The Kyiv School of Economics has prepared an analysis of the losses and damages to Ukraine’s energy sector resulting from Russia’s full-scale invasion. These losses exceed $56 billion as of May. A smaller amount is needed to rebuild the sector on a “better than before” basis. Why is this so?
Ihor Piddubnyi, an analyst at the Kyiv School of Economics, explains on Hromadske Radio how to assess the damage to the energy sector.
«It is important to understand what this figure represents. On one hand, there are direct losses due to physical damage to our energy infrastructure, which account for more than $16 billion. On the other hand, there are indirect losses, primarily lost income for energy companies as a result of Russia’s invasion. This category accounts for more than $40 billion, with over $39 billion being lost revenue for energy companies. For example, the electricity sector has suffered losses due to a decrease in electricity demand by more than a third.
Most of this impact falls on the industrial sector, which is the most competitive and has the most funds. The household consumption sector is regulated by the price factor. There are also losses for companies that transport electricity. Similarly, companies that produce and sell natural gas, store oil, and produce and supply heat are also losing revenue. These are significant losses. Additionally, companies are incurring extra costs to clear rubble after shelling and rebuild.»
According to Mr. Piddubnyi, rebuilding the same facilities but with better technology will cost about $50.5 billion.
«We want to build a new decentralized system that will be more resistant to war. Instead of 20-30 large power plants, we will have hundreds of smaller ones. However, we still face many unknown variables, making it difficult to determine the final cost of rebuilding and restructuring the energy sector.»
Ihor Piddubnyi says that as of April 2023, more than 10 gigawatts of capacity were damaged in Ukraine. «Back then, we still had a certain margin of safety. Plus, by the beginning of this year, we managed to restore more than 2 gigawatts of capacity.
«Now, about 9 gigawatts of capacity have been damaged or remain unavailable. We have a significant shortage of electricity generation capacity that is not covered by available imports. We need to rebuild a lot of it.»
Yuriy Boyko, Advisor to the Prime Minister of Ukraine and member of the Supervisory Board of NPC Ukrenergo, said that the blackouts that began on May 14 could last until August-September. In winter, there will be a deficit in the power system even at high temperatures.
He added that the winter will be “inevitably difficult” and there is no chance of fully restoring the generation destroyed in two months. It will not be possible to avoid a deficit in the power system in winter, even in warm weather.