Serhii Nahorniak, Member of the Verkhovna Rada of Ukraine Committee on Energy and Housing and Communal Services
The State Successfully Fulfils Obligations for Preferential Energy Reconstruction Loans
11.11.2024 18:20
Serhii Nahorniak, Member of the Verkhovna Rada of Ukraine Committee on Energy and Housing and Communal Services
The State Successfully Fulfils Obligations for Preferential Energy Reconstruction Loans
11.11.2024 18:20

At the end of July, banks issued the first loans to businesses and households for building their own mini power plants under state preferential loan programs. The state fully covers interest on loans for purchasing solar and wind power equipment, providing benefits to the population. In a brief interview with Ukrinform, Serhii Nahorniak, MP, a member of the Verkhovna Rada Committee on Energy and Housing and Communal Services and Head of the Subcommittee on Energy Conservation and Energy Efficiency, highlighted the need for further development and simplification of these programs. He assures that the state will fulfill its obligations.

– In the third year of the war, state preferential loan programs have become perhaps the main driver of the financial market. Moreover, for the first time in the history of independence, the state guarantees to fully cover interest for potential borrowers, as long as they take out a loan. This applies to loans for the public, with terms of up to 10 years at a 0% interest rate, for purchasing solar panels and wind turbines to generate their own power. Do you think this program will fully meet the population’s needs? How many resources will be required for this?

– The loan program for individuals to purchase renewable energy stations is an important step toward improving energy supply for consumers. However, it may not completely change the situation, as even with solar power stations, questions arise about how consumers will manage in winter. For instance, the program does not cover solar heating systems or heat pumps, which are essential for providing heat, rather than electricity, during the colder months. Therefore, I believe certain aspects of the program should be simplified to encourage wider adoption.

We must also consider risks it might trigger.  For example, the NEURC’s (National Energy and Utilities Regulatory Commission) Resolution “On Approving the Rules of the Retail Electricity Market” does not specify detailed conditions for installing solar stations on properties. In simple terms, rapid expansion of household solar panels could lead to haphazard placements on apartment balconies, much like air conditioning units or satellite dishes.

The Cabinet of Ministers has already implemented certain measures to reduce the cost of energy imports by waiving import duties and VAT

Moreover, if preferential credit support triggers a surge in demand for solar power stations, supply issues could arise on the market. Most of this equipment is currently imported, and orders may take several months for delivery. Additionally, we are seeing a noticeable increase in its cost. Nevertheless, these issues are unlikely to pose critical challenges for the preferential loan program’s development. The Cabinet of Ministers has already implemented certain measures to reduce the cost of energy imports by waiving import duties and VAT. 

– Do you think there’s a risk that banks might be tempted to abuse interest rates if the state guarantees them fully?

– This is unlikely. Cabinet of Ministers Resolution No. 673, which sets out the procedure for providing financial state support to individuals installing power generation systems in their households that produce electricity from alternative energy sources, establishes uniform terms for all banks, making the resolution the standard for determining interest rates.

I discussed some aspects outlined in the resolution with energy efficiency experts and bank representatives. Certainly, they have differing opinions. As for the rate, it is calculated based on the three-month UIRD rate plus 7% (from English, Ukrainian Index of Retail Deposit Rates, an index of retail deposit rates for individuals calculated by Thomson Reuters using a methodology developed jointly with the National Bank of Ukraine – ed.). So currently, a preferential “energy” loan for citizens costs the state slightly over 20%. However, this rate is dynamic, meaning that if deposit rates fall, the amount of compensation from the state budget will also decrease.

The program is not as affordable for borrowers as it might seem

– There is an opinion that preferential lending under the state program somewhat weakens banks’ risk management, prompting them to issue more loans and encourage clients to take out these loans rather than their own commercial credit options.

– Banks lend using funds collected from the market, which means they bear the overall risk if a client defaults. I don’t believe banks will strongly favour promoting preferential loans, as the state budget’s interest compensation does not fully address the banks’ need to attract resources for these loans.

Financially speaking, the program is not as affordable for borrowers as it might seem. Even though the state covers the interest rate, borrowers still have to repay the loan principal. It amounts to thousands of hryvnias and represents a significant financial burden for the average Ukrainian. Consequently, demand for this program may be lower than expected.

Furthermore, the fixed loan cap of UAH 480,000 presents an added challenge, as the cost of equipment has risen due to heightened interest in installing solar power stations. Thus, some borrowers may not be able to stay within the budget needed to build their own energy facilities.

I don’t think there will be extraordinary demand for this program from the public

– How can the stability of preferential loan terms be maintained over such a long period? After all, any issues with the state’s guaranteed compensation payments would again undermine trust in the government. Isn’t there a risk that people will take out loans, say, at the current 20%, only to be told in a few years that the budget lacks funds for interest compensation?

– Concerns about the state fulfilling its obligations under this program are unnecessary. Despite the significant budget deficit, commitments under other similar programs are being successfully met, and there are no plans to cut their funding. It’s important to note that even in these challenging times, the government is offering various solutions in the energy sector. Moreover, I don’t think there will be extraordinary demand for this program from the public, as many individuals who had the financial means to purchase and install solar power stations have already done so.

– How active do you think donor support will remain for energy independence and efficiency initiatives?

– Donor support is extremely important for both generation restoration and energy efficiency measures. It’s quite possible that for some projects involving the installation of solar power stations for municipal and social facilities, assistance from international partners will be needed. However, the administration of such initiatives is crucial. It’s essential to communicate with local authorities, understand their perspectives, and see how they envision these processes.

For example, at my invitation, Michael Trainor, head of the USAID Energy Security Project, recently visited Cherkasy. Along with the USAID delegation, Mayor Anatolii Bondarenko, and Pavlo Karas, director of the municipal heating network company Cherkasyteplocomunenergo, we reviewed the work of cogeneration units provided to Ukraine through one of USAID’s programs. Thanks to these cogeneration units, local heating companies generate electricity for their own use and sell it to the market, meeting the current electricity deficit. This not only provides revenue for the enterprise, allowing for further equipment modernisation, but also helps to partially reduce the cost of heating services. Overall, over the past six years, thanks to energy modernisation, Cherkasyteplocomunenergo has reduced its electricity consumption by half, and compared to 2008 levels, it has also halved its gas consumption. If banks and the state join in financing similar projects with joint preferential lending programs, heating companies could eventually become active players in the distributed generation market and act as electricity suppliers. This would be a step toward strengthening our energy system. Today, as tariff policies are being liberalised, it’s essential to inform businesses and the public on steps they can take to save money and conserve both personal and public resources.

Maryna Nechyporenko, Kyiv

Photo: MP’s Press Service

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