"State and perspectives of development of bio-gas industry in Ukraine on the way to energy independence"

1. "State and perspectives of development of bio-gas industry in Ukraine on the way to energy independence" Volodymyr Kupchak, Ph.D., Director on energy saving, STC Investments, Ukraine Open meeting of KievInternationalEnergyclub «Q-club» • 15 December 2011 • Art Gallery of the Ukrainian House

2. Ukraine – dependence from gas import • The structure of energy consumption by Ukraine 2010 • 55% of all energy consumed is imported by Ukraine; sources of imported energy is not highly diversified. • Ukraine's economy relies heavily on energy produced from natural gas. Imported natural gas constitutes 25% of the total energy consumption. • One of the serious barriers for bio-energy development in Ukraine is distortion of natural gas prices for some kinds of consumers. The price for population and communal services is artificially low that renders it impossible to introduce bio-energy technologies in these sectors. • Price of natural gas in Ukraine has been rising constantly since 2005. Ukraine has been trying for months to renegotiate its current gas deal with Russia, seeking a lower price. But the talks have so far failed to yield any tangible results. Natural gas Source: Ministry of Fuel and Energy of Ukraine • The structure of energy consumption 2010 Source: Renewables Information, 2010; EU energy and transport in figures, 2010; State Statistics Service of Ukraine Open meeting of KievInternationalEnergyclub «Q-club» 15 December 2011

3. Renewable energy in Ukraine • Biogas can be an important source of diversification • energy balance of Ukraine. • Ukraine has good preconditions for the dynamic development of bio-energy sector. • The main drivers for this are permanent rise in prices of traditional energy carriers, first of all natural gas, and big potential of biomass available for energy production. • Share of electricity production from renewable sources excluding hydroelectricity* (%), 2009-2010 Source: Renewables Information 2011 • Dynamics of renewable energy, forecast Open meeting of KievInternationalEnergyclub «Q-club» 15 December 2011

4. Key barriers for biogas development in Ukraine: • Subsidizing the price of natural gas for the population and housing, which creates an economic barrier to the use of biogas in these sectors; • Imperfect legislation relatively to "green" tariff on electric energy from biogas: development of technologies for biogas production in Ukraine is almost blocked due to the inability to get "green" tariff for manufacturers; • Absence of state support; • Providing the prevailing support to other types of renewable energy (solar and wind energy); • High rates on crediting; • Bureaucratic barriers; • Necessity of grids modernization; • The need to develop a national program for the development of bio-energy and implement it as soon as possible. Open meeting of KievInternationalEnergyclub «Q-club» 15 December 2011

5. UkrLandFarming Group Overview • #1 land bank • 508 ths ha under management (more than 90% currently cultivated) • 4grainsilos and 110horizontal storage facilities for 1,061 ths tons • #1 egg and dry egg products producer and exporter in Ukraine in 2010 • Over 24 mln of poultry flock • 4.4 bln shell eggs and 10.2 ths tons of dry egg products produced in 2010 • Leading market share in shell eggs and dry egg products sold domestically and exported • #2 sugar producer • 6 sugar plants, 252 ths tons of sugar produced • 2 sugar silos for 40 ths tons storage capacity • #1 seed producer • 6 seed plants, production capacity 655 tons in wheatequiv. per day • #1 distributor of agricultural inputs • 43 distribution centers and 10 sugar distribution locations • #1 cattle headcount and leather producer • Cattle livestock of 63.8 ths heads • 19 meat plants , production meat capacity 535,6 tons per shift • 2 leather plants, 342 ths m2 of leather produced • Harvest figures, ths tons Source: Company date • Livestock and laying hens, ths heads Source: Company date Open meeting of KievInternationalEnergyclub «Q-club» 15 December 2011

6. UkrLandFarming energy consumption • Energy consumption by source, 2011 • Shares of energy types in consumption, 2011 € tons € € ths.MW • ths. m3 • After implementing the project, UkrLandFarming will be able to: • replace 100% of its natural gas and electro energy consumption; • replace 67% of its liquid fuels consumption Open meeting of KievInternationalEnergyclub «Q-club» 15 December 2011

7. Location of biogas plants Chernygyv Lytsk • 30 biogas plants; • area under biogas plants construction 230ha; • volume of manure used as biomass 1,330 ths. tones per year; • volume of silage used as biomass 2,608 ths. tones per year; area under maze cultivation for silage 74.5 ths. ha; • 197 MW of electricity capacity; • potential biogas generation of 394 mln. m3 per year; • generation of electricity – 1394 GWh per year; • generation of thermal energy – 1 498 GWh per year; • production of liquid organic fertilizers – 825 ths. tons per year; • production of dry organic fertilizers – 178 ths. tons per year. Rivne Sumi Zhytomyr Lviv Kyiv Kharkyv Ternopil Poltava Hmelnitskiy Vinnitsya Cherkasi Ivano-Frankivsk Yzgorod Lygansk Kyrovograd Dnipropetrovsk Chernivtsi Донецк Zaporizhya Nykolayiv Kherson Odessa Poultry farms Biogas plants Sympheropol Open meeting of KievInternationalEnergyclub «Q-club» 15 December 2011

8. Analysis of different tariffs scenarios • We analyzed four possible scenarios regarding tariffs for electricity and employed raw materials: • Scenario “1.89” implies the usage of both manure and silage and sale of electricity at the tariff if UAH 1.89 • Scenario “1.61” implies the usage of only silage and sale of electricity at the tariff if UAH 1.61 • Scenario “1.52” implies the usage of both manure and silage and sale of electricity at the weighted-average tariff of UAH 1.52 • Scenario “1.05” implies the usage of both manure and silage and sale of electricity at the tariff of UAH 1.05 • According to our analysis based at Cumulative cash flows, IRR and payback period first three projects are investment-attractive while the last projects “Scenario “1.05” is investment-unattractive (payback period of 10 years) • Employing value of money in a time (discount rate =15%), first scenario is still attractive (DPBP=9.0 years); second and third are less attractive (DPBP ~10.0-11.0 years) while the fourth one is unjustified (DPBP of more than 21 years) Source: Company date IRR Payback period, years Source: Company date Open meeting of KievInternationalEnergyclub «Q-club» 15 December 2011

9. Sources of financing • Attraction of credits from national and foreign banks; • Financing by international environmental funds (UKEEP, NEFCO, venture capital funds and others); • Funding by the Global Environment Facility GEF - UN Development Program; • Financing by the World Bank; • Direct funding from the EBRD and other European institutions; • Lobbying attracting government programs on energy saving - the National Agency for Environmental Investments, State Agency for Investments and National Projects of Ukraine, Ministry of Industrial Policy, Ministry of Agricultural Policy of Ukraine; • Subsidies from the European Union (requires the participation of partners from the EU); • Involvement of local budgets (creating of clusters); • Additional revenue from the sale of emission reduction units; • Additional revenues from the sale of organic fertilizers and thermal energy; • Additional revenues from the sale of accompanying businesses greenhouses, pulp and paper production. • Additional revenues from the sale of compressed natural gas (petrol, natural gas for household and domestic purposes); • Co-financing under share holding manufacturers of equipment for biogas plants. Open meeting of KievInternationalEnergyclub «Q-club» 15 December 2011

10. Дякую за увагу! Open meeting of KievInternationalEnergyclub «Q-club» 15 December 2011