Ukraine has one of the largest gas transportation systems in the world. This gives it an edge for future hydrogen shipments to Europe. But the grid requires big investments, since it mostly dates back to Soviet times.
The network is especially lacking when it comes to transporting hydrogen molecules, which are smaller than methane ones. Luckily, hydrogen can be blended with natural gas, which is over 70% methane. This mix can then be transported and burned.
Experts suggest that the complete modernization needed to ship a variable percentage of natural gas and hydrogen would require a decade and billions of euros. At the same time, Ukraine has significant water resources and a better than average solar and wind potential, essential conditions for green hydrogen.
Additionally, its solar irradiation is higher than Germany’s, the country with the largest solar capacity. Within Ukraine, according to the International Renewable Energy Agency, solar irradiation is the highest in the southern part, especially in Crimea, which is not under the control of the government in Kyiv.
The Ukraine is on high alert because of Russian troops at its border
New EU demand for hydrogen
Apart from the ties between Ukraine and Russia, European demand is the variable necessary for the development of a local hydrogen industry. Significant EU commercial interests are needed to translate Ukraine’s hydrogen potential into actual export capacity.
“Exporting large quantities in the next five, perhaps 10 years is certainly not feasible. As for now, there is no huge demand yet for green hydrogen in Europe, for instance in the steel or chemical industries,” Adam Balogh, senior energy infrastructure expert at the Vienna-based Energy Community Secretariat, told DW.
Several EU governments, including the Netherlands and Germany, have concrete plans to build up a domestic market for hydrogen. And being in the EU has its benefits. “There is still an advantage to being based in EU countries when it comes down to hydrogen investments, because of more EU and national funds,” said Balogh.
Ukraine’s own draft hydrogen strategy is expected to be released in early 2022. The main focus will undoubtedly be on costs, as competitors are global, from Australia to South American countries.
In the end, Ukraine will not have a first-mover advantage. It will not secure the initial green hydrogen contracts, but that will not necessarily be bad. Hydrogen latecomers could benefit from sinking prices for key equipment to produce green hydrogen, like electrolyzers, whose prices are still high, but should decrease as production capacity expands.
Traditional gas pipelines have been a lifeline to Ukraine in the past
Using its nuclear know-how
Ukraine can leverage its diverse industry and extensive know-how in the energy sector, including nuclear power. Currently it is the seventh-biggest producer of nuclear energy in the world, according to figures from the International Atomic Energy Agency.
Recent political developments within the European Union suggest that nuclear power will be classified as a green source of energy. Nuclear facilities, especially the existing ones, could receive significant financial support from EU institutions.
The US reportedly plans to invest €20 billion ($22.9 billion) to build more than 10 gigawatts of nuclear capacity in Ukraine in the next 10 years, according to several experts DW spoke to. Part of this additional capacity could be used for hydrogen production.
Skepticism about hydrogen’s potential
Hydrogen stocks rose in 2021, though only moderately, indicating some skepticism from global investors. Likewise, several Ukrainian leaders told DW that the industry is not at the stage of commercial readiness.
Gas producer Naftogaz says it has other priorities, but is still potentially interested in green energy
Naftogaz, the country’s main gas producer, clarified it has other priorities. Another company, Gas Transmission System Operator of Ukraine, confirmed hydrogen investments are secondary.
“Continuity of natural gas transit is first and foremost a security concern for Ukraine. The hydrogen potential of Ukraine is a topic that needs to be fully separated from the Nord Stream 2 discussion, weaponization of energy, and the importance of natural gas transit via Ukraine for the energy security of the EU and Ukraine,” Sergiy Makogon, CEO of Gas Transmission System Operator of Ukraine, told DW.
Could the country face an energy crisis?
In 2020, Russian gas transit through Ukraine created a revenue stream of around €1.8 billion. Yet last year, the amount of gas pumped to Europe via Ukraine decreased by 25%, which had a big impact on government spending. Limited public funds decreased the capacity of the government to avoid a surge in energy prices at home.
“The military threat Ukraine faces, and the possibility of a major energy crisis are immediate, while hydrogen will take decades to displace natural gas,” Makogon concluded. On top of that, much of the industry is concentrated in the eastern part of the country.
“Ukrainian companies do not yet have an incentive to invest in hydrogen for domestic usage, as it would be too expensive for Ukrainian consumers. But it makes sense for other countries, including Germany, to build up hydrogen supply abroad,” Lukas Feldhaus, an analyst at consultancy Berlin Economics, told DW. “Hydrogen from Ukraine will diversify the energy supply to Europe and Germany, assisting the decarbonization of European industry.”
Keeping in mind that Germany is to spend €2 billion to support hydrogen projects abroad, he argues that Ukraine does not need to provide subsidies or grants to hydrogen producers. These funds will come from abroad. “Ukraine should just ensure that investments have a safe legal environment,” said Feldhaus, especially as corruption and power struggles reportedly remain significant issues.
Selling renewable electricity is not always easy
Naftogaz and coal-heavy energy producer DTEK have shown interest in green energy sectors. DTEK, whose main mines are in the eastern part of the country, is seemingly a wealthy company.
“DTEK is developing a large wind power farm with 500 megawatts. They want to diversify their portfolio substantially, away from coal. When green hydrogen production is built, this new renewable energy would come in handy,” said Feldhaus.
Despite this, renewable electricity can currently only be sold at a loss in Ukraine, due to an “inefficient electricity market,” said Feldhaus. Companies looking into renewable investments in the country do not even normally manage to sell their electricity. And here lies some potential for hydrogen exports.
“Now these companies want to attach electrolyzers to their projects and sell the hydrogen to Europe,” he concluded.
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