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Hydrogen is gaining increased recognition in Ukraine as a prospective energy source that will assist the country to meet its decarbonisation targets. The EU has noted Ukraine as among the countries with a high potential for renewable energy, and more specifically for low carbon hydrogen, in its Hydrogen Strategy. Ukraine has been encouraged by the EU to join the Clean Hydrogen Alliance, which it is expected to do soon.
1
https://ec.europa.eu/energy/sites/ener/files/hydrogen_strategy.pdf
In 2018, the first industry association aimed at the promotion of low carbon hydrogen energy, the Ukrainian Hydrogen Council, was established in Ukraine.
2
https://www.epravda.com.ua/rus/news/2017/12/15/632092/
As a consequence, institutions engaged in the development of hydrogen in Ukraine are being rapidly advanced.
Despite the above, the practical application of hydrogen in Ukraine is still limited. Hydrogen technology is at a very early stage of its development in Ukraine and, consequently, the respective market has not yet been formed. As a result, no significant M&A activity and investments have taken place in Ukraine so far.
However, the interest in hydrogen from the private and public sectors continues to grow, particularly in the light of a perspective application of a EU Carbon tax to Ukrainian carbon intense industries which could become a significant barrier for export of their goods into the EU (e.g. steel, cement and fertilizer production) making decarbonisation of such industries a top priority. As a result, there are significant plans for development of Ukrainian hydrogen economy and the first projects in the area are starting to be implemented.
As at August 2021, there have been few instances where financial institutions have supported the development of hydrogen projects in Ukraine.
10
http://www.ukrgasbank.com/press_center/news/12141-ekobank_otkryvaet_put_k_avtomobilyam_na_vodorode_v_ukraine
However, due to the rapidly growing, world-wide pressure for commercial banks and financial institutions to opt out of financing carbon intensive, fossil fuel energy projects, it is likely that their attention will instead turn to providing debt financing to stakeholders investing in new, low carbon technologies in Ukraine, including hydrogen projects. The promotion of hydrogen technologies will be important, given that the infrastructure required for the development of low carbon hydrogen projects is likely to involve significant capital expenditures.
2. Market prospects for hydrogen
The potential for hydrogen to enhance the economy is beginning to be recognised in Ukraine and there is a significant and growing interest in the technology.
In connection with this, ambitious plans for development of hydrogen transportation and production opportunities are being discussed by the market players (please see Figure 1 below):
Figure 1. Hydrogen transportation and production opportunities. Source: Operator of Ukrainian GTS
In addition, naturally occurring hydrogen accumulations were discovered in one of the regions of Ukraine in 2019
19
https://elektrovesti.net/69285_ukrainskie-uchenye-nashli-prirodnyy-vodorod-v-nedrakh-rovenskoy-oblasti
which can, in theory, be extracted. Ukraine does not yet have the technologies required for extraction of naturally occurring hydrogen and so such technologies must be implemented first to capitalise on this discovery.
As for the transportation of the produced hydrogen, the Ministry of Energy of Ukraine considers that it could be feasible for hydrogen to be transported in compressed form via trucks and railways (up to 250 km), in liquid form via trucks and railways (between 250 and 1,000 km) and in gaseous form via GTS (over 1,000 km).
Blending of hydrogen is also being considered by the Operator of the Ukrainian GTS and is actively promoted by experts, industrial associations, and market players.
21
https://delo.ua/business/kak-ukraine-razvivat-vodorodnuju-ekonomiku-ek-364696/ https://www.epravda.com.ua/projects/greendeal/2020/06/24/662145/
Promotion of this method is likely to increase as the Operator of the Ukrainian GTS became a member of the European Clean Hydrogen Alliance
22
https://kosatka.media/en/category/gaz/news/operator-gts-ukrainy-stal-chlenom-evropeyskogo-alyansa-s-chistogo-vodoroda
and executed in July 2021 an Agreement to formalise cooperation on low-carbon hydrogen with EBRD.
23
https://www.ebrd.com/news/2021/ebrd-and-ukraine-boost-lowcarbon-hydrogen-development.html
The operator of Ukrainian GTS has also set up a dedicated think tank focused on decarbonisation of its infrastructure and is currently, among others, developing its hydrogen strategy and R&D program with expected implementation of the first pilot projects after 2025.
Furthermore, in July 2020, Regional Gas Company, the Ukrainian gas distributor, and the National Academy of Science of Ukraine, started studying the effects of using of hydrogen in gas networks on 5 test sites in Ukraine.
24
https://kosatka.media/category/gaz/news/rgk-sertificirovala-specialistov-dlya-vodorodnyh-ispytaniy
The study will be performed until the end of 2025 and on different stages will include static and dynamic tests on the test sites, as well as experiments on existing sections of networks in several consumer clusters with up to 100 households.
3. Challenges facing hydrogen projects in Ukraine
3.1 Legal framework
Currently, the regulatory framework for hydrogen is fragmented due to the so-far narrow application of hydrogen in industry. The regulation of hydrogen is discussed in more detail below.
3.2 Financial support and incentives
With regard to hydrogen projects, there have been no instances of the provision of financial support from the government to date.
Furthermore, there are no established incentives for the development of hydrogen projects in Ukraine. In light of the rapid development of renewables in Ukraine, which has raised balancing issues for the Ukrainian energy system, and a transitioning to the competitive scheme for awarding state support to renewables through auctions, some market players have called for the extension of the renewables auctions scheme to include hydrogen storage projects. Such projects will be used to balance the Ukrainian energy system.
25
Іван Гайдуцький у своєму виступі запропонував розповсюдити практику «зелених» аукціонів з ВДЕ також на проекти зі складування енергетичного водню. Ці пілотні проєкти доцільно очікувати від таких структур, як «Нафтогаз України» чи «Укренерго». Представник ДП “ВУГЛЕСИНТЕЗГАЗ УКРАЇНИ” підкреслив важливість просвітництва з метою привернення уваги наших громадян до впровадження водневих технологій.
First phase (2021-2023), focusing on the assessment of the Ukrainian economy for “green transition” and launch of the hydrogen economy;
Second phase (2024-2026), including policy prioritisation, hydrogen market and supply chain development and demonstration, scale-up; and
Third phase (2027-2029), putting together a smart portfolio of policies and strategic hydrogen project development, regulatory reform, and technological development.
The draft of the Ukrainian Green Deal – a document inspired by the European Green Deal which the Ministry of Energy and Environmental Protection of Ukraine was also presented on 21 January 2020. It envisages an increase in the industrial production and use of hydrogen as an energy resource and the replacement of combustion engine vehicles with electric and hydrogen vehicles.
34
https://mineco.gov.ua/news/34731.html?fbclid=IwAR0icQXBd8pBVJvMNP1Bj6g3zP4kFSDMx3BChUCC4tFFR2wgdRqRzEoM13o https://mineco.gov.ua/files/images/news_2020/02032020/%D0%9A%D0%BE%D0%BD%D1%86%D0%B5%D0%BF%D1%86%D1%96%D1%8F%20%D0%B7%D0%B5%D0%BB%D0%B5%D0%BD%D0%BE%D0%B3%D0%BE%20%D0%B5%D0%BD%D0%B5%D1%80%D0%B3%D0%B5%D1%82%D0%B8%D1%87%D0%BD%D0%BE%D0%B3%D0%BE%20%D0%BF%D0%B5%D1%80%D0%B5%D1%85%D0%BE%D0%B4%D1%83.pdf
However, the Ukrainian Green Deal has not yet been approved, and is under process of revision.
35
https://www.ukrinform.ua/rubric-economy/3142287-minenergo-pereglane-koncepciu-zelenogo-energeticnogo-perehodu-buslavec.html
The Ukrainian Energy Strategy for the period until 2035, approved by the Order of the CMU No. 605-p dated 18 August 2017, also recognises that, in the next few decades, combustion engines in cars will be replaced by electric and hydrogen engines.
36
https://zakon.rada.gov.ua/laws/file/text/58/f469391n10.pdf
Please note that the Ukrainian Energy Strategy for the Period until 2035 is currently undergoing revision in order to bring it in line with the latest developments in the sector (European Green Deal) and thus, among others, to highlight importance of development of hydrogen economy.
4.2 Specific legislation/regulation
Regulatory framework for hydrogen in Ukraine is fragmented and there is no single legal act regulating hydrogen yet. As such existing laws on energy, transport, and movement of gasses apply to hydrogen projects.
General usage of hydrogen in various technological processes is subject to the technical regulations applicable to:
equipment and protective systems intended for use in a potentially explosive environment;
pressure running equipment;
simple high-pressure vessels;
water heating boilers running on liquid or gaseous fuels;
Furthermore, in Ukraine, in 2020, the technical committee for standardisation of TC 197 “Hydrogen Technologies” was established, which operates in hydrogen technologies in accordance with the adopted international classification of standardisation. Due to the fact that hydrogen technologies cover various industries, the technical committee also coordinates the activities of national technical committees, whose activities are related to the design, construction, manufacture, operation of technological objects, systems and equipment, the production, and use of hydrogen:
TC 8 “Pipes and steel cylinders”;
TC 21 “Dynamic and volumetric pumps”;
TC 25 “Fire Safety”;
TC 26 “Operation of aircraft”;
TC 28 Compressors;
TC 38 “Refined and petrochemical products”;
TC 55 “Methanol, synthesis products”;
TC 80 “Road transport”;
TC 108 “Pipe Fittings”;
TC 133 “Gas natural”;
TC 146 “Materials, equipment, technologies and facilities for the oil and gas industry”;
General requirements apply to hydrogen as a “chemical substance” and these are established by the State standard of Ukraine DSTU 2655-94 Hydrogen.
Although the production of hydrogen does not require the obtaining of a respective licence as such, it is worth mentioning that there is a general requirement to obtain a licence to produce hydrogen from household or hazardous waste
39
https://zakon.rada.gov.ua/laws/show/222-19#Text
or to generate electricity from hydrogen (which may be also required for the use of hydrogen storage for balancing the energy system of Ukraine).
Electrolysing facilities are required to obtain a special permit for water usage, as they will most likely be withdrawing water from water sources, using the water, and potentially discharging polluting substances back into the water sources.
When using biomass for the creation of hydrogen, the respective facilities will be also subject to either submitting a declaration of waste or to obtaining a permit for the performance of operations in the sphere of waste treatment.
4.4 Use of hydrogen in Ukrainian GTS and gas distribution networks
At the time of writing, the use or transportation of hydrogen is neither foreseen by the Ukrainian GTS in the GTS code of Ukraine approved by the Order of the Regulator No. 2493 dated 30 September 2015, nor by the Ukrainian gas distribution networks in the Code of Distribution Networks approved by the Order of the Regulator No. 2494 dated 30 September 2015.
To be connected to the GTS or gas distribution networks, hydrogen projects must execute connection agreements with the Operator of the Ukrainian GTS or the relevant distribution system operator.
4.5 Use of hydrogen for transportation
On 6 July 2021, the Ministry of Infrastructure of Ukraine published for public discussion the draft Law “On Amendment of the Law of Ukraine “On Automobile Transport” regarding encouragement of usage of transport vehicles with electric engines which, if approved by Ukrainian Parliament, will establish, among others, definition in Ukrainian legislation of a hydrogen vehicle, being a vehicle with an engine which uses energy obtained from hydrogen.
42
https://mtu.gov.ua/news/32930.html
Hydrogen produced from biomass is defined as an “alternative type of gaseous fuel” in the Law of Ukraine On Alternative Types of Fuel.
43
https://ips.ligazakon.net/document/T001391?an=30&is_no_morph=true&hide=true
This law establishes the general principles of treatment of alternative types of fuel, including the possibility for implementation of various state incentives for their development. Otherwise, hydrogen is not covered by legislation regulating production and sale of fuel in Ukraine (which also covers various gaseous fuels).
Nevertheless, it is possible to assume that the development of the hydrogen as a fuel for transportation will result in application of similar principles to it. As a result, the provisions applicable to gaseous fuels should be taken into account in this respect. In particular, the Law of Ukraine on the State Regulation of the Production and Circulation of Ethanol, Cognac and Fruit Spirits, Alcohol Beverages and Fuel establishes a requirement to obtain a licence for the production, storage and sale of gaseous fuels.
44
https://ibuhgalter.net/ru/articles/333) (https://zakon.rada.gov.ua/laws/show/481/95-%D0%B2%D1%80#Text
Furthermore, the operation of hydrogen projects will include the performance of certain works and the operation of certain equipment which pursuant to Ukrainian law are considered (or are likely to be considered) as creating occupational risks. Performance of such hazardous works (including usage, production, storage, and transportation of hydrogen, as well as gas hazardous works)
48
https://zakon.rada.gov.ua/laws/show/1107-2011-%D0%BF#Text
and the operation of hazardous equipment (including of equipment for usage, production, storage, and transportation of hydrogen)
49
https://zakon.rada.gov.ua/laws/show/1107-2011-%D0%BF#Text
is only allowed under a respective permit. In addition to the above, the performance of welding, storage of containers, cisterns and other vessels with hydrogen must also be performed based on the declaration of compliance with labour safety requirements.
In addition, hydrogen projects are likely to be considered as “hazardous projects” (in particular, facilities for hydrogen production and hydrogen pipelines).
50
https://ips.ligazakon.net/document/RE12160?an=1&is_no_morph=true&hide=true
Under the Law of Ukraine On Facilities of High Hazard, the owner of projects that use (produce, process, store or transport) hazardous substances is required to prepare a declaration of safety and assess such projects in order to identify whether the facility qualifies as a highly hazardous project (based on the quantity of a substance and its hazard class).
4.7 Construction of hydrogen projects
Law of Ukraine “On Regulation of City Building Activities” provides for three classes of construction projects, depending on possible damage to property and hazard to health and safety of people:
CC1 (objects with minor consequences);
CC2 (objects with medium consequences); and
CC3 (objects with significant consequences).
Considering the classification of hydrogen as a hazardous and explosive gas, the majority of hydrogen projects are likely be classified as having medium (CC2) and significant (CC3) consequence classes and, thus, requiring expert examination of their construction design and obtaining of the construction permit.
Furthermore, the companies (contractors) that will be performing the construction of the hydrogen projects will likely be required to hold a valid construction licence.
4.8 Transportation, import and export of hydrogen
Liquid or compressed hydrogen is considered as dangerous cargo and thus additional permitting and licensing requirements to its transportation are applicable.
51
https://ips.ligazakon.net/document/re16196a?an=13813) (https://ips.ligazakon.net/document/reg7879?an=13225
Transportation of hydrogen across Ukrainian customs border is also subject to additional ecological control.
52
https://ips.ligazakon.net/document/MK111178?an=1&q=%D0%B2%D0%BE%D0%B4%D0%B5%D0%BD%D1%8C&is_no_morph=true&hide=true&snippet_id=snippet_262082) (https://ips.ligazakon.net/document/mf16032?an=18383
5. Regulatory bodies
Since there are no hydrogen-specific provisions yet, mentioned above general provisions concerning the construction and operation of equipment and labour safety will apply to hydrogen.
The Ministry of Energy and the National Commission for State Regulation of the Energy and Public Utilities Sector are responsible for regulating the usage of the hydrogen in the electricity and gas spheres and establishing the relevant regulatory policy.
The Ministry of Environmental Protection and Natural Resources regulates the production of hydrogen in relation to waste treatment, the extraction of natural accumulations of hydrogen, as well as other environmental aspects of hydrogen projects (such as environmental impact assessments).
6. Upcoming developments
Although it is expected that the detailed regulatory framework for usage of hydrogen in Ukrainian economy will be drafted in the future, no clear framework has been established yet.
This legislation will need to include the following in order to support the development of a hydrogen economy in Ukraine:
Ukraine, with the support of the World Bank, is also in the process of preparing its Hydrogen Strategy. In particular, in August 2021 the first meeting of the working group of the Ministry of Energy for development of the Hydrogen strategy
57
https://www.kmu.gov.ua/news/robocha-grupa-z-rozrobki-vodnevoyi-strategiyi-ukrayini-provela-pershe-zasidannya
was held and the tender for choosing of the experts which will be developing the hydrogen strategy was announced by the World Bank.
Nevertheless, industry associations are already researching and developing hydrogen deployment across Ukraine, looking towards 2035 for deployment.
58
https://blog.liga.net/user/arepkin/article/33656
It is also worth noting that various hydrogen related projects are starting to be unveiled in Ukraine, namely:
During a meeting with the President of Ukraine on 6 August 2020, Norwegian company NBT announced its plans to build a wind power plant with a capacity of 800 MW and electrolysis-based hydrogen production facilities with a capacity of 200 MW in Zaporizhzhia region of Ukraine.
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