07.03.2025
Important aspects that concern everyone, the role of Oschadbank in the development of the energy sector of Ukraine, the challenges and prospects of the industry and financial instruments that can contribute to its sustainable development. About this in the Big Interview with Yuriy Katsion, Deputy Chairman of the Board of JSC Oschadbank.
Host: Andriy Kulikov, journalist, TV and radio host, media expert.
– So, dear ones, today we have a big interview on the Energy Club platform. And there has never been such an interview before. Not only because it will be big, but also because it will be about very important aspects that affect everyone or fill each and every pocket. Yuriy Katsion, Deputy Chairman of the Board of JSC Oschadbank, responsible for corporate business. He has more than 27 years of experience in the banking industry. During this time, he has gained tremendous experience in developing corporate business, implementing complex investment projects, structuring transactions involving instruments of international financial organizations. Today, with Mr. Yuriy, we will talk about the role of Oschadbank in the development of the energy sector of Ukraine, about the challenges and prospects of the industry. And, of course, about financial instruments that can contribute to its sustainable development. So, first. Oschadbank is a leader in energy financing with a 31 percent market share. What are the main achievements of Oschadbank in financing the energy sector in recent years that you consider the most important? And, by the way, how many recent years do you count?
– Greetings! Thank you very much for the introduction. Indeed, it is an interesting question when to start counting and what to consider the beginning. Probably, if we are going to talk about energy, it is worth mentioning that since the distant 2005, Oschadbank has been designated as an authorized bank for servicing the electricity market. Such a thoughtful title obliges us to the fact that we must not just be a servicing bank, providing our clients with ordinary operations. We must also perform a specific function, a specific role: to be a certain guarantor of settlements, a guarantor of the correct functioning of the market and everything related to it. Later, in 2017-2019, we were very deeply involved in the reform of the electricity market. We actively participated in the development of legislation on the transition to European, or rather, this is what we called competitive market principles and rules of operation in this market. We continued to perform the function of an authorized bank and thus gained truly unique experience in the field of market operation, market specifics, details of the relationship between all participants – energy generating companies, coal mining enterprises, energy supply companies, state operators responsible for the supply of electricity, purchase and payments for electricity.
– Mr. Yuri, since you mentioned 2005, it means that both Oschadbank and you went through the most difficult stages together with the entire country. And you also encountered the war back in 2014, while performing your function, and then – a full-scale invasion. How did the war in general and the full-scale invasion affect Oschadbank’s activities in the energy sector? What new challenges have emerged? Well, since everyone says that a crisis is also a time of opportunity, maybe opportunities have emerged?
– If we talk about the impact of the war and our response to these events, the first challenge for us was the loss of energy assets that were located in the already occupied territory in Crimea. Later, energy facilities in the Donetsk and Luhansk regions were added. At first, this was simply seen as a loss of our investments. Given the specifics of these regions, there was a huge number of renewable generation facilities based on wind or solar power. Accordingly, in one Sberbank alone, we lost more than 700 million euros in projects and capacity in 2014. If we talk in megawatts, this is more than 500 megawatts of generating facilities. Later, in 2022, we faced another problem. We didn’t just lose energy assets due to their occupation, they were deliberately destroyed as a result of missile attacks by Russia. And here other solutions and mechanisms for supporting existing companies were needed. And the most fantastic thing is that we even continued to finance new investment projects in terms of creating new generating capacity, despite the fact that to this day there is a risk of losing both direct investments and the loss of these facilities due to their direct destruction.
– Mr. Yuri, now we are seeing a significant increase in decentralized generation projects. To what extent is this dictated by the need for energy sustainability? What types of such projects are currently in greatest demand?
– If we talk about decentralized energy, it is worth remembering that this is not something new, invented exclusively now, during wartime. This is a conscious strategy of the state to develop the energy market. And if we look at the plans of the state operator NPC Ukrenergo, what the structure of electricity production should be in order for it to be safe, high-quality, and reliable, then we can see a corresponding section on decentralized generation. It was originally intended directly to provide a service to ensure the quality of electricity, covering traditional peak consumption periods. These are the morning and evening hours when everyone returns home from work and is maximally connect all household appliances that consume electricity. And now, in the process of adapting these projects to today’s reality, we have realized that it is not just about quality – it is about survival, about ensuring the sustainability of business operations and normal living conditions. Because if we have in communities or in certain regions an appropriate volume of decentralized generation that can continue to produce electricity even in a blackout situation, then, accordingly, this region or this community can be autonomous for a certain period of time and continue to provide its consumers with an electricity supply service. This is very important. Everyone understood this. And a huge number of private business companies, and later utility companies and state companies joined them, began to develop projects on decentralized generation.
The fastest to implement are projects on gas piston technology. This is cogeneration, which produces both electricity and heat simultaneously. If there are certain capacities to supply it to the consumer, it is the most successful from the point of view of the economic model: it has a sufficiently short payback period, and most importantly, it guarantees energy security for both a specific enterprise and the region where it will be built. Having built a sufficient number of such facilities, we solve several problems at once. We care about energy security, self-sufficiency in electricity and the sustainability of our business, which should be provided with electricity as long as the enterprise operates, and not when it is sold, and in volumes, limited or not. On the other hand, this provides the opportunity to maintain a sufficient level of voltage in the network and cover short-term peak loads on the network. Today, Ukrenergo is trying to stimulate the development of such projects as much as possible: it holds appropriate auctions for the sale of capacity to provide services in the auxiliary services market. These are specific markets, the names of which say little to ordinary citizens. But this is a segment of our electricity market. Today it consists of the intraday market, the day-ahead market and the balancing market. The balancing market provides services that are designed to even out these imbalances in the production and consumption of electricity.
– The changed circumstances have made many of us familiar with concepts that we had not previously paid attention to. For example, critical infrastructure. How have the requirements for ensuring the continuity of energy supply changed specifically for critical infrastructure? And what financial instruments does Oschadbank offer for such projects?
– We are very pleased that absolutely all segments of business and government agencies are aware of what energy security, energy protection and protection of critical infrastructure facilities are. In today’s conditions, when we do not know where it may fly, it is not always possible to resolve the issue immediately and in the best way that will fit into the traditional idea of investment and bank financing. Of course, the issue of restoring energy supply is resolved first. The most traditional way is to supply conventional generators that run on diesel. But these are very short-term solutions, and they should ensure the supply of electricity for the period while the restoration work is ongoing and power and voltage are supplied to consumers.
And if we talk about the medium-term strategy or long-term planning and protection of facilities, everyone began to think about the need to find solutions that will ensure uninterrupted operation. One of the leaders, and probably the first to do this, was the financial system. It did not go for it immediately and not in the context of a project that could make something cheaper or have economic benefits. It solved the issue of ensuring the operation of branches even in the conditions of a blackout, because people still needed to be provided with payment services, they should be able to pay for something, withdraw their pension or receive funds in order to live a normal life. Accordingly, at the initiative of the National Bank, the Power Banking project was created – a network of branches throughout the financial system of Ukraine, which was supposed to work under any conditions, be powered, have secure communication channels, which, even if the power supply is interrupted, will continue to function and provide services to the population and business.
The next stage was the rapid movement of our municipalities. Most social facilities in municipalities now already have some experience in implementing their own energy supply projects. This is, first of all, the installation of solar panels on the roofs in combination with batteries and inverters, which allow during the day, during the production period, to accumulate this energy in batteries and for a certain time after that, even when the sun is no longer there, to use it. This solution allows you to provide up to 50 percent of the time of power supply to these facilities. It is very successful, not as expensive as, for example, projects from the construction distributed gas-piston generation, and is multiplying very quickly. Today, most banks have switched to a similar format of uninterrupted operation using batteries, inverters, which work even after the power supply is interrupted. Social facilities are also moving in this direction – schools, hospitals, kindergartens, higher education institutions, and other facilities. The next largest are utility facilities that provide critical services to the population: water utilities, gas supply companies, and others. They can also be quickly equipped with appropriate systems that allow you to save on electricity consumption and have an economic effect, covering with your own production those periods when electricity on the market can reach peak levels. You know that we have certain restrictions – price caps. This is the maximum price for electricity at certain hours, established by the regulator NEURC. Accordingly, if you buy electricity during these hours, it will definitely not improve the financial situation of a utility company that, for example, provides water supply services. Replacing such expensive electricity with energy from your own production, especially if it is almost free solar electricity, has a positive economic impact on the financial performance of the company.
– Over the past nine months, Oschadbank’s share in financing the development of generation has been more than 26 percent. What criteria, Mr. Yuri, have become decisive in selecting projects?
– Our share of financing such projects is quite significant – 26 percent. And this is due to the fact that we were one of the first to start working on such projects. And later, most banks joined the initiative proposed by the National Bank and implemented in the form of a Memorandum on Support for the Development of Decentralized Generation.
During 2024, we financed such projects for the equivalent of over 40 million dollars. Mostly, it was decentralized gas-piston generation. However, we did not stop at implementing other types of projects. This means alternative generation – wind farms, solar farms, and so on. And already at the beginning of 2025, we concluded another very successful agreement, which is the first step in the development of a large park with a capacity of 200 megawatts. In one month, we provided the amount of funding that is equal to the amount allocated in 2024 for the implementation of projects in decentralized energy generation.
If we talk about our plans, the pipeline consists of more than 20 projects with a total capacity of over 450 megawatts, which include diversified areas: wind farms, solar stations (there are not many of them, they continue to be interesting, but not in such a large volume as before) and decentralized gas generation, which today is number one in terms of energy security and providing our communities with electricity.
– Mr. Yuriy, you already know so much about energy that I have a question: do you have an energy education, or did you already obtain it during your work?
– No, I do not have an energy education. But I also sometimes have the feeling that I am more of an energy engineer than a banker. This is a certain professional deformation.
– Energy banker.
– Yes, yes. When you try to study projects and talk about their prospects, one way or another you start to delve into this topic, study technical solutions, advantages, differences between different types of generation. And you start to live with these projects, somewhere even burn, you understand that if you can quickly build 1-3 gigawatts of energy capacity in Ukraine, and there are all the prerequisites for this: financing available from Ukrainian banks, the desire of our partners, colleagues – foreign financial institutions to also support these projects, especially in the development of our communities, then this can have a great positive impact on our energy system. We will not need to import expensive amounts of electricity, and this will be financially positive for the entire country. And you are already trying to be such a mentor in the implementation of these projects for business and for our communities. Therefore, we hold a very large number of training seminars and forums where we try to explain what the difference is, the advantage, the prospect of implementing such investment projects, what tools are available for this, and how best to combine and use all this.
I started talking about the fact that we have the opportunity to connect the market with the European Union. This is also a huge opportunity and advantage, because we understand that our markets are connected, and accordingly, pricing will be connected. If there is a deficit in the electricity market in the European Union, the price will increase accordingly, and our producers, provided that we cover our domestic demand with our own production, can export electricity. Accordingly, if we do not have enough electricity, we can import it. But what does this create as a factor for the development of investment projects? We can predict the situation in the markets, the price of electricity and the presence or absence of its deficit. This is very important for financial institutions to understand the basic criteria for evaluating investment projects. In order to understand in what period of time we will be able to receive the funds that we provide as a loan, or for an investor – in what period of time he will be able to return his investments and how much to earn on these investments, he needs to put these very simple things into the model. The average cost of electricity, the average cost of financing that he will attract, and the volume of electricity that he will be able to sell. So, understanding that we now have a constant deficit, and we will not be able to close it in the next 3-4 years – this is the period during which 2-5 gigawatts of capacity can be built, we will definitely not go to a large surplus, and accordingly, there will be demand. And you are already sure at least that you will sell all the electricity that you will produce, and its price will depend on how much demand there is for it within the country, and how much there is a surplus of its production. Even if it exists, it means that there must be an alternative way to implement it somewhere else so as not to lose the invested funds. And such a mechanism exists – it is the European market, which can take it all away.
Therefore, the prerequisites for the success of energy projects today are more than ever. And I will say more: in previous years, we all developed such projects at the expense of state stimulation of this industry. There is a huge environmental aspect here. A green tariff was approved, designed to ensure investment protection so that in any case your investments have a payback period and do not depend on the market situation. The green tariff today averages 10-12 euro cents per kilowatt-hour for most projects that were put into operation from 2016 to 2020. Converted to hryvnia, this is 4.50 – up to 5 hryvnias. Accordingly, if we look at the market, at the electricity exchange that exists in Ukraine today, we see average prices at the level of 4.50 – 5.50, sometimes 6 hryvnias, and if we add up the average for the last year – approximately 12-14 eurocents. And this is without VAT. What does this say? That the green tariff is already lower than the usual base price on the electricity market. And this insurance or guarantee instrument is not so critical today for the implementation of such projects, because the market itself has become more or less balanced in principle.
Undoubtedly, there are still certain problems and restrictions, the so-called price caps, which do not allow us to import the entire required volume. Because if we have a deficit, then, accordingly, there is a deficit in Europe, and the price of electricity can skyrocket – we saw prices on European RDNs of 200 euros per megawatt-hour due to frosts. This is 8-9 thousand hryvnias per megawatt-hour with the price cap of 7500 established by the National Commission for the Regulation of Energy and Power Generation of Ukraine. Accordingly, no one will buy for 9 thousand in the European Union, having the opportunity to sell in Ukraine for no more than 7500. This will immediately generate losses for the trader. But no one is ready to let the market go completely uncontrolled today, because this will have a huge impact on prices, inflation, and consumer protection. Balanced solutions are needed here. I think they will be found immediately after the end of martial law, and this will improve the situation even more. There are certain problems, but they are generally invisible today and do not prevent the implementation of projects. And this is evidenced by the fact that almost all sectors of the Ukrainian economy are gradually becoming energy-related. Even those companies that were engaged in completely different activities: the provision of services, trade in petroleum products, retail business – they are all either implementing or planning, developing projects for investments in alternative energy, gas generation, and so on. This gives hope that in the coming years we will really be able to build those critically needed 3-4 gigawatts of electricity production, which will somehow solve our problems.
– Yuriy Katsion mentioned the European aspect of our energy sector and its development, import and export. And how did the conditions for cooperation with international financial organizations change during wartime? What new opportunities have appeared? Or, on the contrary, are they now so cautious that such opportunities have decreased?
– Taking this opportunity, I would like to thank our partners very much. We call them IFIs – international financial institutions. They not only maintained their support for Ukraine, but also increased their investments in Ukraine and bank financing limits to support, first of all, small and medium-sized businesses. Now is the period of active signing of agreements on financing municipalities. We are talking about our communities – about the implementation of energy transformation projects both from the point of view of ecology and from the point of view of energy security of the regions.
Today, almost every meeting with our partners begins with their questions: “What else can we help you with, what other tools and products can we offer?” Honestly, in my 25 years of career, I don’t remember so many financial instruments neither from the IFIs nor from Ukrainian banks that are ready to implement such projects in any way. You saw, for example, that last summer an agreement was signed between 19 of the largest banks in Ukraine on supporting projects in the energy sector. The document indicates that banks are ready to increase their risk appetite for such projects and consider their implementation on Project finance terms. This means that we will implement and finance a project that will generate cash flow in the future. And we basically rely only on the existing instruments and assets of the company that is starting to implement this project. Because the traditional, classical, even conservative banking approach says that risks should always be minimized. And after many crises that have occurred in the Ukrainian economy, probably all banks use this conservative approach. They are not ready to finance projects, relatively speaking, from scratch, when you do not have an existing business, when you do not have an additional cash flow that can insure this project if it cannot be implemented, or you do not have an alternative collateral that can be collateral for a new loan to implement such an investment. So, the signing of this memorandum has shown that banks are consciously ready to increase their risk appetite for this type of project. Of course, these are limited things. Everyone determines for themselves the amount of risk that they are willing to take on additionally. But it is precisely in combination with the instruments that already existed, those that exist, and those that international financial partners are ready to provide that these projects have become much easier to implement. Now, the most common combination used is the risk-sharing mechanism from international financial institutions with internal financing from Ukrainian banks. Why? Because the financial system, oddly enough, feels quite confident and stable today. We see huge liquidity in the accounts of the banking system. This money can and should be directed to such projects. And for this, we need to help banks a little to insure the risks of non-implementation of these projects, or non-return of funds. And this combination with the risk-sharing mechanism is, in fact, the EBRD, or the European Investment Bank, or other banks, Polish ones, for example, BGK, we also work with them. They are ready to participate in such projects and take on half of the risk. In principle, this is enough for the bank to calmly and confidently enter into fairly large-scale and valuable projects to create a new generation.
– Mr. Yuri, I am listening to you, and you quite often use “oddly enough”. And what else is needed to surprise you?
– An unexpected question. I was caught doing something I had never thought about before. What else could I be surprised by? I would probably be surprised (but this is not really a surprise, but our dreams and longer-term expectations) if we were accepted into the European Union family much sooner than 2030. I would be surprised if restrictions on the volume of possible electricity trade in one direction or another were lifted. Because, of course, our colleagues are trying to help, but they are always hedging and always cautious about the consequences, because any help, any opportunities can create problems for other markets. We saw this on the example of agricultural products. And it is very unfortunate that these events have spoiled and continue to spoil relations between our neighboring countries, which provided us with enormous assistance, lent a shoulder to lean on in the first months and years of the war. But now, when they began to feel the negative consequences of free trade in our products, they began to defend themselves, demanding certain subsidies to cover losses or the return of the restrictions that were there. I would be very surprised if we were openly and honestly accepted into the European Union family on general rules, without defending ourselves. That would be very positive for the country.
– I also noticed that you never miss an opportunity to mention renewable energy. What potential do you see? How do you assess the potential of renewable energy in the context of increasing Ukraine’s energy security?
– In fact, we have a unique opportunity to continue to become leaders in the development of this industry in Europe. Why? Because most European Union countries began implementing such projects a long time ago, and they are already in the second or third cycle of replacing equipment that is no longer economically feasible to use by today’s standards. As an example, we can cite basic turbines that were used in wind power 10 years ago and were considered advanced technologies, with a capacity of up to 2 megawatts per wind turbine. Today’s technologies offered by manufacturers range from 5.5 megawatts to 8 megawatts per wind turbine. Accordingly, this means that on the same plot of land, which costs the same for both 2 megawatts and 8 megawatts, it is possible to increase the power generation capacity three times. Accordingly, this will have an impact you both on the investment that you have made there and on the cash flow that it will generate.
The next story is that almost all the plots that are available for the construction of such facilities in the European Union have already been used. That is why they are replacing the previous equipment with newer, more productive ones. But it is all very expensive and not very effective from an economic point of view. If you look at Ukraine, we have an area for the implementation of such projects that does not reach 10 percent. Accordingly, our potential is huge, and we can give investors the opportunity to take a joint part in the development of these projects. And our energy network allows us to build this with certain, of course, investments in order to ensure throughput capacity. We have great potential for the development of this industry.
– So far we have talked mainly about money, about technology, about production volumes. And what changes to the legislation, to the regulation of the energy sector, can contribute to a faster restoration and modernization of the industry?
– A very interesting question. In fact, if we talk about the energy system, we got stuck in the middle of the energy sector reform due to the war. We switched to a competitive market in 2019, divided energy supply companies into those that supply electricity and those that manage networks. And we were supposed to start investing in the development of this network to ensure its stable operation, high-quality transmission of electricity, and reduction of losses. Huge amounts of information were calculated, investment projects were created for investing and developing the network. But the war began. And, of course, when such events occur, there is no time for investments in improvements. We were forced to ensure the survival and functioning of at least what is there. Therefore, all these projects are now postponed. And in fact, if we talk systematically about the market as a whole, then, first of all, it is necessary to put it in order, solve the problems that arose as a result of the transition period, because it did not completely eliminate cross-subsidization between industry participants, and eliminate the problems that arose as a result of the war. To repay the debts that have accumulated in the market, because they do not allow all institutions to be participants in the Ukrainian financial market and attract foreign financing. This is the debt for the service of developing green generation, alternative energy, imposed on Ukrenergo by law. These are services on the balancing market, which are provided by companies that, at the command of the dispatcher, urgently turn on the capacity and supply electricity to the network in order to ensure its availability in any way, despite its cost and cost. There is a debt to Ukrenergo, it must be repaid.
But, on the other hand, we have an even greater debt to Ukrenergo from consumers who have to pay for the tariff for the transmission of electricity, and for the electricity that is supplied to specific markets. We understand that it is impossible to collect money from companies that supply electricity to occupied territories or that are in a combat zone, as well as to disconnect them from consumption. And it is also impossible to solve these problems quickly. But without solving the entire complex of these problems, we cannot move on to the next stage – changes in the legislative sphere. We must wait for the end of the combat operations.
But something is already being done today. You have seen how quickly the government is ready to respond to the challenges of building decentralized generation. At the beginning of the summer, we started talking about the urgent need to build at least a GW of distributed generation capacity. And already in September, the first decisions of the Cabinet of Ministers, the National Commission for the Regulation of Energy and Power Generation, the Ministry of Energy and other regulatory institutions were made, which reduced the connection terms from 2 months to 2 days, canceled the connection fee, established mechanisms for pricing and charging for gas supply for power generating capacities at the level of the National Commission for the Regulation of Energy and Power Generation in a very short time. If we compare it with previous periods, this work sometimes took years. Here we saw that the government is able to act very quickly, and almost all the obstacles that prevented connecting and starting to produce electricity were eliminated in a very short period of time. Accordingly, we will have the next challenge, when on the first day after the end of active hostilities we will have to sit down and make decisions that will be aimed at solving the entire complex of these problems in the electricity market in order to kick-start its rapid development.
– Mr. Yuri, in short, what lessons in risk management in the energy sector should and can be learned from the experience of the last 2-3 years?
– It would be good if we learned from the first time. We definitely need to have certain protocols of actions for absolutely impossible scenarios that can arise even in a theoretical plane. Because no one could have imagined that the energy system would work in such conditions as today. As it turned out, it survived and can work. Of course, this is all thanks to those people who for 3 years their lives 24\7 provide this activity and with incredible, sometimes heroic efforts eliminate the consequences, develop alternative ways to power the networks, and so on. Accordingly, you must always have a plan B and a plan C, and not consider them exclusively hypothetical cases that can arise in any situation. You must have reserve funds to be able to replace equipment that is out of the working process. Such protocols must be developed, and this applies not only to technical solutions, but also to legislative approaches, and actions, and international activities, and cooperation with international partners in providing assistance, and in case of energy needs. And today we can talk about how to quickly deploy a field bank, which will begin to be implemented in two months, to meet the needs of enterprises that provide critical services.
