Ukraine pushing hard to swap coal for gas in power sector

By bne IntelliNews August 30, 2012

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Pushing to reduce dependence on Russian gas, Ukraine is speeding ahead with its drive to convert its gas-fired power stations to burn the country' plentiful coal supplies, and has completed conversions at six generation plants, with another five in planning, Prime Minister Mykola Azarov announced on August 29.

Kyiv has been talking about weening its power industry off gas for nearly 20 years, but it has taken a long drawn out fight with Moscow over gas prices to push it into action. Bleeding money to pay for increasingly expensive Russian gas imports, the government has become ever more desperate to find an alternative fuel source. Being home to some of the largest coal deposits in Europe, it doesn't have to look too far.

Coal is tarred with the reputation for being a "dirty fuel," but modern advances in cleaning and scrubbing technology have made it an increasingly viable alternative in recent years. "Advanced technologies for coal use in thermal power and industry open up completely new prospects for the industry," Azarov told a Cabinet meeting, as he announced the rapid progress on the conversion programme.

Azarov told the assembled ministers that the government has already converted six power stations, and plans to convert another five. Once complete, the programme will allow the country to cut gas imports by over 3bn cubic meters, saving it around $1.2bn annually.

The programme is part of a government drive announced earlier this year to reduce gas imports from Russia to 27bn cm this year, from around 40bn cm in 2011. Ukrainian gas consumption fell 7.3% year-on-year, or by 2.6bn cm to 32.96bn cm, in the first seven months of they year, reports Platts. At the same time, consumption of coal rose 5.7% to 34.99m tonnes over the same period. The country's thermal power plants helped by boosting consumption 4.4% year-on-year to 18.91m tonnes, according to the energy and coal industry ministry.?

The investment cost of the conversions is likely to be financed by China's Development Bank, which has signed off on a preliminary agreement for a $3.65bn credit line to Kyiv. As part of the programme, Ukraine needs to build gasification facilities, and said in early August that it is in talks over using Chinese technology.

"With implementation of the first five projects under this agreement, one could expect such results as early as the next few years: a major strengthening of the country's energy security, further reduction of natural gas import by over 3bn cubic meters and annual savings of up to $1.2bn on average," the prime minister said reports the Kyiv Post. The government will earn further savings worth UAH150m ($18.7m) as the price of gas to households in the form of heating costs are subsidized by the state.

The project has the further benefit of increasing the demand for coal at domestic mines and so creating approximately 15,000 new jobs. Azarov said that the five plants still set for conversion will create demand for 10m tonnes of coal annually in "the near future." Ukraine produced a total of 50m tonnes of coal over the first half of this year, up 6% year-on-year the prime minister added.

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