Created in 2009, KNESS is a Ukrainian group that specializes in the development of energy sector technologies and the implementation of traditional and renewable energy projects. When it was launched, KNESS became the first Ukrainian company to engage in the distribution of network facilities for power companies and industrial enterprises. Later, in 2012, KNESS began focusing on renewable energy, including one the country’s largest solar facilities, and is now involved in numerous projects involving PV systems, biogas plants, development of power stations and more. CEO Sergii Shakalov discusses why now is a good time to invest in a rapidly expanding renewables sector despite some investor misgivings about legislative security and feed-in tariffs
The renewables industry has grown tremendously in this past decade. How is the company retaining its competitive edge in a market with many more players?
First you need to look at our background. Ten years ago we were a small company with a lot of experience in traditional energy, and our main business was analytics projects and the construction of distribution network facilities. In 2012 we had our first project in renewable energy, a solar power station with Ukrainian developers and a Portuguese EPC (engineering, procurement and construction) contractor. Between 2012 and 2015 we worked in various renewable projects with government enterprises. The year 2014 was a very hard one for our company, but in late 2015 the renewable market got restarted following legal changes, and we decided to focus on this sector. Things were still hard for us and for Ukraine because of war and the economy, but we had a clear idea that renewables had good growth opportunities and there was a lot of interest from investors. We had managed to save our engineering team, so we were able to get a good start and used all opportunities to grow. After that, most of our income was reinvested in the company: we opened a factory, we grew our team, and we began producing metal structures, electrical equipment for renewable energy and developing infrastructure. We started manufacturing photovoltaic (PV) panels and entering international markets.
Where is the company positioned right now?
We now enjoy a good reputation, and I feel that in this world there are only two major selling points: reputation and innovation. Right now we are working with many foreign investors, who find in us a good, reliable partner. For us this is a very important value. We are as good as our word, and although of course there are contracts and documents to be signed, you have to know that my word is as solid as a rock and if I promise you that something is going to be done, then it is definitely getting done. Our suppliers, our partners and even our competitors know it, and that creates trust in an environment where many companies still have problems with payments, etc.
Some industry leaders in the renewables sectors are nervous about the fact that the law can sometimes be uncertain. What are your views on the current reform process, and why should investors be confident in the business climate?
We have a very professional team and very clear ideas about what our country needs. The entire world has a collective goal of adopting 100% renewable energy, and there is no question that this goal is inevitable. What we may discuss are the terms: should it be in 2035 or in 2050? Ukraine’s renewable energy market has already grown more than many people were predicting, as much as threefold in solar alone this year. Now our government needs to figure out how much to pay for renewables. But this problem can be solved; we don’t think it’s a huge hurdle. Another issue is legislative security. If a businessman’s word is steady as a rock and you can trust and rely on it, the government needs to be the same. If you want to attract investors and encourage economic growth, there can be no retroactive decrees or any other measures that might entail losses for investors. This needs to be the government’s foremost point. We are participating in many working groups and parliamentary energy committees, and I think they are listening to us and understanding the problem with retroactive policies. We want to work in Ukraine, and we want to help to develop this country.
Why is it so important to increase the share of renewable energy supply in Ukraine right now? Which areas are ready for investment?
The main goal is to achieve 100% renewable energy. Solar power is the cheapest energy source in the world, and our Green Tariff – a feed-in tariff scheme for electricity generated from renewable energy sources that was introduced in 2009 – will end in 2029. On the other hand, Ukrainian labor costs are cheap. If you are thinking ahead to 2029, you can get very cheap price for electricity in Ukraine. I also think we have to develop our renewable energy even faster than we have so far, and even if we still have a problem with connections. For three years I have been talking about a storage system for Ukraine, which is expensive, but compared to what? I think that next year we will develop this system. Right now the US market, for instance, is already booming with storage. But we have to keep in sight our main goal. The faster we achieve it, the more competitive Ukraine will become in future, as cheap energy is the basis of all products.
Renewable energy is something of a buzzword these days: everyone wants to transition into green and investors are looking for opportunities. KNESS has built the largest solar plant facility in Ukraine. Are there opportunities for investors in your company?
Right now we are working with many investors from the US, Europe, Turkey and China. We are developing many projects for next year and we are open to ideas. We have a big pipeline coming up next year, for instance. We are also trying to minimize risks for our investors, and to that effect we financed part of a power station with our own money. We are focusing on big power plants right now, but there are other ways: we are creating business opportunities for other projects like rooftop PV panels, which we want to develop into a big market.
As part of legislative reforms, a new renewable energy law was introduced in May to move away from a more subsidized model to one that is competitive. Why should international firms still be interested in Ukraine despite this change?
We have to understand that EPC prices decreased in Ukraine only late last year, and only due to problems in the Chinese market, which shrank in size together with the price of PV panels. The market right now is ready to work with another green tariff, but the government cannot reduce this green tariff retroactively. The cost of money is also an issue. If in America you can borrow money at 2% rates, in Ukraine it’s at least 7%; money is more expensive here, but in this business you need long-term money. If we could have money for 20 years at an interest rate of even 3%, we could talk about an electricity price of seven cents of a euro, but right now it is not possible. Even now, not too many companies and investors want to work with this tariff. It’s competitive with other countries, but there are many risks here, including war in part of the country, and I understand that because of this many foreign investors may be scared.
Do you have any final thoughts as to why US investors should be looking at renewables in Ukraine right now?
I think it is profitable. It is possible to make profits with other investors in Ukraine at 10% of IRR, and this figure could be higher in certain situations. We are ready to invest our own money as well, so if you would like to work with us, we can balance the risk. Ukraine wants to be a successful country, and we are full of smart people. We are a European country, and while we may have problems, other countries have also had these problems in the past – Italy, Spain, the US. All we need right now is sustainable rules, and our government has recognized the need to target corruption. But we need a long-term strategy over five to 10 years, and we need to have and achieve big goals. This is true of the government and it is true of businesses. I think Ukraine can achieve its goals.