What global trends do you see in the development of the energy sector?
The main trend is a change in the architecture of the energy sector. These are not only technological changes and transit to renewables. The change in architecture is much broader. It is a different economic model, a different model of transportation, consumption, generation, and management. Today, we witness an important transformation that may be compared with such developments as the invention of the steam engine or the first wave of industrialization or the invention of the personal computer and creation of the Internet. In fact, an example with personal computers and the Internet most accurately illustrates what is going on in the energy sector today. Because, the energy sector is decentralizing. Nowadays under the old architecture, energy was predominantly produced at large centers of generation and then transferred to the consumers. This situation caused the emergence of natural and artificial monopolies at every stage: from fuel extraction for generating facilities and to transportation and distribution operators. And the main principle in the energy sector was: "We generate as much as will be consumed," that is, there was virtually no power energy accumulation.
That was neither bad nor good. That architecture stemmed from the old type of economy, development of technologies, and the social order.
Today, humanity forms a different "ideal world picture" dominated by the desire of people, companies, countries to be less dependent on any monopolies, to have their own sources of energy. And that dictates new requirements to the energy sector.
Obviously, that will not happen tomorrow, or even the day after. It is a question of several decades or even longer. But, in my opinion, we have already passed the point of no return, and then it is only the question of what countries and at what time will implement the new architecture in reality and gain advantages in relation to others, more sluggish ones. And it makes sense to look back at the historical examples I started with – the steam engine and personal computers that, in their time, provided such a resource for the countries and communities.
And how is this concept, the architecture, used in practice? In particular, in Ukraine?
Even now, each company and even each person can buy equipment and have their own generating facilities at the production site or at home. They can meet their needs in electricity and sell the surplus to others. The next step is the development of the conservation technologies that enable the daily and seasonal accumulation of power, by so doing completely overturning the principle of the old energy sector "generate as much as will be consumed." Instead, the energy sector starts working under a new principle: generate when it is most efficient, consume when beneficial. This is a fundamental change indeed: a change because it nullifies a reason for the existence of many monopolies: in extraction, generation, transportation, and distribution of power. Enterprises can build their own power plant of the necessary or even surplus capacity and manage their energy balance independently. Or instead of building it themselves, make a contract with their neighbor 'over the fence' and buy energy from him. Notably, the 'neighbor' will be interested in providing better-quality service at a lower price than a former monopolist. Indeed, any monopoly is not interested in being client-centered. Each enterprise struggles for its clients to sell them services, products, goods. But this is not interesting for monopolies, because the buyer has to buy from them anyway. That has changed today, and I think that this change is more important than any technological innovations.
Therefore, we have made the first step towards the new architecture of the energy sector, new principles of generation and consumption.
But to do that a company or a person has to know the energy sector well. Or are there any box solutions, perhaps?
Yes, a generating company should ensure the respective quality by voltage, continuity of supply, and other criteria. It is not enough to install panels on your roof or a wind turbine in your yard. It should be a complex system: generating facilities, management system, storage system, and so on.
Today, such systems are designed, developed, and tested all over the world, in particular, in our company, too. We have already developed and are testing a hardware and software complex that meets those requirements. This complex works. The next task is to make it more economically attractive. Technically, we can already guarantee the sound provision of an enterprise with power exclusively based on our hardware and software complex, where the main generating facilities are solar panels. However, a high price of accumulating facilities increases substantially the costs of this power at night and in winter.
However, we have already found a solution here, too. It is a power mix from different sources. At peak load, we take our cheap electric power, for instance, from our solar plant. And at night or on a cloudy winter day, we buy an additional discrepancy directly on the electricity market.
Another way that is also used in practice is a change in the enterprise consumption schedule. To give you an example, take a ceramics factory in Lityn. There, most power is consumed by ceramics furnaces. The factory needs cheap electric power for 5 hours a day, and it does not matter whether this power is available at day or night. The main point is to have 5 hours of no-break and cheap electricity. Monopolists from the oblenergo offer buying power at a weighted average price. And our solution can give more affordable power; it only takes adjusting the factory's work schedule. And there are more and more such examples every day.
So, doest it mean that your solution is an interim solution on the transition to the new architecture of the energy sector?
Exactly. There is no point in waiting for the 'ideal world,' it makes sense to start building it already to be the first to benefit from its advantages. At the moment, we can already build a completely decentralized energy sector, but its power will be more expensive as yet.
Respectively, we took an approach of partially using decentralized generation and partially a centralized one. The net effect is a lower price for electricity than buying in a centralized grid and a significantly higher level of quality and services than monopolists offer.
For whom is your model beneficial and cost effective?
We have designed this model, first of all, for enterprises. It is important to understand a power consumption schedule. First of all, it will be interesting for the companies that consume more or as much as in winter as well as for companies with a production cycle when the consumption peak may be shifted to the daytime. For instance, companies that use powerful freezers: food manufacturing industries, confectionary factories in particular, and others. For example, there is a company called Agrana Fruit located not far from us – they have large-scale freezing: fruits, jams.
At the same time, having analyzed experience of testing and business implementation, we see that its use is much broader. Apart from plants, factories, agricultural manufacturing facilities, this model may be used in the municipal infrastructures of cities and amalgamated territorial communities (OTG). Water services companies, district heating providers, and other communal enterprises – these are also enterprises, and they need cheaper and higher quality power.
And what is about the total power supply of cities or OTGs?
At the moment, no. Perhaps, it will be the next stage. An advantage of our solution is in a shorter path between generation and consumption. And in case of cities and especially OTGs, an issue of transportation arises, that is using oblenergo's utility systems, and here, again, we face the monopolist and its flaws. At the same time, we can divide a city or OTG into decentralized power clusters, so to say, separate enterprises, and introduce our model step by step. However, as I have already said, it will be the next step.
What is the economic justification for your model?
I can say from the experience that our model gives at least 5-10% of savings on electricity on average per year. For enterprises where the costs of energy make for 30% or more in the production costs, it is tens of millions of dollars in profit or additional development opportunities every year.
What is an algorithm for implementing your model in practice?
In the first step, we perform economic and engineering analysis. Together with the clients, we study the structure of their power consumption and its optimization opportunities. We assess the economic feasibility of the project. At the same time, we study the engineering and technical component – the connection to the power grid, existing oblenergo's capacity quotas, location of the enterprise, and so on.
Based on this analysis, a business plan with specific figures and dates is developed.
Then we invest in the project. We work as contractors, co-investors, and investment consultants all in one. Everything depends on the results of the cost-effectiveness analysis.
The next step is the construction and setup of the complex. Then, the operation with our professional and management resources. The implementation of such a model requires a high level of the comprehensive expertise that we have. As a result, the customer receives electric power at the reasonable price and higher-quality service, with no headache of dealing with monopolists and no problems of managing their energy system with all the difficult issues: maintenance support, imbalance fines and so on.
In your opinion, what holds back the transition of the Ukrainian energy sector to the new architecture?
If we cast aside all populism existing around and even inside the energy sector, the main reason is a paradigm of thinking within an old model of the energy sector that needs to be changed. Here, I suppose, are two factors that should be considered: the environment and the economy.
I do not remember such a warm winter in 45 years. Respectively, there are countries that pay attention to this problem, and there are those neglecting it: "we have a working infrastructure, and we can get the most of it." You will not build new generation within this 'logic,' you will not even make thermal power plants install new filtering systems. You will simply make the most of what exists. But other countries invest significant resources in constructing a new energy sector today, which is smart, distributed, environment-friendly, and economically efficient.
For 4 years we, all our country, have been investors of a new clean, eco-friendly energy sector.
Is it really worth ruining all those years, a contribution of each Ukrainian, now? To my mind, no. We are not so rich to lose the invested and to get back to the inefficient and obsolete generation.
That is why our next task is the economic one: to make the new generation cheaper than the old one all year long, 24/7. It is time to forget about feed-in tariffs; we already have high enough amounts of renewable generation. Today, it is necessary to build cost- effective models, starting from the transitional model, for instance, from the mixed one that I have described.
It must be understood that progress is inevitable; it will occur in any case. The only question is when it will happen and how we will respond to it.