DiXi Group and its green reconstruction plan
Could you briefly introduce the think-tank DiXi Group?
DiXi Group is a Ukrainian think tank working in the field of energy, climate and extractives. We were founded in 2008 and are based in Kyiv. Our strategic goals include modernizing Ukraine's energy sector, as well as contributing to creating a more competitive and green Ukrainian economy within the EU. DiXi Group conducts independent policy analysis and advocacy aimed at supporting Ukraine's energy independence, decarbonization and integration with European markets.
What does your step-by-step plan for the green reconstruction of Ukraine consist of?
With this publication, we aim to further mainstream the 'energy efficiency first' principle in the reconstruction process. While the Ukrainian authorities generally support this principle, it should become a guiding one for planning practices, policies and major investment decisions. For the government of Ukraine, focus on buildings – as part of both recovery efforts and the Long-Term Strategy for the Thermal Modernization of Buildings until 2050 – would yield numerous benefits. For local authorities, our comprehensive step-by-step plan — as tailored to their needs and based on an understanding of their constraints — would help to navigate the complexities of reconstruction through energy efficiency projects.
For whom is your plan designed specifically?
Of course, we invited policymakers from the government and central executive authorities. But we would like to focus our recommendations and advocacy towards local authorities, and local communities. Since all the reconstruction will be performed locally, it is their authority and mandate to take care of local energy planning, to understand which kind of buildings they operate, and what is their energy consumption profile. Starting from this, they can identify opportunities to reduce energy consumption.
Therefore, our step-by-step plan is designed for local communities to work on improving the energy performance of buildings. Of course, we emphasize the exemplary role of public buildings, which should serve as best practice in terms of energy performance. And, as a side effect, less taxpayers' money will be spent on utility bills. In this way, we can unlock more funding for community-level local economy development projects. That is a win-win situation for everyone.
But again, there is still a lack of awareness and understanding that you initially need to spend some resources on energy efficiency. You need to dedicate some people. You need to get the correct input data. And you need to create a comprehensive local energy plan.
The plan in practice
Photo credit: DiXi Group
Are there any concrete examples of such practices already?
Yes, we are not only theorizing here, but we also offer practical support to local communities. Last year, DiXi Group launched a program supporting the first 10 communities in Ukraine. We participated in the process of developing local energy plans from the beginning until the very last stage. This program included mentorship and expert support in developing these plans. Based on the lessons learned from those 10 communities, we have also developed policy recommendations on how to improve the procedure and methodology for local energy plan development. We better understood the needs and constraints of local communities, in particular how to finance those measures.
We intend to continue supporting those 10 communities after they adopt those plans, i.e. endorsement of the regional and local councils. After that, we will be happy to support those communities in actual implementation. Our intention is not to keep these documents on the shelves, but to make them a useful tool and demonstrate that it is of real value for those communities.
Do you plan to expand this initiative further?
Of course, we're not going to stop with those 10 communities. Currently, we do not have the capacity, power, and resources to support all the 1,400+ local communities in Ukraine. But we intend to serve at least as mentors and expand our capacity so we can provide advice to other communities, and also to encourage exchange of knowledge and best practices among them.
We started this approach last year. A community which initially adopted the local energy plan explained its story to our 10 target communities. And they had quite a great exchange and discussion, so we are encouraging our 10 beneficiary communities to share this knowledge further. We believe that this is a process which should continue to create an enabling environment.
In parallel, we would also like to work on exploring the funding opportunities and create a catalogue of all the options for financing these measures and other ways to get access to the capital.
We are and will be doing many other things on the policy level to promote the green recovery of Ukraine, a kind of recovery which would result in better, more efficient energy consumption.
Roman Nitsovych. Photo credit: DiXi Group
I would still like to ask how the collaboration with European analytical centres such as BPIE (and their 6 investment criteria for sustainable reconstruction), influenced the development of this step-by-step plan. Is there some sort of ongoing collaboration?
Yes, there is and we are planning to continue this collaboration. Organizations like BPIE bring the European perspective in terms of standards, which need to be enforced, especially if we talk about nearly zero energy buildings (NZEB) and the new standard of zero emission buildings (ZEB), which needs to be adopted in Ukraine as well. So far, in our construction standards, we have the so-called minimum requirements for energy performance, which have to be upgraded in accordance with the most up-to-date version of the Energy Performance of Buildings Directive. Ukraine has also a task to adopt a NZEB standard. We also need to include energy efficiency criteria in public procurement – for instance, quite relevant in tenders for buildings renovation.
There is also a need to create a national database of buildings, which is being implemented now. Many communities simply do not have complete information on their building stock. They need to collect this information and get data from other government agencies if necessary. On the national scale, currently, we only have a pilot project to create such a database. The task for the Ukrainian government is to move from this pilot stage to a complete database.
The communities need to understand building stock on their territory, and to have a full 'picture' of its performance. It's absolutely necessary for local energy management. It already works in the EU, both in terms of norms and standards, but also in terms of practices. In addition, BPIE showed us the different measures which can be applied.
As a think tank, we also supported the development of the National Energy and Climate Plan of Ukraine, which includes many important measures, including those which are provided by the European Commission's recommendations and other international obligations of Ukraine. These measures include, in particular, establishing energy efficiency obligation schemes for supply companies.
What are some of the main challenges you expect in implementing this plan? Maybe the most severe obstacles?
Based on our experience with those 10 supported communities, we have a good understanding of that as well.
One of the main challenges is the lack of access to information. You need to make informed decisions based on evidence, i.e. complete data of local energy consumption from the perspective of several years. Currently, it is a challenge to get this data from energy suppliers and grid operators when it comes to buildings which are not operated by public authorities. If it is a commercial building or a residential building, you need to get into dialogue with energy suppliers – and that's not always easy.
The second question is, of course, capacity. Many people were drafted into the armed forces, left the country or are internally displaced. So, the staff of local councils or their executive committees in charge have too many issues to deal with. Consequently, sometimes they do not have a separate energy manager or energy management unit, which we strongly recommend setting up, so they have people in charge of all the utilities, starting from water supply and sewage, district heating, street lighting and so on.
It's not an easy task to have a dedicated team. I say team because if you have a single person, there is also a risk that this person might eventually drop off, and you lose all your institutional memory and capacity.
Such capacity also means knowledge and ability to prepare projects of good quality, which you can negotiate with banks and others, and which you can promote in terms of the public investment framework. To prepare it, you need to have specialists, procure some engineering services, and prepare feasibility or pre-feasibility studies.
That, of course, needs resources, which many communities are lacking. So, if they have to choose between some support to the armed forces or local road repair or commissioning a pre-feasibility study, it's not a surprise that the latter would not look like a priority. Again, we are living in a democratic society and people demand obvious things – improvement of their living conditions here and now, meaning visible improvement and support to the armed forces.
Knowledge of those opportunities — which are open not only as government programs but also as donor-supported programs — is also lacking. That's why we want to create this catalogue of different funding opportunities. Because we see that only those mayors and community leaders who know or who wish to know, succeed. We see the cases of successful projects in those communities having leaders who understand which donor to ask, how to work with local and international financial institutions, how to develop these projects, and how to set up and ensure the support of project implementation units. These communities were successful even before the war and will remain successful.
And then there is the issue of a systematic approach. Having the local energy plan should be linked with local development planning to avoid the chaotic nature of some construction. If you have a sort of master plan or development plan, which type of land use you have, which type of buildings, it is always better for the reconstruction efforts. Otherwise, you will not succeed and spend more money than needed.
For instance, you need to deal first with housing, and after that, you can work with infrastructure. Today you have certain housing stock and a certain heat load, and the design of your district heating system is meeting those needs. After a major renovation, you will have completely different needs. So, if you are to invest in an upgrade of the district heating system, it should serve the needs of tomorrow.
And of course, the obvious win here is the energy sustainability and resilience. If you have your own power sources, and backup supply sources, if you have cut your energy consumption, you are better off in emergencies like the consequences of attacks on energy infrastructure.
Building resilience with reconstruction
How can the green reconstruction possibly contribute to building resilience to Russian attacks, be it direct physical attacks, ballistic attacks or cyber-attacks? Is this aspect also something present in your thinking and practice?
Well, the argument I use in every discussion is that we need to prevent destruction and damage, which leads to the need to reconstruct. That is achievable through supporting Ukraine's defence capability, both in terms of protection systems against drones and missiles, but also in terms of general military capabilities for the strategic defeat of Russia.
On green reconstruction – the key is to understand the principles which need to be taken into account. In practical terms, we support the government in improving the approach to setting priorities for public investment. There is a huge list of public investment projects, with all the projects by communities, companies, municipalities, and so on, collected on a single platform. But every year, the government will decide, having a certain volume of funding, which projects to support. Sustainability criteria are somewhat present, but far from enough. At the same time, we need to take into account the EU taxonomy and other metrics to make sure we comply with certain goals, as set in the Ukraine Facility regulation regarding sustainable financing.
And we also need to make sure that those principles — build back better or green recovery or energy efficiency first — are complied with. The recovery shall be done in accordance with the highest applicable standards in terms of safety and energy performance. We can also focus on inclusivity and accessibility to people with disabilities.
You mentioned that energy efficiency and green recovery may not be the highest priority for people and their local representatives — for obvious reasons. However, is there an assessment, a public survey focusing on the overall position of Ukrainian people on green reconstruction? What is their position on that? Are they in favour?
Absolutely. There is a survey conducted last year. When asked about priorities in energy policy, of course, affordable prices are number one. In 2024, even more than in 2022. If we talk about energy efficiency, it is the least supported, as compared to other issues like energy independence and energy security. Nevertheless, the clean energy transition has certain support, although it's not an overwhelming majority.
However, if we talk about things like reducing the impact of power outages, we see that better awareness about energy efficiency is not the last option, but rather one that is to be taken into account. There is also a specific question about actual participation in state programs in energy efficiency or installation of renewable facilities, and only 6% of the respondents were positive here. This is the actual coverage of existing programs. At the same time, we see high interest — more than 30% of respondents wish to participate. I think this is very promising.
Of course, affordability, especially for low-income and poor households, is an issue. Some of these programs are not covering 100% of the cost, but provide for cost sharing. And, of course, the significant cost-sharing option is currently not very popular. Quite obviously, the general level of real income has dropped significantly due to the war. Despite relative recovery, the economy is still below the pre-war levels, and the personal income is not growing fast enough. In such circumstances, we can hardly expect support from programs which provide for significant cost sharing.
One of the greatest incentives for energy efficiency is market pricing. But we need to be careful about this: we cannot pursue any shock therapy in current conditions, as many Ukrainians have been living in such 'shock therapy' for the last 11 years of Russia's aggression. Any liberalisation of prices should go hand-in-hand with improving the general economic situation.
Is the current energy policy in Ukraine and the regulatory framework, as you indicated, also a potential hindrance to green reconstruction?
Most of the energy markets are still heavily regulated. In both gas and electricity, we have regulated pricing for households, at least for the duration of the martial law. And we have a situation of market dominance of state-owned companies. e.g., in the gas sector, Naftogaz has a monopoly, serving 99% of households.
When it comes to electricity for industry and the commercial segment, there is some price competition and frequent switching of suppliers, but this represents only a share of the market. If we take wholesale market segments, there was a pre-war assessment of the Antimonopoly Committee about the structural monopoly of such players as Energoatom, Ukrhydroenergo, and companies of the DTEK group. Things, however, are changing.
The emergence of new players in power generation would improve the situation, but currently, many of the projects are implemented by state-owned companies like Naftogaz, Ukrnafta, Ukrzaliznytsya (Ukrainian Railways), or the Gas Transmission System Operator. So, they are just expanding their portfolio of assets. Some private companies are installing these capacities as well, but the market incentives are still limited.
When you have proper market conditions, measures to ensure integrity and transparency, and complete oversight, it is hard to imagine corruption schemes. In this regard, it's also important to strengthen independent energy regulators to timely intervene and prevent market abuse and also send all the information collected to law enforcement authorities.
I wonder if it's already possible to identify some key players, private companies who can play an important role in the green rebuilding of Ukraine, be it Ukrainian development companies, or possibly some foreign ones. As you have said already, foreign capital and investments will be important for this transformation as well.
Absolutely. Even if a project is implemented by a state-owned company, they anyway go and procure equipment. Much equipment is produced in Ukraine, as we have a quite significant power engineering complex capable of producing transformers, all types of power cables, insulators, and so on.
Nevertheless, for certain types of equipment, you need to go for foreign vendors. This is already a great opportunity. For example, the new development of gas turbines is currently being done by state-owned companies, but there are also private players, so there is also a market for these vendors, which provide installation of hardware and other related services, be it operation or maintenance of this equipment.
If we talk about new developments in renewables, here we have complete competition already. We do not have any dominant state-owned company in this area, and there are both Ukrainian and foreign companies active as developers. Certainly, the issue for them is insurance of risks, especially war risks, and access to capital to get into the implementation phase, but there are many projects, pretty mature projects, with permitting done, with land allocation resolved, with grid connection resolved, so the only matter is about getting access to capital and starting construction. Apart from this, some steps should be taken to resolve the issue of debts to renewable producers under both feed-in-tariff and feed-in-premium schemes.
Given the recent turbulent developments in diplomacy with the new Trump administration in the US, I wonder how important a player the US and Europe are for Ukraine's green reconstruction.
All the efforts of Ukraine's allies are focused on ensuring this reconstruction happens in the most cost-efficient and mutually beneficial way. And of course, we are talking about re-industrialisation as well, but our industries should work on the principles of the 21st century, not the 20th century.
If you want to have certain elements of the value chain here in Ukraine, we need to look for our competitive advantages, but also for the natural resources. For example, we may well be part of the battery value chain.
I think it will be a win-win situation if foreign investors come and implement long-term, capital-intensive projects in mining and related industries. DiXi Group is engaged in improving policy for critical raw materials development and related industries. We are supporting the government in having a comprehensive strategy here.
Author: Martin Vrba
