com-
mission, 2008; Chris Tighe, “Doubt cast over power plant’s future,” Financial Times, 23 April 2010, http://
www.ft.com/cms/s/0/d7529c58-4e39-11df-b48d-00144feab49a,s01=1.html#axzz1JyBOJ2Gb.

For discussion
How justified and realistic do you find the permissible emission levels established by Di-
rective 2001/80/EC?

What is the cause of the gap between formal caps set in environmental legislation and
real emission levels?

The addition of artificial or natural nutrients to water, causing excess plant growth.

The Problem: Higher than permissible harmful emissions

What impedes compliance
with air quality standards
Technological and structural factors
Outdated power generating and environmental technologies
Ukraine’s thermoelectric stations demonstrate some of the lowest technical,
economic and environmental indicators in Europe. The main equipment at the
country’s TESs went on line in the 1960s and 1970s and was designed accord-
ing to standards from the 1950s.Their life-cycles have already come to an end
(see Annex 1). Altogether, power units generating a total of 12 GW or 42% of all
the standing capacity of Ukraine’s TESs are currently in need of replacement,
making average utilization efficiency at domestic TESs around 32%, compared
to 45% in most developed countries. Moreover, most TES scrubbers for the re-
moval of particles in Ukraine are not efficient enough to meet the standards of
Directive 2001/80/EC, and no TESs have installations for filtering sulfur oxides
and nitrogen from flue gases.10
The inefficiency of TES power equipment makes it commercially unfeasible to
install filtration equipment. For instance, systems for filtering flue gases could
significantly reduce the efficiency of power units by 1.5-2%—and, in some cases,
up to 5%—by increasing the consumption of power for internal use. In addition,
such systems cost a considerable amount to operate, ranging from EUR 3mn to
EUR 8mn annually.11
The majority of desulfurization and denitrification technology are intended for
use during the base operating periods of power-generation equipment. How-
ever, Ukraine’s coal-fired plants are forced to operate to cover peak and semi-
peak loads in Ukraine’s Unified Power System. This is because of the high share
of atomic energy stations, 48% in 2009, producing electricity in Ukraine and the
general concentration of hydroelectric resources in the Dnipro, which is also a
source of water supplies for many of the country’s regions.

Rukhlov, A.V., Electricity in coal mines in the context of problems in the power generation
sector of Ukraine, Mining elctromechanics and automation: Science and technology series,
2007, Vol. 77, pp 19-25. Ukraine also lacks a fully developed scientific and technological
infrastructure for the design, development and production of flue gas filtration equipment.

In Ukraine, 62% of TES coal-fired facilities are equipped with precipitators (ash filtration
efficiency η=92–99%), 35% use wet scrubbers (η=92–96%, η=92–99%,) and 3% use cy-
clone separators (η≤90%). See Y. Leha, O. Mysliuk and N. Korneliuk, “Ways to improve the
filtration of flue gases at TESs,” Environmental Safety, 2008, №1, pp 42-50.
10
Desulfurization facilities have been planned, among others, for the new power units at the
Dobrotvirska TES. See the report “Rehabilitating heating and power stations in Ukraine: A
needs, costs and benefits assessment,” prepared by IMEPOWER, 2008.
11
Eugenio Podda, Megalopolis WFGD: Project Experience and Design Initiatives; Lars-Erik
Johansson, FGD: Choosing NID® DFGD or Open Spray Tower WFGD; European Users
Conference, Lisbon, 15–17 September 2009.


Cogeneration plants also pollute
Ukraine has more than 20 combined heating and power or cogeneration plants (CHPs),
known as TETs locally, with an output capacity of over 50 MW (see list of TETs in Annex 1).
These companies are categorized as large combustion plants and are thus governed by
Directive 2001/80/ЄС.

Cogeneration plants are considered more efficient and eco-friendly than classic TESs.
Still, Ukraine’s TETs currently emit far above the EU norms of NOх. For instance, even if it
maintains all the proper conditions during its operation, the Kharkivska TET-5 still emits
400–500 mg/m3 concentrations of NOх (using gas) and 520–650 mg/m3 (using mazut)
during combustion, when the maximum volume allowed under the Directive for compa-
nies of this size is 200 mg/m3.

Ukraine’s TETs mainly run on gas and have traditionally been viewed as enterprises that
do not pollute the environment with SO2 emissions and dust. However, the growing cost
of natural gas and problems with its reliable delivery have been forcing TETs to look at
the option of switching their facilities to cheap, available coal. This kind of reconstruction
is occurring at the Kaluska TET, one of the largest in Ukraine. After its reconstruction in
2009, the Kramatorska TET also returned to coal firing. This could turn such enterprises
into major additional sources of sulfur dioxide and dust pollution. Given that the majority
of TETs are located within major metropolitan areas, switching to coal could noticeably
increase man-made pressure on the local environment.

Fuel consumption
The high level of pollutants, especially sulfur oxides, by TES companies is
mainly a result of their use of coal as their main fuel. Nearly 90% of power units
at Ukraine’s thermoelectric stations have been designed to use coal. Ukraine
has many confirmed reserves of coal, which make this form of fuel a priority for
domestic thermoelectric generation. Ukraine’s current Energy Strategy for the
period to 2030 is oriented towards using only domestic coal for domestic power
generation.12
Each year, Ukraine’s TESs use nearly 25 million tonnes of coal. Over the last 20
years, there has been a sharp reduction in the use of gas and mazut, from 50% to
nearly 20%. The steep rise in the price of Russian natural gas has caused most gas
and mazut-based power generation units to be shut down13.

12
The base scenario is for no imported heating coal over 2015–2020, while starting in 2030,
plans are to use no more than 3.2% imported coal.
13
For instance, over 2010, none of the gas-mazut power units at Ukraine’s TESs were in opera-
tion: two units generating 300 MW each at the Trypilska TES, three units generating 800
MW each at the Vuhlehirska TES, and three more units generating 800 MW each at the
Zaporizka TES. Based on data from the Institute for Energy Studies, in Q1’11, consumption
of natural gas at TESs belonging to Ukrainian power utilities was 175mn cu m less than in
the same period of 2010. The Scientific and Technical Association of Power and Electrical
Engineers of Ukraine, Center for Public Information on Issues in the Fuel Energy Com-
plex, Analytical Study of the State of the Fuel Energy Complex of Ukraine, №410, Kyiv,
2011..

What impedes compliance with air quality standards

Use of low quality coal
The quality of coal that is used as fuel at Ukraine’s TESs does not correspond to
the initially designed indicators, being typically lower in caloric value and high-
er in ash content. Ukraine’s TESs were built to be fired by coal with a combustion
level of 27.61 kJ/kg, under 17% ash content, and a maximum of 1.0% sulfur.14
Instead, the caloric value of coal that was delivered to NAK Energy Company of
Ukraine’s TES in 2010 was only 22.08kJ with an ash content of 22.0%15.
The lower quality of coal has led to greater quantities of harmful emissions into
the air. Compared to projected figures, using coal without enrichment increases
the relative weight of sulfur oxide and particulate emitted by 30-40% per kWh of
power generated16. In addition, the high ash content of the coal results in greater
erosion of equipment and higher costs for internal power consumption at the
TES, which increases the operating costs and reduces the overall efficiency of
the station. Moreover, the high ash content of this coal prevents the industry
from reaching a high efficiency coefficient, even with the most up-do-date fur-
naces, and requires the use of natural gas to ignite the firing process.
Burning Ukrainian anthracite, the planned fuel for nearly 50% of the country’s
power equipment, also leads to additional costs. The long-term extraction of an-
thracite made it necessary to begin exploiting deposits in deeper layers, which
contain slow-burring anthracite, which requires even the most modern ash and
coal boilers to use natural gas to ignite the combustion process.

Monopolized access to coal leads to low quality coal
In Ukraine, access to coal is highly restricted as there is no free market for the fuel. Current
prices for coal are formed as a means for compensating the cost of running coal mines
and do not meet market conditions. This kind of approach has led to a monopolized coal
market. It impedes the imports of heating coal from neighbors such as Poland and Russia
and supplies by non-residents, even at prices at par and of competitive quality. The result
for domestic coal mining companies is a lack of incentive to meet the needs of custom-
ers, such as thermo-electric utilities by, for instance, reducing the sulfur content of their
coal.

Today, the virtual monopolist coal supplier delivering to power companies largely owned
by the state is a state owned Vuhillia Ukrainy. This company includes state-owned mines
and enrichment plants that are highly inefficient, outdated and close to the ends of
their lifespans and whose production cost is very high and results in prices that are not
matched by quality. The average production cost of coal in 2010 was UAH 776/t, while the
purchase price of heating coal was UAH 355-635/t.

14
Op. cit. Rukhlov, A., Vol. 78.
15
Ukraine’s TES have been operating using low quality coal for decades. Because of this, the
stations were forced to make a series of design changes to their boilers and undertake orga-
nizational and technological measures to adapt them to the actual quality of coal. The result
is that TES boilers in their current state will be unable to work on the planned quality of fuel
properly or long term without returning to their planned designs.
16
A 1 percentage point rise in the proportion of sulfur in coal increases the concentration of
sulfur dioxide in flue gases by 2,300-2,500 mg/m3.

10 Reducing emissions from thermoelectric stations in Ukraine by meeting the European Energy Community requirements

Aging equipment and technology and difficult geological conditions in the mines also
negatively affect the quality of coal extracted in Ukraine. The state-owned coal-mining
sector typically has highly worn working assets—more than 70% of the mines have never
done any upgrading in the last 30 years—and uses even those highly inefficiently. Most
state companies mining heating coal are loss-making, making it impossible to do any
upgrading on their own using company capital and requiring constant injections from
the state. Although the volume of state funding of the coal sector nearly quadrupled over
2001-2010, to UAH 7.7bn, the current capacity of the state to invest the necessary capital
to upgrade equipment is not enough.

The state coal sector is highly uncompetitive and is artificially compensated by manda-
tory procurements of fuel by the power utilities that are largely state owned. Such sub-
sidization of the industry at the expense of thermal generation complicates the options
for power companies to attract the necessary capital to build environmentally friendly
facilities. Because of this and because of the low environmental standards, Ukraine’s TESs
burn dirty coal and have no reason to switch to cleaner fuels.

During the transition to market relations, coal industry enterprises and power companies
will be interested in raising the quality indicators of the coal they burn. Right now, “gas”
coal, which is what the remaining 50% of Ukraine’s power equipment runs on, is in far
greater demand, as it is used in the steel-making business and is exported abroad.

Environmental rules that favor polluters
Despite growing penalties and taxes for polluting the environment, the finan-
cial incentives17 for polluters to reduce harmful emissions are insufficient. It is
more convenient for energy companies to pay their fees and taxes than to invest
in environmental measures. According to an OECD report,18 the small fees and
low rate of collection suggest that Ukraine’s oversight bodies use inappropriate,
flawed methods to assess the damage to the environment, so that they seriously
underestimate the economic impact of pollution. In other words, the amount of
annual fees paid by Ukraine’s power companies, which was UAH 520 million in
2009 alone, is less than 5% of the value of the damage that pollution causes to
Ukraine’s population and economy in the form of additional illness and higher
mortality (for details, see section on the impact of pollution).

What Ukraine’s Environmental Strategy does not mention
The Action Plan for Ukraine’s Environmental Strategy through 2020 contains no concrete
indicators for maximum concentrations of various pollutants, such as sulfur dioxide, ni-
trogen dioxide and nitrogen oxide or particulates. It only contains provisions for new
legislative and regulatory documents to be drawn up (Art. 2.2.5) and plans for measures
to establish target indicators for the content of harmful substances in line with EU legisla-
tion (Art. 2.3.1).

17
For instance, the Tax Code calls for increasing the tax rate for emissions from stationary
facilities by 3.6 times. See the list of fees and taxes in the Annexes to this report.
18
See OECD, “Translating Environmental Law into Practice: Progress in Modernizing Envi-
ronmental Regulation and Compliance Assurance in Eastern Europe, Caucasus, and Cen-
tral Asia,” 2007.


The Action Plan also calls for “reducing the volume of emissions of widespread pollutants:
stationary facilities have until 2015 to reduce these by 10% and until 2020 to reduce them
by 25% of the baseline level” (Art. 2.2). But the baseline itself is not established. Although
all quantitative commitments regarding the reduction of emissions are supposed to be
counted from 2010, it is not clear where the quantitative data for 2010 has been identi-
fied and whether they have actually been established or not. Thus, in contrast to Directive
2001/80/EC, these requirements can be interpreted in a variety of ways and effectively
ignored.

Ukraine’s system of environmental monitoring and oversight has all the neces-
sary components and generally resemble international practice in managing en-
vironmental protection. But the practice of implementing environmental policy
is very different from EU standards.
Firstly, Ukraine has published some figures about the worst industrial pollu-
tion, but did not provide any information about the reason why these were above
established norms. In this way, it is nearly impossible to analyze how effective
government policy is in ensuring that polluters meet environmental standards.
Government officials often refer to the large number of inspections carried out
and the number of investigations into violations as an indicator of the success of
their policies, but not actual reduction in emissions.19
Secondly, the Government lacks the necessary instruments and technical con-
ditions to properly monitor and oversee.20 Inspectors and other employees at
surveillance agencies have a hard time enforcing environmental legislation be-
cause their human and financial resources are seriously limited, and they have
no access to the latest data—or to the modern technologies needed to collect
and analyze data. A total of only 130 Environment Ministry staff are responsible
for administrating and granting permits to more than 15,000 companies through
27 territorial offices. Moreover, their salaries are much lower than in the private
sector, which leads to a high rate of turnover and creates the conditions for cor-
ruption to spread.
Ukraine has a program for polluters to do their own monitoring and to pay for its
cost. But the results vary greatly between what state laboratories come up with
and what the labs belonging to these companies get. This is due partly to the
poor standards for ensuring the accuracy of results, partly to unreliable testing
methods, and partly to the lack of regulated procedures regarding the condi-
tions for testing.21

19
Ibid., OECD, 2007.
20
Materials adapted from a report by the European Commission assessing cooperation be-
tween Ukraine and the EU.
21
Ibid., OECD, 2007.


Monitoring system requirements
for Energy Community members
Directive 2001/80/EC requires Energy Community members to set up their own pro-
grams for monitoring emissions and adapting to EU directives. Monitoring systems in EU
countries have a number of common features: the use of multiple methods for checking
results with both internal and external quality controls; the holding of consultations with
stakeholders such as representatives of heavily polluting industries and local govern-
ment bodies; and the provision of information so that the public can easily access it. Most
countries also delegate some of the oversight functions to the local level.

Energy Community members use the continuous emission monitoring system, or CEMS,
and consistent—for instance, daily— systems for monitoring the level of pollution close
to the source of the emissions. The cost of this monitoring is typically carried by the com-
panies, who are expected to monitor on their own. These companies are then audited to
ensure that they are upholding environmental standards. The monitoring itself is han-
dled by an independent, accredited institution. EU countries use standardized methods
to measure emissions to get results that can be compared at the Union and international
levels.
Sources: Guide to the Approximation of European Union Environmental Legislation, EU Directives

Regulating thermal electricity generation rates
Today, the only available source of capital for large environmental projects or
compensation for attracted financial resources applied to this purpose is the
investment component of the electricity rates charged to customers by power
companies. Still, because of the enormous amount of investments needed in
general to update heat-generating equipment and install systems to filter flue
gases, these are hard to justify economically and to charge the environmental
investment component in electricity rates.
The current system for setting wholesale and retail electricity rates cannot en-
sure the return of investments in flue gas filtration systems at TESs. What makes
this impossible is the cross-subsidization and discount policy that reduce resi-
dential electricity rates at the expense of industrial and commercial users and
the overregulation of wholesale rates on the electricity market.
Residential users in Ukraine do not pay the real cost of the electricity that they
use, as electricity is considered a social good. The result is that the sector does
not earn the income necessary for sustainable growth and for investment in en-
vironmental measures. Rates for residential electricity are 2-4 times lower than
industrial rates and 3-12 times lower than what EU residents pay.22 This has made
profit margins for generating electricity in Ukraine less in recent years than simi-
lar indicators for power companies in EU countries.
The wholesale rate for power is based on the Rules of the Wholesale Energy Mar-
ket (WEM) in Ukraine and largely depends on the cost of fuel, especially coal,
Compare data on electricity rate levels in Ukraine and the EU at www.nerc.gov.ua and www.
22

energy.eu.


which constitutes 70-80% of the production cost of generating electricity at the
country’s TESs. According to WEM rules, price requests from heat-generating
companies are supposed to be based on actual technical and economic data from
the previous period (month) with a margin of fluctuation of ±5%. This means
that generating companies cannot significantly increase the price of wholesale
electricity on the WEM and to thus earn additional income to institute invest-
ment programs, including environmental ones.

Dilatory reforms on the electricity market
The main factor keeping investors from putting capital into the implementation
of the Directive’s requirements is the continuing postponement of reforms in
Ukraine’s electricity sector. The Government itself will have no means to seri-
ously fund thermal generation because it is scheduled to make major payments
on foreign debts over the next five years. At the same time, the funds in the En-
vironmental Protection Fund are not being directly put towards emission reduc-
tion (see data on the amounts of received and spent funds in Annex 1).
It is also highly unlikely that thermal generation companies will be able to get
major credit from international financial institutions like the IBRD, EBRD or EIB
without state guarantees and basic reforms on Ukraine’s electricity market.23 For
instance, in the EBRD’s lending portfolio on Ukraine, only 7% of loans have gone
to Ukraine’s power sector, whereas in other countries in the region, this share is
typically 10-20%. The available mechanisms for receiving bank loans for TES24
purposes is based on the growth of prices on the wholesale electricity market
and is not enough to satisfy the real capital needs of thermal generation in full.
In short, Ukraine’s TES companies have little investment appeal because of the
excessive administrative regulation on the electricity market, especially when it
comes to companies owned by the state. Nor will the privatization of power com-
panies guarantee attracting the necessary investment capital to upgrade gen-
erating facilities unless there is reform in the energy market and investors can
be offered clear, transparent and long-term guarantees that their environmental
investments will have a return.

Ineffective technical assistance
Cooperation between the EU and Ukraine has not led to major improvements
in environmental conditions. As Ukraine’s largest donor,25 the EU did not initi-
ate projects directed at improving environmental management in general or the
capacity of the Environment Ministry, in particular, to carry out environmental
23
See the Concept for Reforming the Wholesale Electricity Market (WEM). Reforming the
WEM is also called for in the Protocol on Ukraine’s accession to the European Energy Com-
munity.
24
See Cabinet Instruction №648 dated 8.09.2004.
25
Since 1991, the total volume of technical assistance provided to Ukraine by the EU through
the TACIS program, macrofinancing and humanitarian aid has added up to EUR 1 billion.
See http://comeuroint.rada.gov.ua/komevroint/control/uk/publish/article?art_id=
52066cat_id=44792.


policy over 2002–2009.26 Instead, the EU supported the drafting of legislation
that has had little sustainable impact. The TACIS program, the EU’s main in-
strument for cooperation with Ukraine on environmental issues, only supported
development of regional potential based on small-scale pilot projects. Until re-
cently, the European Commission also gave no support to Ukraine for upholding
international commitments.
The Commission began to change its approach to technical assistance to
Ukraine by undertaking more comprehensive and systemic programs. In 2010,
for instance, it initiated a new Twinning project with the Environment Ministry
that was directed at increasing the agency’s technical capacities. This includes
exchanging practical experience and learning methodology. At the end of 2009,
two additional projects were launched to help Ukraine follow through on the
Aarhus Convention27 and the Espoo Convention on assessing environmental im-
pact in a cross-border context.28 In January 2011, the EU announced that it was
launching a Budget Support program for the Government of Ukraine worth a
total of EUR 35 million in support for the implementation of the national envi-
ronmental strategy.29

For discussion
How much incentive do environmental charges give companies to reduce their emis-
sions?

How closely does Ukraine’s environmental regulation system today comply with the re-
quirements of Directive 2001/80/EC?

What is the main reason for the low level of funding to make thermal generation compa-
nies more environmentally friendly?

What kind of impact do international donors have on the Government’s environmental
policy?

26
See Evaluation of the European Commission’s Cooperation with Ukraine, 2010.
27
The Aarhus Convention regulates the right to access to information, public participation
and access to justice on environmental matters.
28
Under these two projects, the European Commission proposes to revise the Action Plan to
improve the legal environment and administrative potential necessary to comply with both
conventions. This includes the participation of other ministries, including the Ministry of
Energy and the Coal Industry.
29
The complete list of the EU’s main technical assistance programs in energy and the environ-
ment in Ukraine can be found at: http://eeas.europa.eu/delegations/ukraine/projects/
list_of_projects/projects_en.htm. Over 2007-2013, the EU has plans to provide nearly EUR
141 million in assistance to energy projects.


The economic and social impact
of emissions
Dampened economic growth
Poorer quality farm products and lower land values
TES emissions constitute a constant source of soil pollution, primarily acid rain
and ash sediment, with toxic heavy metals such as lead, cadmium, copper and
zinc. These pollutants eventually end up in ground waters and rivers. Moreover,
TES emissions have a negative impact on the health of those who reside where
these hazardous materials settle. As an example, the ground soil in local eco-
systems around the Burshtyn TES typically show higher levels of phytotoxic-
ity, fluctuating between minimal in areas with complex planting and extremely
intensive on the territory of the Burshtyn plant itself. This leaves surrounding
farmlands and areas along roadways in danger, as the toxicity of surface areas
are constantly higher than average.30
The operation of the TES has a noticeably toxic and mutagenic impact on local
farming. Harmful emissions can lead to lower yields in orchards, pathologies in
fruit-bearing trees themselves, and uncontrollable mutational processes among
seed cultures. For instance, it has been shown that sulfur dioxide inhibits plant
growth31 and makes farm produce more vulnerable to pests, leading to possible
greater use of pesticides to counter this threat. Soil contaminants are also tied to
a higher overall incidence of illness in the local population.32
Moreover, territorial pollution happens in an extremely uneven manner. Air pol-
lutants settle and contaminate the groundcover in concentric bands that extend
as far as 20-30 kilometers. Dust, in combination with heated air, does not settle
immediately around the TES but moves with air streams and gradually lands on
the soil. Within this area, completely safe farmland borders on “islands” of con-
taminated parcels. Thus, in order for farmsteads and commercial farms located
within these zones to be certified as growing environmentally clean produce, a
labor-intensive and costly procedure needs to be undertaken to establish the
boundaries of the polluted areas.33

30
See Penderetskiy, O.V., Determining soil contamination from the Burshtyn TES in order to
assess opportunities to grow environmentally-clean agricultural products, The Environ-
ment and Safe Living, №6, 2004, pp 62–69.
31
B. Miller, B., Coal Energy Systems, Elsevier Academic Press, 2005, 507 pp.
32
Zhdanov, V.V., An assessment of the impact of emissions from the Luhansk TES on soil
contamination with heavy metals, Current Issues in Hygiene and Environmental Safety in
Ukraine: Third Marzeyev Readings, materials from the academic conference in Kyiv, 24-25
May 2007, pp 57–58.
33
Mishchenko, L.V., A geoecological audit of the impact of human factors on the environ-
ment and health of the local population, using the Pokuttia region as an example, Candi-
date of Geographical Studies dissertation, Chernivtsi, 2003, 21 pp.


Certifying ecologically-clean products: A high standard
Ukraine applies both national and international standards of ecological certification for
plots of land and the produce grown on them. Compliance with international criteria is
determined by such organizations as the Global Ecological Network (GEN) and the Inter-
national Federation of Organic Agriculture Movements (IFOAM). The procedure estab-
lished by these organizations primarily sees the production process as requiring certifica-
tion, not the end product, and it starts with inspecting the quality of the soil as the first
step.34 Farms that export organic products to the EU must undergo a strict certification
procedure regulated by EC Resolution 2092/91, which is done by foreign standardization
agencies that operate in Ukraine.

Users of land plots that are within the pollution zone of a TES are faced with serious com-
plications during this procedure. This land is also not eligible for status as a special re-
source zone, where it is permissible to grow produce for pediatric and dietetic purposes.
Such areas normally need to be a certain regulated distance from industrial areas.35 This
means that these farm enterprises are effectively out of the running for the promising
market of organic and ecologically clean products.

The very fact that a piece of land is in a risk zone has a negative impact on its
value when it comes to selling the lot. Given that the practice of selling or trans-
ferring land under long-term leases through auctions is growing in popularity in
Ukraine, this factor is likely to play an even more important role. The require-
ment to have an expert assessment of the starting price of a parcel of land and to
complete the technical certificate providing detailed information about the land
that is being put up for sale could significantly reduce the chances of a success-
ful sale of those parcels that are in polluted zones.

Additional costs to the healthcare system
The country’s economy suffers losses because of the growing cost of healthcare
paid by both the State Budget and private households. It has been established
that a day of hospitalization costs at least UAH 500, while an emergency house
call is at least UAH 300. Conservative estimates are that the direct losses on
doctors’ visits and hospital services due to illnesses caused by air pollution in
Ukraine is over UAH 1 billion annually.36
The country suffers even greater losses because of the higher mortality rate
caused by poor air quality. Although the methodology for calculating the eco-
nomic cost of increased mortality is fairly ambiguous (see Annex 2), the data
available in Ukraine is more than just suggestive. For this country, the value of
statistical life (VSL) is around US $90,000, based on 2006 figures. This means that
the most conservative estimates in pre-crisis times result in a cost of increased

34
Artysh, V.I., Improving the system of regulation of the production of organic products in
Ukraine, Scientific Courier of the National University of Bioresources and Nature Manage-
ment of Ukraine, №145, 2010.
35
Mozalova, M., Regulating the certification of soil zoned for agricultural use, Issues in Legal-
ity №103, 2009.
36
Strukova E., Golub A., Markandya, A., The Cost of Air Pollution in Ukraine. Access: http://
ideas.repec.org/p/fem/femwpa/2006.120.html.


mortality due to air pollution that is UAH 12 billion per annum.37 This means that
Ukraine loses nearly 4% of GDP every year. By comparison, Russia loses 5% of
GDP, while developed countries lose under 2%.38

Additional costs due to the emission of certain harmful
pollutants in Russia and the US
In Russia, every additional tonne of SO2 costs the healthcare system EUR 3,000 annually.
The overall annual burden of additional costs through higher rates of disease and mortal-
ity due to SO2 emissions is nearly EUR 4 bn and EUR 1.5bn annually from NOx39 emissions.
In the US, similar costs are a factor higher: for instance, every additional tonne of SO2
and NOx leads to nearly US $10,000 additional costs to the budget and annual costs to
the healthcare system due to such diseases as cancer and respiratory and pulmonary ill-
nesses caused by air pollution amount to over US $185bn a year.40

Deteriorating quality of human capital
Reduced life expectancy
Emissions from Ukraine’s TESs are damaging the health of those who live adja-
cent to such plants. This is seen primarily in the inhalation of coal dust and par-
ticulates, which are found in greater concentrations in the air around TESs. They
also contain a slew of heavy metals, which has led to nearly double the normal
rate of illness in those regions:
 respiratory diseases – 1.9
 digestive illnesses – 2.6
 diseases of the circulatory system – 1.6
 endocrinal diseases, eating disorder, metabolic imbalances – 3.4
 birth defects – 1.441
It has been shown that the general rate of severe and chronic diseases of the
respiratory system, such as ARD, pneumonia, chronic bronchitis and bronchial
asthma among those residing near TESs is on average 2.1 times higher (see An-
nex 1). A 10% increase in the concentration of coal dust in the air leads to a 3.9%
rise in the incidence of respiratory disorders, a 2.5% rise in circulatory disorders,
and a 3.9% rise in birth defects.
Those groups of the population who suffer the most from this negative impact
are children, especially children under the age of six. In addition to the con-
tinuous worsening of overall and local immunity in children, there has been an

37
Ibid.
38
Ibid.
39
http://www.cedelft.eu/publicatie/external_costs_of_coal/878?PHPSESSID=f1382192
38c72e8038a0a5694354af1d
40
See assessment of expenditures for selected countries in Annex 1.
41
V. Zhdanov, “Hygienic evaluation of the impact of harmful emissions from TESs on the
health of the local population and arguments for various prophylactic measures,” disserta-
tion, Candidate of Science, 14.02.01- 2009.


increase in disorders of the broncho-pulmonary system.42 Studies have recorded
excessive concentrations of heavy metals such as cadmium, copper, manganese,
lead and zinc in the hair of children who live directly near TESs. This suggests
how the cumulative effect of exceeding emission norms, taken together with the
significant pollution from transportation, causes an accumulation of dangerous
chemical elements in the human body. Overall, children who live in industrial
zones with various types of air pollution have health indicators that are two to
three times below the average for children who live in ecologically clean areas.

The link between desulfurization and infant mortality
in Germany
In a study of infant mortality carried out in Germany between 1985 and 2003,43 mortality
was compared before and after the installation of a desulfurization plant at a local power
plant. The study revealed that a reduction in emissions saved 850–1,600 infant lives per
year.

Air pollution causes up to 90% of all carcinogenic risks linked to environmental
pollution. Over the last 50 years, the lung cancer rate in heavily industrial areas
has risen more than fivefold, especially through the use of powerful TESs, the
first of which went into operation nearly 50 years ago.
Air pollution leads to a significant increase in overall mortality rates in a given
population. And this group of diseases is one that underlies the most deaths
among Ukrainians: cardiopulmonary diseases and cancer of the lungs—togeth-
er result in as much as 68% of deaths due to disease. An analysis of additional
mortality in Zaporizhzhia due to sulfur dioxide and coal dust emissions in just
one district of the city revealed that 100 more people died every year - that is
1,700 per 1,000,000 annually.44 Estimates place the absolute number of addition-
al deaths caused by air pollution in Ukraine at nearly 30,000 every year.45
Emissions from the country’s largest TES affect the health of residents in eight
oblasts: Dnipropetrovsk, Donetsk, Ivano-Frankivsk, Kyiv, Luhansk, L’viv, Vin-
nytsia, and Zaporizhzhia. According to estimates, more than 800,000 Ukrainians
live within 30 kilometers of a major TET. This number would be even larger if the
emission zone of those CHPs located near or directly in major cities is taken into
account. The problem with pollution has a cross-border aspect as well: on one
hand, Ukraine pollutes the territories of other countries; and on the other, the
country is also polluted by neighboring countries (see Annex 5).

42
V.M. Kulias, O.B. Yermachenko, O.A. Trunova, I.B. Ponomariova, D.P. Sadekov, V.S. Ko-
mov, and O.A. Dmytrenko, Microbiocenosis of the mucous membranes of the throat and
nose of children inhaling the ash of multicomponent chemical dust, Medical Perspectives,
Vol. XV, 1, 2010.
43
See Simon Lüchinger (2009), cited at ftp://ftp.zew.de/pub/zew-docs/dp/dp10079.pdf.
44
M. Brody, J. Caldwell and A. Golub, Developing Risk-Based Priorities for Reducing Air Pol-
lution in Urban Settings in Ukraine, Journal of Toxicology and Environmental Health, Vol.
68, №9 (2005), pp. 356–357.
45
E. Strukova, A. Golub and A. Markandya, Air Pollution Costs in Ukraine, Access: http://
ideas.repec.org/p/fem/femwpa/2006.120.html.


Loss of workforce
TES companies are finding it hard to keep highly-qualified specialists. Such pro-
fessionals are extremely mobile and are always on the lookout for a job in a less
polluted environment for themselves and their families.
Projected losses due to high absenteeism during operating hours due to illnesses
caused by the poor local environment amounted to more than UAH 500mn in
2005, the last year for which figures are available. If the direct loss of time needed
to rehabilitate and renew working capacities are added—normally up to 7 days
after hospitalization—the scale of these losses among the working population
will be even higher.
This trend towards a declining quality of workforce particularly affects those
counties that are located right next to TES operators. Although TESs are gener-
ally located far from major urban conglomerations in Ukraine, the territories im-
mediately adjacent to them tend to be heavily populated. The average number
of employees at a single TES is 1,500-2,000, most of whom live with their families
as close as possible to their jobs. Thus, although TESs offer locals the prospect of
a decent job and social benefits, they simultaneously jeopardize the health and
performance of these same workers.

Impeding the development
of Ukraine’s power generation
Greater risks for investing in heating plants
Because Ukraine lacks a consistent policy regarding the implementation of
Directive 2001/80/EC, the risks related to investing in heat-based power gen-
eration are higher, which puts a damper on incoming investment.46 For foreign
investors, the lack of negative environmental impact from carrying out a given
project is one of their criteria in choosing where to invest their capital. For in-
stance, the EBRD has been increasing its investments into alternative energy in
Ukraine as well as into projects aimed at reducing emissions of greenhouse gas-
es. According to the already-announced “Initiatives in the sustainable energy
sector”47 policy of the EBRD, the Bank plans to support “clean energy” projects,
especially renewable ones, and places no priority on upgrading the power units
of Ukraine’s TESs.

Complications with trading Ukrainian electricity on EU power markets
If Ukraine’s TESs continue to generate power using technologies that cause sig-
nificant environmental damage, it will be very hard to integrate the domestic grid
into the single European electricity market. All other factors being equal, Euro-
pean buyers tend to prefer to buy power that is being generated using “clean”
technologies. On one hand, European countries and many other world players
46
Over the last 20 years, because of anticipated stricter EU environmental policies and grow-
ing uncertainty regarding the size of fines for emissions, the construction of new coal-fired
power plants in the EU has effectively ground to a halt (see Annex 1).
47
http://www.ebrd.com/russian/pages/sector/energyefficiency/sei/strategy.shtml


on the electricity market, belong to that category of electricity consumers who
are prepared to pay more for clean energy.48 On the other hand, EU power com-
panies are concerned about losing their competitive edge due to higher environ-
mental standards and are demanding that the European Commission apply the
same rules to trading partners.

The carbon leakage effect
European producers are always on the search for ways to compensate the cost of improv-
ing targeted EU requirements regarding CO2 emissions. Some of them are transferring
their power generating facilities to countries that do not levy strict fines for emissions.
This is leading to the phenomenon of “carbon leakage,” where the reduction of emissions
in country A is leading to a proportionally higher level in country B. Moreover, the global
level of emissions is not being reduced, which is casting doubt on the success of climate
change policies altogether. This trend is particularly noticeable in energy-intensive man-
ufacturing sectors, such as cement, steel, paper and chemicals.

In a situation where there is strong competition on the single EU energy market,
such production factors as environmentally friendly generation—which at first
glance would seem secondary—turn out to be key factors that force a buyer to
choose the more compliant provider rather than any other one.

The growing cost of environmental programs in the future
By ignoring Directive 2001/80/EC when constructing new power units now,
Ukraine will face a higher cost to institute environmental protection measures
further down the line. The country already felt the effect of such “path depen-
dence”49 before, when the prior selection of a particular technology made efforts
to modernize the system ever more complicated and costly. Those who draft
projects to reduce emissions at existing TES power units often face a dilemma:
to choose new equipment on a short-term basis (10-15 years) as a relatively in-
expensive but not very effective choice, or to choose more costly technical solu-
tions that will later be adapted to new equipment that will replace that which has
completed its useful lifespan.

Time is not on the side of aging power units
Every year, bringing existing TES power units in line with environmental regulations be-
comes a more complicated procedure. The design of these TESs, which were built to meet
the specifications of outdated soviet dust collectors, desulfurization plants and boiler ash
and slag removal facilities, was supposed to offer considerable advantages in exploita-
tion. But today they have turned into a serious barrier to installing modern treatment
systems. Some aspects of the construction of the soviet TESs make it unreasonably ex-
pensive and even risky to apply contemporary solutions.
48
According to a study by IBM Global Business Services, 67% of users surveyed in six coun-
tries—Great Britain, Germany, Holland, the US, Japan, and Australia—have indicated the
willingness to pay higher rates for environmentally friendly energy. For more details, see
http://www-935.ibm.com/services/us/index.wss/ibvstudy/gbs/a1029014.
49
For more details, see Page, S.E., Path Dependence, Quarterly Journal of Political Science,
2006 (1), pp 87–115.


For instance, many TESs have no room to install sulfur and nitrogen treatment plants.
Sulfur dioxide accelerates the corrosion of metals and is the most damaging chemical
material pollutant. Changes in temperature and humidity increase the pace at which
equipment is worn out through corrosion.50 If the problem of emissions of this kind is
not resolved, Ukraine’s TESs, which are already operating at the peak of their normal po-
tential, could find themselves reaching the end of their normal lifespans more quickly,
leading to even more emissions.

Loss of status as a reliable international partner
If Ukraine fails due to lack of motivation to fulfill the commitments it made on
its accession to the European Energy Community, Kyiv’s stable foreign policy
course will be undermined, as well as its status as a reliable foreign partner.
Ukraine is already losing its reputation because of misappropriation of Kyoto
Protocol funds and failure to comply with the Aarhus Convention in domestic
legislation.51
Sanctions from the EEC and publicity in the international community could
put under question Ukraine’s ability to fully participate in multilateral projects.
Such an official step by the EEC Council of Ministers, such as announcing the
fact that Ukraine’s legislation is not in compliance with related EU laws, might
not have any legal force in the final analysis, but it would definitely complicate
any further integration of Ukraine’s energy market with the Community’s en-
ergy markets.

Sanctions by the European Energy Community
The leadership of the EEC could raise sanctions against a country that is in violation of its
rules if there is evidence of a violation or there are doubts whether the country will meet
points in the Treaty in a timely manner. Currently, EEC mechanisms to deal with members
who “do not play fair ” are more oriented towards consensual problem resolution than
towards severe punishments. However, in future the penalties for not carrying out com-
mitments that a country has taken on could be more serious.

The European Energy Community’s institutional structure provides for a series of mecha-
nisms intended to spur members, especially new ones, to fully comply with the points in
the Agreement.

First stage. The EEC Secretariat launches the preliminary stages of conflict resolution and
sends the “guilty parties” an open letter. Should such members delay measures to resolve
the given problem, the EEC sends its reasoned opinion and presents its reasoned request,
both of them then posted for open access.

B. Miller, Coal Energy Systems, Elsevier Academic Press, 2005, p. 507.
50

Ukraine’s ratification of the Aarhus Convention in 1999 failed to push the country to change
51

its domestic legislation to provide both individuals and civil society organizations access to
information about the environment. In 2011, Ukraine could lose its membership in this Con-
vention. See http://www.rac.org.ua/skhovishche-novin/novina/article/orguska-konven-
cija-turkmenistan-chi-ukrajina/.


Second stage. If such precautionary measures prove insufficient, the Community’s Coun-
cil of Ministers can officially announce that there have been violations based on collected
information, including evidence from third parties, justification from the “accused” party,
and the opinion of the Advisory Committee. Although such instruments belong to the
class of “soft power” measures, their application is typically widely broadcast, as was the
case with the Serbian Government, which was unable to ensure the proper implementa-
tion of certain EU Directives.

Third stage. In the case of a serious, lengthy violation of commitments, the Council of
Ministers has the right to suspend certain rights that a member country enjoys through
its Agreement, including: the right to vote in the Community, to participate in meetings
and to make use of mechanisms provided by the Agreement. The last include using the
power grid without trade restrictions, making use of assistance in the case of an emer-
gency, and having the licenses and standards of operations of utilities recognized.

Source: European Energy Community (EEC)

For discussion
How accurate do you think the estimated cost of Ukraine’s problems is?

How effective an incentive are current EEC sanctions to ensure that all points in the Treaty
are fulfilled?

To what extent do you think not carrying out the environmental Directive will complicate
integration into the single EU electricity market?

How significantly would you say air pollution affects the working age population and
human capital as a whole?

What other interested parties can you think of for whom excessive emissions from ther-
mal generation constitutes a problem and what is the cost of that problem for them?


A vision of the future
of thermal power generation in Ukraine:
eco-friendly and safe for humans
If Ukraine’s thermo-electric generation is modernized along the principles of
sustainable development and completely complies with the environmental con-
ditions of the European Energy Community, this sector will become safer for
humans and environmentally friendly.

The positive future impact of meeting
EEC environmental requirements
The activity of the Energy Community is aimed at reaching three key goals: lib-
eralizing the market and increasing competitiveness; increasing the security of
energy supplies; and reducing the impact on the environment. The most positive
impact from Ukraine’s accession to the Community is seen as coming from the
first two goals: simplifying access to the unified European electricity market,
gaining the opportunity to establish direct links to end users, diversifying supply
sources and increasing energy security. But the environmental requirements are
too often seen as an obstacle and an extra “whim” on the part of the Europeans.
In actual fact, a realistic vision of the future of thermal generation in Ukraine
within the common European energy market is impossible without the environ-
mental aspect of integration. The overall success of integration into the EEC de-
pends on a clear understanding of the full range of future positive effects that
will accompany joining the common energy space, including positive changes
in environmental protection.
The table below shows the potential costs and benefits that carrying out the en-
vironmental requirements of the EEC could bring to the basic interested parties
in Ukraine.


Future positive costs and benefits
of meeting EEC environmental requirements (Directive 2001/80/EC)
Key interest
Benefits Costs
groups
• Life expectancy should rise, while infant mortality and the loss
Individual More expenditures
of years of life due to illnesses caused by the unsatisfactory
Ukrainians on power required
state of the atmosphere should go down.
• Environmental law will become more predictable. Clearer
requirements regarding the volume of emissions, the
timeframes for acting and the size of environmental taxes
should make it easier to plan production operations.
• Additional incentives will encourage the modernization of
existing facilities and technologies and to come up with new,
more efficient generating capacities.
• Electricity generated in an environmentally friendly manner
will be in greater demand on the common European market.
Business Longer ROI term
• Investments in eco-friendly policies and the application of
the best available technologies should promote a better
image for companies, which will begin to be associated with
cutting-edge achievements in environmentally-oriented
power generation.
• A lower rate of disease will make it possible to improve the
quality of human capital and the overall employability of
workers. At the same time, it will minimize economic losses
due to temporary inability to work.
• The Ukrainian side will recover its status as a reliable partner in
Need for
international energy and environmental cooperation.
institutional
• Ukraine will enjoy the full rights and preferences due to it as a
changes and
signatory to the ECT and will avoid sanctions for not enforcing
The State additional costs to
the Treaty’s provisions.
introduce effective
• Additional incentives will arise to reform the energy sector.
environmental
• Public spending on healthcare should go down, especially in
policies
areas with a high level of pollution from TESs.
• A reduction in the amount of cross-border leakage of air
pollution should improve the environment for a number of
neighboring EU member countries.
• Ukrainian and European power generating companies should
find themselves operating on a more level playing field. More competition
European
Additional spending on environmental protection measures from clean
partners
will affect all participants in the common energy market and Ukrainian power
not just EU members.
• New opportunities to invest in joint environmental projects
will arise. European partners will be more eager to invest in
and provide credits and technical assistance to Ukraine.

Source: ICPS

A vision of the future of thermal power generation in Ukraine: eco-friendly and safe for humans 25

The environment will remain a priority
Reducing man-made pressure on the environment is one of the most important
benefits that Ukraine could enjoy from having joined the EEC. However, the re-
lated positive effects will not be felt immediately, but in the medium and longer
term. The “market” and “security” components of the ECT will be felt sooner
than the environmental one.52
In this vision of the future, Ukraine will continue to meet its environmental com-
mitments to the EEC, successfully taking advantage of all the benefits of par-
ticipating in the Treaty. And, on the contrary, if integration into the EEC moves
away from the desired course and problems with funding or diplomatic support
from the EU arise, this will no longer offer an excuse to roll back the environmen-
tal protection program.

Environmental standards will meet
European requirements
The environmental requirements of the Energy Community will continue to be
the main incentive for making heating plants more environmentally friendly, as
their modernization is supposed to be in line with the main framework agree-
ment, Directive 2001/80/EC “On the limitation of emissions of certain pollut-
ants into the air from large combustion plants.” In Ukraine, all the necessary
legislative conditions for complying with this Directive are to be set in place and
its provisions developed in a National Action Plan to reduce harmful emissions.
During the drafting of this plan, Ukraine will be guided by detailed recommenda-
tions for this type of document from the European Commission, which includes
pathways to reach goals with the help of European methods and practices. The
set of measures in the Action Plan will be aimed at meeting established norms
and sources of funding and will take into account realistic timeframes for com-
plying with EEC requirements.

Volumes of emissions will go down
Ukraine will ensure the gradual convergence of the concentration of specific
emissions of pollutants from new and existing combustion plants with those lev-
els that are established in the Directive. The actual concentrations of emissions
at new TES power units will approximate European norms for dust at 30–50
mg/cu m, sulfur oxides at 200-400 mg/cu m, and nitrogen oxides at 200–600
mg/cu m. A state system for environmental monitoring that has been reformed
in line with best European practice will provide reliable information on the pace
of annual reduction of emissions.

The European Commission’s report on EEC activities for 2011 shifts meeting environmental
52

priorities to medium term objectives while noting that this will take place no earlier than
when national markets are “opened” an the delivery of electricity becomes reliable. See
ec.europa.eu/energy/gas_electricity/community/doc/20110310_report_en.pdf).


A vision of development of thermal generation in Poland
Coal will continue to be a major fuel in the country’s power generation sector, but it will
begin to be used more in a gasified or liquid state. Polish TESs will use clean coal tech-
nologies such as Carbon Capture and Storage and gasifying coal, thus reducing emis-
sions into the air.

In 2020, Polish residents should not be feeling the impact of concentrations of ash that
are higher than those allowed by EC Directives. As a result, the number of respiratory and
cardiological illnesses, as well as the costs to the healthcare system, should start decreas-
ing.

Source: Energy Strategy of Poland

A vision of the future of thermal power generation in Ukraine: eco-friendly and safe for humans 27

Options for resolving the problem
During the process of adapting to Directive 2001/80/EC, countries are expected
to develop a strategy for reorganizing their TESs and to establish which existing
generating capacities will be decommissioned, which ones will be modernized,
and how many new power units will have to be brought on line. The two latter
options typically mean: 1) changes to the balance of fuels more towards natural
gas; 2) a higher quality of fuels, such as enriched coal; 3) greater efficiency in the
production process; and 4) the introduction of gas-cleaning technologies. EU
countries are following a variety of ways to adapt to the Directive.
The end of lifespan option. Countries decide to shut down a TES when upgrad-
ing makes no economic sense. The lifespan of such power units is limited to a
few years or because the designated number of hours of operation is running
out. Choosing this option could indicate planned changes in the energy balance
of the country in favor of atomic energy or renewable sources of energy. For
instance, after shutting down most of its TES, France switched to mostly atomic
energy. Using this option requires diversifying sources of energy, dealing with
the social impact in those regions where plants are being shut down, and renew-
ing the polluted territory.
The extended lifespan option. Countries upgrade their existing TESs, switching
them to basic power mode and increasing their load, so a few modernized TESs
can compensate for the capacities of those that have been shut down. Great Brit-
ain and Ireland are examples of countries that have kept a series of major TESs
by upgrading them and switching them to being gas-fired. Germany, which has
also kept most of its TESs, radically improved the quality of its fuel coal. The
downside of this option is that modernizing old power units does not necessarily
allow the country to fully meet environmental requirements and it is not always
economically sound, given the small amount of extended lifespan added to the
block.53
The starting from scratch option. Building new TESs makes it possible to use the
latest technologies for capturing harmful emissions and to switch to cogenera-
tion. Introducing this option is complicated by the need to attract a large amount
of investment up front and to designate suitable locations for new power sta-
tions.

Worn and obsolete power units are typically reconstructed so that their lifespan is extend-
53

ed, but usually only for 10-15 years. This casts doubt on the point of investing major capital
in highly costly gas cleaning equipment.


Proposed solutions
Over 2011–2016, Ukraine is supposed to start meeting the requirements of Di-
rective 2001/80/EC regarding the reduction of emission and heat-generating
plants in order to improve the health of its population. But this has to happen
without risking the reliability of the unified power system in Ukraine, which
means:
 to establish the basic principles of energy security—the best balance between
domestic and imported fuel and energy resources;
 to prepare a National Emission Reduction Plan;
 to draw up a Strategy or plan for handling TES emissions: using ash slag and
other byproducts of sulfur and nitrogen treatment, such as gypsum, nitrogen
fertilizers, and so on;
 to establish permits for concentrations of emissions that are based on best
available techniques and reflecting local features;
 to develop a strategy for decommissioning aging power units; the basis for
extending the use of newer units on condition that they are completely up-
graded, including the installation of efficient gas filtration units, and the
principles for building new power-generation facilities that meet the require-
ments of EC Directives;54
 to amend existing legislation to ensure the fulfillment of the National Emis-
sion Reduction Plan and the upgrading and new construction of TESs;
 to implement other provisions of the Energy Community in a timely manner,
especially Directive 2003/54/EC, which calls for the completion of reforms
of the electricity market;
 to reform the coal industry by introducing a coal exchange.

For discussion
To what extent do you agre with the vision of the future of Ukraine’s thermo-electric sec-
tor presented here?

How worth it is it for the Energy Community to extend its timeframes on environmental
requirements?

In what way can the reduction of emissions at heat-generating plants affect various in-
terested parties?

What other options are there for resolving the problem of polluting substances?

54
Directive 2009/72/EC dated 13 July 2009 on the basic rules for internal electricity markets,
EC Regulation № 714/2009 dated 13 July 2009 on the requirements for access to power
grids that provide cross-border exchanges of electricity, and Directive 2005/89/EC dated
18 January 2006 on measures to ensure power supply and investing in infrastructure, and so
on.

Proposed solutions 29

Annex 1
Tables and charts

Table 1. Volumes of air emissions from power
and thermal generation in Ukraine over 2005–2007
2005 2006 2007
Pollutant emission % of total emission % of total emission % of total
volume, ’000 t emissions volume, ’000 t emissions volume, ’000 t emissions
NOx 154.06 30 158.21 32 172.34 24
SOx 876.06 73 1,114.64 77 1,069.24 79
Dust 327.72 42 347.61 44 306.24 41

Source: Environment Ministry, based on data provided by the Institute of Energy
under the National Academy of Sciences of Ukraine

Table 2. Comparison of EU and national requirements
for emissions of air pollutants from TES flue gases
І. New combustion plants
Nominal emissions, mg/cu m
Pollutant, thermal Environment Ministry Environment Ministry
capacity, MW Directive 2001/80/EC Decree №309 of Decree №541 of
27.06.2006 22.10.2008
Particulates
30 50 30
P100*
Sulfur dioxide
200 500 200
P100
Nitrogen oxides
200 500 200
P100


ІІ. Upgraded combustion plants
Nominal emissions, mg/cu m
Thermal Current Environment Environment In excess of EC
Pollutant capacity, emission level, Directive Ministry Ministry Directive,%
MW mg/cu m 2001/80/EC Decree №309 Decree №541
of 27.06.2006 of 22.10.2008
as of
01.01.2016
Particulates 1,000-1,700*** 50 2,000–3,400
P500** 50 50
P500 100 100
as of
Sulfur 01.01.2016
3,000–7,000 500 750–1,750
dioxide 100P500 2,000–400 2,000–400
P500 400 400
as of
Nitrogen 01.01.2016
700–1,800 500 350–900
oxides 100P500 600 600
P500 200 200

* P1000 applies to power units generating 50 MW.
** P500 – to units generating 160 МW.
*** Does not include the level of emissions from reconstructed dust-capturing equipment.
Source: Ministry of Fuel and Energy

III. Combustion plants of major power generating companies in Ukraine
Emissions for 2009, mg/cu m
Pollutant Actual Directive 2001/80/EС Excess, %
NAK Energetychna Kompania Ukrainy (EKU)
Sulfur dioxide 3,300 400 825
Nitrogen oxides 1,050 200 525
Particulates 1,200 50 2,400
SkhidEnergo
Sulfur dioxide
Zuyivska 2,637 400 659
Luhanska 5,483 400 1,371
Kurakhivska 3,773 400 943
Nitrogen oxides
Zuyivska 1,224 200 612
Luhanska 1,408 200 704
Kurakhivska 486 200 243

Source: Company data

Annex1 31

Chart 1. Technical state of NAK EKU TES power units
relative to their lifespans
350

1,100 MW Lifespan of metals established by current norms
300
15,414 MW
Permissible individual lifespan
250

Individual lifespan
200
000 hours

1,446 MW

150
4,800 MW
Idle lifespan
100

50
7 blocks 61 blocks 5 blocks 7 blocks
4.8% 67.7% 6.4% 21.1%
0

Note: As of April 2011, NAK EKU power units generated a total of 23 GW or 85%
of all available capacities at Ukrainian TESs.
Source: Y. Trofymenko, “Approaches to equipping NAK Energetychna Kompania Ukrainy
TESs with gas-cleaning equipment as part of the implementation of Directive 2001/80/EС,”
presentation at roundtable on “Integrating Environmental and Energy Policy: Challenges for
members of the European Energy Community,” held on 7.12.2010.

Table 3. Estimates of the cost of implementing
Directive 2001/80/EC5556
Organization Parameters Assumptions
Timeframe: by 2020 Extending the lifespan of power units by installing cleaning
Institute of
systems on coal-fired units and applying primary measures
Energy under Cost: US $16-17bn
to reduce NOx emissions on gas oil units along with the
the NAS55 Capacity: 27–28 GW installation of emission reduction systems.
Change of electrical filters: US $40/kW
Timeframe: 20 years Construction of desulfurization plants: US $200/kW
VAT
Cost: US $22bn Equipping boilers with gas denitrification catalyzers: US
L’vivORHRES56
Capacity: 27.122 GW $100/kW
Dollar inflation: 3% p.a.

55
See B.A. Kostiukovskiy, S.V. Shulzhenko and N.P Nechayev, “Approaches to meeting envi-
ronmental requirements regarding emissions of air pollutants in the thermal energy sector
in Ukraine,” Institute of Energy under the NAS.
56
See Energy and Electrification №7, 2010, pp 39–42.


Organization Parameters Assumptions
Timeframe: by 2030
NAK EKU Cost: US $3.9–6.8bn In 2009–2010 prices
Capacity: EKU plants
Timeframe: by 2018
Donbas Fuel Cost: UAH 85bn57
Energy Constructing desulfurization and denitrification plants: US
Capacity: 22.1 GW
Company $350/kW
(DTEK) Cost: US $3–4bn 58

Capacity: DTEK plants

Source: ICPS5758

Table 4. Age of TESs in EU as of 2005
Average age Capacities older Capacities older
of TES power units than 25 years, % than 40 years, %
Coal-fired 26 54 9
Gas-fired 12 17 1
Mazut-fired 26 55 5
All power units 21 42 6

Source: Tzimas et al (2009)

Table 5. The cost of damage from additional illnesses
and mortality
SO2 NOx Dust (PМ2.5)
Country
EUR/tonne
Australia 9,048 8,334 36,392
China 1,090 1,003 4,381
European Union 7,948 7,320 31,965
India 566 521 2,277
Japan 8,499 7,828 34,182
Republic of South Africa 2,257 2,079 9,078
Russia 3,158 2,909 12,702
United States 11,096 10,220 44,628

Source: Adapted from External Costs of Coal: Global Estimate, External Costs of Coal:
Global Estimate // Access: http://www.cedelft.eu/publicatie/external_costs_of_coal/
878?PHPSESSID=f138219238c72e8038a0a5694354af1d

Ibid., pp 32–33.
57

See Energobusiness №45/680 dated 9.11.10.
58

Annex1 33

Chart 2. Illness per 10,000 population in Luhansk

1 400
Number of illnesses among people, who live within the 1-3 km area from TES
1 200
Number of illnesses among people, who live in the 3km and further from TES

Number of illneesses among people, who live areas without TES
1 000

800

600

400

200

0
Flu Angina Chronic bronchitis Bronchial asthma

Source: Adapted from V.V. Zhdanov’s Assessment of the impact of the Luhanska TES on the
atmosphere and health of the local population, Hygiene and Epidemiology Bulletin, Vol. 10,
№1, 2006.


Table 6. Combined Heating and Power or Cogeneration Plants
(TETs) in Ukraine subject to Directive 2001/80/EC
Name Capacity, MW
Bilotserkivska TET 120
Darnytska TET 160
Dniprodzerzhynska TET 62
Kaluska TET 200
Kyivska TET-5 700
Kyivska TET-6 500
Kramatorska TET 120
Kremenchutska TET 255
Myronivska TET 260
Odeska TET-2 68
Oleksandriyivska TET-3 60
Pervomaiska TET 48
Sevastopolska TET 55
Severodonetska TET 260
Simferopilska TET 278
Svema TET 115
Kharkivska TET-2 74
Kharkivska TET-3 62
Kharkivska TET-5 540
Khersonska TET 80
Khersonska TET-2 74
Cherkaska TET 230
Chernihivska TET 210
Total 4,531

Source: Company data

Table 7. Fees for polluting the environment in Ukraine, 2009
Actual fees paid for polluting
%
Type of commercial activity
’000 UAH % prior to
Actually paid
2008
All types 1,107,119 100.0 92 113
Power, gas and water utilities 521,652 47.1 105 125

Source: Derzhkomstat, Ukraine’s statistics agency

Annex1 35

Table 8. Capital investments and current spending to protect
the atmosphere and on climate change, 2009, ’000 UAH
Including
Capital
Type of Actual State Budget funds Local budget funds other
investment
commercial spending, internal State local sources
and current
activity total funds total Environmental total environmental of
spending
Fund funds funding

Capital 1,273,789 1,203,358 5,622 – 7,813 5,646 56,996
All types
Current 1,035,156 1,029,143 4,640 – 447 431 926

Power, gas Capital 146,051 141,185 2,400 – 2,465 299 –
and water
utilities Current 57,543 57,307 – – 237 2301 –

Source: Derzhkomstat, Ukraine’s statistics agency

Table 9. Top 10 major EU combustion plants,
by annual emissions
Country SO2 Country NOx Country Ash
Bulgaria TPP Maritsa Iztok 2 Great Britain Drax Greece Ag. Dimitrios ІII-IV
BOT Elektrownia
Spain CT AS Pontes Poland Greece Ag. Dimitrios І-II
Bełchatów S.A.
TPP “Maritsa
Bulgaria Spain CT Teruel I-II-III Slovakia Slov.elektrбrne, Vojany, EVO
Iztok 3”
Narva Elektrijaamad AS,
Spain CT Teruel I-II-III Great Britain Aberthaw Estonia
Balti Elektrijaam
BOT Elektrownia Elektrownia
Poland Poland Bulgaria TPP Maritsa Iztok 3
Bełchatów S.A. Kozienice S.A.
Greece Megalopoli II Great Britain Cottam Poland Elektrownia Kozienice S.A.
S.C. Complexul
Elektrownia CT Compostilla II
Poland Іспанія Romania Energetic Rovinari S.A.
Patnуw (G 3,4)
No. 2
Narva Elektrijaamad AS,
Bulgaria TPP Bobov dol Great Britain Ratcliffe Estonia
Eesti Elektrijaam
BOT Elektrownia
Bulgaria TPP Brikel Great Britain Kingsnorth Poland
Bełchatów S.A.
S.C. Complexul
Romania Energetic Rovinari Great Britain Scottish Power plc Bulgaria TPP Maritsa Iztok 2
S.A. No. 2

Source: Evaluation of Member States' emission inventories 2004–2006 for LCPs under the LCP
Directive (2001/80/EC), European Commission, 2008.


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