Making Ukraine Energy Efficientby Meredydd Evans Reprinted from BISNIS BULLETIN--April 1998 Ukraine has one of the world's most energy-inefficient economies. Energy was plentiful and cheap in Soviet times and little effort was made to conserve it. Since 1992, however, energy prices have risen close to world levels and Ukraine finds itself saddled with very high energy costs. Ukrainian managers know that they must lower these costs if their companies are to compete both locally and internationally. The Ukrainian Government is also under pressure to lower natural gas imports and reduce the country's trade imbalance with Russia. As a result, incentives to save energy in Ukraine are now great, and the market for energy efficiency products is growing. The Ukrainian Government estimates that this market will generate $700 million to $1 billion worth of sales in the year 2000. Opportunities: Manufacturing and Construction Ukraine's manufacturing and construction sectors both hold tremendous opportunities for energy efficiency. Manufacturers are struggling to reduce costs and improve quality. Greater energy efficiency can help industrial plants reduce their energy costs; more modern, energy-efficient technologies can also improve product quality. Opportunities exist in Ukraine for a variety of energy efficiency technologies:
Distribution, Financing, Productivity Distribution, financing, and a focus on overall plant productivity are essential for selling industrial energy efficiency products in Ukraine. Plant directors would like to see evidence that the product is easy to obtain, can be serviced easily, and has worked in similar applications elsewhere in Ukraine. Financing is critical for larger purchases, since most industrial firms do not operate with large cash reserves. Most transactions are on barter terms, and U.S. companies should be prepared for countertrade proposals. Leasing is also becoming increasingly popular in Ukraine. Finally, plant managers often care more about production than energy costs. Thus, a sales presentation that highlights potential improvements in overall plant productivity and product quality is more likely to succeed than one which focuses on energy savings alone. Housing construction and renovation also provide important opportunities for exporters of energy efficiency products. Despite Ukraine's difficult economic situation, new housing construction and renovations are common, particularly among the affluent. Many high-quality energy efficiency products for buildings must be imported by the individual consumer, however, and few private individuals are willing to do this. The energy efficiency products most in demand in the building sector include: energy efficient windows; automatic heat controls; insulation (particularly when it enhances the appearance of the building); modern, efficient lighting; and roof-top boilers. The potential demand for weatherstripping is also high, since quality weatherstripping is virtually unavailable in Ukraine. Appearance, comfort, and convenience are critical factors driving customer demand for energy efficiency products in the construction sector. For example, a customer may buy an energy-efficient window because it looks modem and expensive, rather than to save money on the energy bill. In fact, most energy efficiency measures in buildings will have little effect on the customer's energy bill, unless the customer goes through a long process to switch from estimated billing to metered billing. Ukraine has passed a law requiring district heating companies to switch to metered billing in the near future, but few district heating companies are implementing the law yet. Funding The World Bank and the European Bank for Reconstruction and Development (EBRD) are both developing large energy efficiency projects in Ukraine. The World Bank is preparing a $38 million loan for energy efficiency improvements to public buildings in Kiev. The loan will finance modifications to schools, hospitals, clinics, and government office buildings. The World Bank board is expected to review the loan in 1998 and procurement of equipment and services is expected to begin in 1998-99. Procurements will most likely include heat exchangers, controls, weatherization materials, and expertise in managing and evaluating building retrofits. The EBRD has an "Energy Efficiency Unit" that is working on several energy efficiency projects in Ukraine. The most significant of these projects involves establishing an "Energy Services Company" (ESCO) in Ukraine that will be called UkrESCO. This company will finance and implement energy efficiency projects throughout the country, and will need to procure energy efficiency equipment. UkrESCO will be operational in mid 1998. Ukrainian Energy Efficiency Center The Ukrainian Energy Efficiency Center, ARENA-ECO, can assist energy efficiency companies working in Ukraine. ARENA-ECO has databases on Ukrainian industrial firms and products, and publishes quarterly energy and economic bulletins. ARENA-ECO can conduct market research and help firms identify potential customers or partners. The Pacific Northwest National Laboratory (PNNL) helped establish the center as a nonprofit, independent organization with initial funding from the U.S. Agency for International Development. For more information, contact ARENA-ECO at 011 380 (44) 268-8088 (voice), 268-8451 (fax), or by e-mail at arena@arena.kiev.ua; or contact Meredydd Evans at 202-646-7811 (voice), 202-646-5233 (fax), or by e-mail at . Meredydd Evans is a Senior Scientist at the Pacific Northwest National Laboratory in Washington, DC.
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