Ukraine currently lacks adequate power generation capacity and restoring energy security must be a priority. Any activity focused on accelerating deployment of renewables will have positive spillover effects for hydrogen, by building experience across the workforce and companies and helping to build confidence among potential investors. This will also indirectly reduce the cost of capital by reducing the uncertainties related with renewable electricity generation. Similarly, any efforts related to permitting and administrative processes for renewables can also support the creation of standardised processes that could be used as a starting point for the corresponding processes for hydrogen projects. An initial focus on renewables can support progressive steps towards hydrogen deployment that could ultimately increase the chances of success and reduce the likelihood of delays, since fewer new elements are introduced at a time. If renewables deployment precedes hydrogen deployment, it can reduce uncertainties around the cost estimates for hydrogen projects, since data would be based on real projects. It could also allow for a process of standardisation and economies of scale that unlock lower electricity costs, which are the dominant driver for hydrogen production costs.

Such studies require relatively little investment when compared to large-scale projects, but they are essential to inform the work done in later years. They can support progress without requiring large commitments and provide a window onto market development. Preparatory studies can reduce uncertainties by including a material assessment of the gas transmission network, improving project cost estimates and providing visibility on the policy instruments that could be used to promote hydrogen deployment. Analysis could include, for example, feasibility studies for lighthouse projects, hubs or fully integrated projects, mapping and addressing any skills gaps, mapping current legislation that is applicable to hydrogen, and defining principles and a methodology for hydrogen certification. Techno-economic analysis comparing production in Ukraine with other countries (from the importer’s perspective) will also be useful, as will setting up platforms for collaboration. Preparatory studies to inform the next steps could include identifying the risks that could affect different project types and the corresponding mitigation measures, mapping the international funding programmes that could be used to finance hydrogen deployment and assessing the interest from foreign companies to develop hydrogen projects in Ukraine.

Hydrogen production from electrolysis is highly capital-intensive. Any additional premium on the cost of capital makes a big difference in the levelised cost. A large share of the current premium comes from the additional risk and uncertainty created by the ongoing war. There are already various programmes and organisations helping to address these risks through political risk insurance. Action is now needed to deploy this tool effectively across various settings and types of projects in order to provide confidence to the financial sector and enable the transition from development to commercial finance.

Massive population displacement and relatively low renewables deployment have created a shortage of experienced staff. Immediate action is needed to ensure there are enough qualified staff across the government to design, implement and evaluate the policies; in the private sector, to execute, construct and operate projects; and in research organisations. Key priorities include collaboration and exchange programmes across different stakeholder groups, retraining and reskilling programmes, and a revamping of the education system to build the workforce needed for large-scale deployment and ensuring gender balance.

Aligning as closely as possible with the EU regulations could be beneficial for hydrogen deployment for three reasons. First, the European Union already has a comprehensive framework covering demand-side incentives (through the Renewable Energy Directive, ReFuelEU Aviation and FuelEU Maritime), infrastructure regulation, supply-side incentives and a stronger carbon price signal. Second, becoming a member of the European Union would allow Ukraine to tap into additional funds and potentially benefit from programmes that target equity between member states, such as the Cohesion Policy, which has this objective at its core, and has a total budget of EUR 392 billion for the 2021-2027 period. This is nearly one-third of the original multi-annual financial framework. Third, domestic hydrogen deployment is closely tied to exports. The European Union is the region with the largest potential demand that can be connected by pipeline. Alignment in regulation would facilitate exports, for example through a compatible certification scheme, or common regulations for transmission pipelines.

Renewable hydrogen cannot be deployed without a well-functioning and economically efficient electricity market. First, this will require reform of the electricity market, including removing market distortions such as price caps, considering social equity, ensuring tariffs are cost-reflective, establishing new ancillary markets that reward flexibility, revising the feed-in tariff scheme and resolving debt issues for state-owned enterprises. Second, power infrastructure also requires modernisation, including accelerating the roll-out of batteries and putting in place an enabling regulatory framework that supports the growth of distributed electricity resources and expansion of the electricity grid. Batteries and grid expansion could, over time, reduce price volatility, and do so in different regions in the case of grid-connected electrolysers. Incentives provided for electricity generation should be pragmatic, considering the current capacity shortage and long-term decarbonisation needs. Both the average grid emissions intensity over time and the attractiveness of the market for developing a domestic renewable industry can have spillover effects for hydrogen. Finally, improving the governance standards of the energy sector and state-owned enterprises, in line with international standards, could decrease the perceived risks of renewables – and, therefore, of renewable hydrogen.

One of the main challenges for hydrogen projects is the high perceived risks driven by the macroeconomic and geopolitical situation. Following a gradual approach to deployment, both for the supply chain and in terms of project size, would be less risky than introducing multiple simultaneous changes, and limit the investment needed during the early stages. For example, starting with renewables projects carries lower risk than aiming to demonstrate the production of near-zero emissions steel directly. Small projects can also be more attractive to investors, who may get involved with the aim of becoming frontrunners in this market. To attract foreign investors, it is fundamental to build a track record of projects completed on time and on budget, and this will be much easier with a progressive approach.