The EU energy law expert states that in relations with Ukraine, the Energy Community is not very inclined to "express the deepest concerns", but instead produces a steady stream of tangible high-quality results.
Our interlocutor Andrius Shimkus has been working as a lawyer on energy and EU law for over 16 years. Now Andrius Shimkus has been invited to teach the author's course EU Energy Law and Policy as a lecturer for participants of the Kiev School of Energy Policy (KSEP).
"Ukrainian Energy" took the opportunity to talk with Andrius Shimkus and asked him if he shared the opinion of some experts about the excessive Ukrainian commitments under the Green Deal, should Ukrainian entrepreneurs count on participation in European support programs and how the EU protects the rights of vulnerable consumers.
- Andrius, you have been an energy lawyer in various capacities in many jurisdictions for many years now. How did you become a specialist in energy law and what stages of your activity in this direction do you consider the most important?
I became an energy lawyer by pure coincidence (or by God’s will, so as not to sound too humble). Back in summer 2005, when I was still an LL.M student of financial law and was earning some money as a freelance legal translator, I came home from Erasmus studies in Belgium and decided to look for a proper lawyer’s job.
It happened so that it was a peak of one of the financial crises in Lithuania and the employment market was literally going nuts. Young lawyers were not in high demand. So I was circulating my CV to almost everyone in Vilnius who was somehow related to law: law firms, notary offices, bailiffs, businesses, debt collectors. I had over 80 interviews from June to November and I was becoming an incarnation of despair. And it was just a lucky chance that the biggest Lithuania’s energy company at the time – a vertical integration of the electricity transmission system operator and largest production facilities – was in need of a lawyer, who knows EU law and speaks decent English. I suppose I made a good impression and was hired. This is how my energy journey started in December 2005.
Then I was lucky enough to have an opportunity of learning from the best energy engineers and managers in the Baltics, to have great bosses supporting my enthusiasm and initiatives, also smart enough to notice the need of change, and also hard-working enough to catch-up on energy matters and to intensely build my expertise in various fields of energy law and regulation.
I moved quite a lot as regards my place of employment. I am not one of those guys able to devote decades for one affiliation. Four to five years in one place and I start feeling rusty, eager for a change. But this helped me to get very versatile experiences and I was blessed to learn from many experts of different professional profiles, cultures, and personalities. There were good experiences as well as bad ones, but all were equally valuable and I could not exclude any particular moment in my career as more important than the others. It was a constant growth, a direct current if speaking in electricity terms.
Being a specialist or an expert in energy law is a constant learning process. There is always something, what you could learn in the field. Say, for example, I know unbundling and public service obligations inside out, but things like energy labelling are capable to surprise me every time I look at them. There are enormous spaces to learn and grow, especially in these times of rapid change and progress.
And almost 16 years in the energy sector is not that much. There are energy guys who would call me a toddler in the field (and some called that and other names). But it is not yet the end. Or at least I hope so.
- Your professional connection with Ukraine and establishment of the energy markets is considerable part of your background. Was it your conscious decision at some point or a mere random eventuality? How do you asses this part of your work and what features would you note in cooperation with Ukrainian partners?
I started working with Ukraine in 2014 when I joined the Energy Community Secretariat as a gas expert. Co-drafting the initial version of Ukraine’s Law on Gas Market together with my boss at the time Predrag Grujičić (and the best boss ever!) was one of my first assignments. The Law was adopted in 2015 and triggered many changes in the gas market and many reforms instigated thereby are still rolling forward. It was truly a great adventure to be part of this period of Ukraine’s energy history. Now – as a freelance consultant – I somehow shifted more to Ukraine’s electricity matters, but gas is always among the highest topicalities in the country.
I genuinely love Ukraine. This might be something in blood. And I am very proud and honoured to contribute to Ukraine’s energy developments. Sometimes these contributions are smaller, sometimes bigger and more noticeable, but multiplied efforts of many local and international experts do bring real change. And the last decade or so was amazingly intense period of making this change happen and bring some true benefit for Ukraine’s people and businesses. If not for political and especially geopolitical nuisances, that benefit would be much more significant, like million times more significant.
During my days and nights working for Ukraine, I met fantastically strong energy professionals in Ukraine and they are the true cornerstone of your country’s energy sector. Especially I kept being inspired by NEURC’s professionalism despite their almost constant need to manoeuvre around political uncertainties. And the worst thing is that very often these uncertainties are triggered on purpose, hunting for some political scores, and this negatively affects energy developments. But there is no country without political populism, or at least I do not know any. Whenever I start talking badly about politicians in my country or in those countries I work with, I have a mental note to remember that Cicciolina was elected to the Italian parliament and ex-Prime Minister of the same Italy was a big fan of bunga bunga parties. Then the absolute majority of Lithuania’s or Ukraine’s politicians look like saints in this light.
- How do you assess the importance of Ukraine’s participation in the Energy Community and other European agreements in the field of energy? Could there be parallels drawn with Lithuania’s integration path in the past?
The Energy Community is a definite highway for the European integration of Ukraine’s energy markets. Very notable, Annex XXVII to the EU-Ukraine Association agreement – the one dedicated to energy – mainly relies on Ukraine’s approximation with the EU energy acquis exactly through the mechanisms of the Energy Community. I say mainly, because Annex XXVII also contains nuclear energy regulations, which are not part of the Energy Community acquis.
Unlike so many other international organisations, the Energy Community is not very prone to “expressing deepest concerns” and, instead, it produces a constant flow of top-quality tangible outputs which directly trigger energy reforms in its Contracting Parties. I did not do the exact counting, but my guess would be that there should be close to 50 legal acts currently regulating energy sector in Ukraine, which were drafted or at least co-drafted by the Energy Community’s experts. A sweet thing is that one can be absolutely calm that there is no oligarch standing behind these acts and scheming to milk out the market here and there.
Unfortunately, there was no Energy Community at the time when the Baltic States were running for the EU’s membership. And we lost a lot. The thing is that the Energy Community framework provides for a very systematic and streamlined integration of energy markets, and also gives the country a platform to be heard as part of the European community long before it becomes a member of the EU.
Whereas European energy integration of the Baltic States was much more chaotic, based on rather segmented diplomatic efforts. And some of them were not that successful (speaking in soft language). The fact that Lithuania got to shut down its freshly renovated nuclear power plant in Ignalina (and instantly turned from a net electricity exporter to a 100% Russia-dependent energy system) while Estonians managed to keep their highly-pollutant oil shale power plants illustrates a lot and gives a strong credit to Estonian diplomacy.
So you should feel lucky that the Energy Community assists Ukraine. I am not trying to say that people from Vienna are 100% right in all instances while advising you, but some 95% would be a fair guess. Ukraine should rely on the Energy Community’s support as much as possible.
- What is the most relevant acquis for Ukraine to implement at the moment? How do you assess the degree of Ukraine’s compliance with such obligations – in the past and under the current political leadership?
Regulation on Wholesale Energy Market Integrity and Transparency (REMIT) is the first thing to pop out in my mind. Ukraine is now in a delay to transpose and implement REMIT rules and the Energy Community Secretariat already opened an infringement case. Though, this is not the case to be feared of, but rather the fact that the integrity and transparency of Ukraine’s energy market are below the European level playing field, which causes their lagging cross-border integration, discourages foreign investors, and sustains the niche for internal market manipulations.
The fact that there are five alternative draft laws to transpose REMIT currently registered at the Verkhovna Rada of Ukraine, and all of them largely non-compliant with EU acquis, does not help in solving the matter.
In recent years, Ukraine reached a high level of national transposition of the EU energy acquis. But there are some gaps in its implementation, which now remain pending for several years already and became a kind of notable feature of Ukraine’s energy sector, and not in a good sense. I mean the ever-lasting saga of public service obligations both in electricity and gas sectors, politically motivated regulatory interventions in energy markets, failure with renewable energy support schemes, and absence of a consistent policy for protection of vulnerable customers.
I am not that close to the couloirs of Ukraine’s energy policy making to judge on your political leadership. All in all, the Ukrainian approximation with EU energy law is like cha-cha-cha dance with steps forward, back, and forward again. And this tends to be a constant pattern despite changes in the political leadership. But it is all right until those steps forward prevail. However, very personally, I would prefer a professional leadership in energy developments better than the political one.
- In your opinion, is the Clean Energy Package a substantial and proper step towards completing the EU single energy market? Which of the National Energy and Climate Plans (NECPs) of the MSs are noticeable for high ambitious or the lack of them?
The Clean Energy Package (CEP) is a very important and complex set of legal acts. EU Member States are currently processing with its implementation and – in a few years to come – we should start seeing its full-scale effects on energy markets. The EU’s energy market now is much more single or common than it was before, but I see this commonality as a moving target. I am not sure if it is possible to declare “we did it” and to continue living with somehow completed energy market with no demand for further effort. The CEP itself was a response to, amongst others, new energy technologies and market services, and both of them will continue to develop. So there will be new packages for sure.
As concerns National Energy and Climate Plans (NECPs), let us start with a bit of honesty: I have not read them all and this is not my primary target in the reading list. But there are some typical trends in NECPs which one could easily notice. For example, immense focus on renewable energy in Scandinavian countries and strong coal-reliance in Poland. Nevertheless, the Renewable Energy Directive currently in force raised the targets pretty high for each and every EU Member State. This expected decarbonisation by 2050 will not happen by itself.
Besides the planning of our energy and climate future – which is a nice thing to do, but you all know the axiom that “man plans, God laughs” – I am much more concerned about the realities to be triggered by currently emerging energy crisis due to Russia’s yet another play with its energy weapon. Increasing gas prices already triggered the shift back to an intensified oil production and coal use. And this may increase further on. Needless to say that is not very healthy for the decarbonisation and, ultimately, for the climate change management.
- The RES generation and energy storage form an essential part of the CEP. What are the main instruments in use to stimulate scaling up of these industries in the EU MSs?
RES generation can be incentivised by the state using its own preferred and tailored support schemes, with the market premium (or feed-in premium) now being a priority model.
Whereas energy storage is defined by EU law as a market-based activity. This means that healthy investment climate is the best way to stimulate the development of storage facilities and provision of related services. As it is also the case for energy storage, it is very important for Ukraine to ensure that new technologies and new market segments are developed in a competitive environment without any concentration of corresponding operations and services. Market monopolisation is like a bad spirit from East – easy to invite, but very hard to get rid of.
- What European programs to support of the low-carbon economy can a Ukrainian entrepreneur participate, if any?
Since Ukraine is not yet an EU Member State, participation of its entrepreneurs in any program funded from the EU budget and aimed to support Member States is impossible. For example, funding of low-carbon economy initiatives through the European Regional Development Fund (ERDF) remains unreachable for Ukraine as well as for any other Energy Community Contracting Party.
On the other hand, there are financial means of, for instance, Eastern Partnership, Trans-European Energy Networks, EuropeAid, and EU4Energy, which are allocated for the Energy Community’s Contracting Parties, including Ukraine. I am not in a position to summarise on the projects and initiatives currently financed under each of them, but there is a definite space to get certain support for low-carbon initiatives.
Moreover, Ukraine’s energy developments are actively financed by a number of international donors. In my opinion, the priority should be to efficiently use the funds and grants received and – even more importantly – to focus on creating a stable and trustworthy investment climate to encourage local and attract foreign developers of energy technologies and services. Prudent use of the money shared by international donors, amongst others, is one of the means to employ in this pursuit. But emphasis should be put on prudent use rather than on money.
- In many aspects, Ukraine remains a very socially oriented state, which is specifically obvious in terms of efforts of virtually all Cabinets to keep the energy prices as low as possible. How does EU law protect the rights of vulnerable consumers? What are the criteria for determining these categories of the population?
I believe that every country, which cares about its residents, needs to be a socially oriented state. After all, the availability, accessibility, and affordability of energy should be the key objective of the state’s energy policy serving the population. It is a rather complex conundrum of setting the mindset that the population’s interests shall prevail over those of businesses. In the energy sector, where money flows are huge, it is very easy to forget. You know, these energy oligarchs around the world are the exact fruit from the tree of such forgetfulness. And it is a bitter fruit.
EU law does not provide for the regulatory schemes for protection of vulnerable customers. This is one of the fields, where countries have their own discretion to model respective fiscal, social, and energy policy measures for protection of vulnerable customers. However, the best European practice clearly indicates that only socially sensitive households and, in very specific cases, socially important public services (such as hospitals, fire and police stations, and schools) are deemed as vulnerable customers.
So mainly we should be talking about protecting elderly and disabled people, low-income families, residents of remote areas, social services, and so on. Now the problem of Ukraine is that both households of a banker from Kyiv and a of lonely granny from Poltava are by default treated as vulnerable customers and are eligible for public service obligations. This is not right and thus the distribution of the state’s funds for social protection of the population is far from fair and welfare oriented.
Ukraine needs a comprehensive and methodical policy for protection of vulnerable customers to be implemented together with the phase-out of inefficient public service obligations, which work for the benefit of market incumbents instead of being streamlined to support those in actual need.
- Some Ukrainian experts claim that the Ukrainian government is making vocal commitments that it will not be able to fulfil without external assistance, including joining the European Green Deal framework. Are these concerns shared by the experts and legislators in EU countries?
There is indeed such line of thinking that the European Green Deal is too hard of a candy for Energy Community’s Contracting Parties, including Ukraine. The thing is that the entire decarbonisation campaign is still largely based on the foundation of the challenge, whereas the opportunity lies somewhere in the future. On the other hand, even if some things are currently hard to imagine – including zero carbo economy in many European countries – it does not mean that they are impossible to reach. Development in technologies, policies, management strategies, and human mindset did miracles before and we must believe in this for our future and put our best efforts for its brightness (as I tend to think that miracles do easier come through work than from heaven). If decarbonisation fails, given current scientific data of global warming and its effects, it is a chance that humanity will fail as well.
On a more positive note, I would not list out Ukraine so expressly as your mentioned Ukrainian experts. Ukraine has a possibility to become a solid regional energy hub and this naturally means more money flowing to the country. Stronger focus on European level playing field, minimisation of the bureaucratic burden upon businesses, and reduced oligarchic influences would significantly improve the investment climate and attract money to finance all the beautiful initiatives for the decarbonised future.
For starters, it has to be understood that RES support schemes – once established by law and allocated to developers – cannot be taken away retroactively. What happened in Ukraine with the brutal kill of previous RES support schemes is the investors’ worst nightmare and such politically motivated campaigns seriously harm country’s international image.
- What, in your opinion, will help to implement the rules of Clean Energy Package and European Green Deal in Ukraine in a way acceptable to the Ukrainian economy in the conditions of energy crisis and military conflict?
Implementing CEP and Green Deal rules in Ukraine will be a definite challenge and there are so many elements thereof to discuss and to consider. That would turn this interview into a never-ending story.
On a more general note, I would personally recommend Ukraine to avoid the “salami” principle of transposition and implementation, when bits and pieces are randomly taken out from the CEP or the Green Deal and put somewhere in the Ukrainian national legal system. This is definitely a bad practice, which, amongst others, is very tempting to push through one’s political or business agendas.
Ukraine needs a very clear and comprehensive programme for national transposition and implementation of the CEP and Green Deal rules tailored – to the extent allowed by EU law – to reflect the Ukrainian economic and social realities. This definitely call for an intense effort of both local and international stakeholders, but it is doable. I see the trio of the Cabinet of Ministers, NEURC, and the Energy Community Secretariat as the perfect axis of allies to prepare the necessary policy and regulatory basis. Only very precise methodical thinking will help in this regard. Otherwise you will end up having different elements and mechanisms half-baked and half-scattered around your regulatory framework without the expected positive effect and, very likely, with a bunch of negative effects through market deviations and distortions.
Now the only thing needed is a strong political will to proceed in a more sustainable way. However, many legislative initiatives popping out at the Verkhovna Rada show that the opposite philosophy – “let us take what we can earn from and leave what is not profitable” – is still very alive. I mean, for example, the repeated attempts to push through the law restricting market-based energy storage developments (which, I hope, was finally reverted to the market-based mechanism, but yet to be adopted). So there is still some space to progress with the overall attitude, the mentality, besides regulatory reforms and technical developments.
- Andrius, you are about to launch your authorship course "EU Energy Law and Policy" at KSEP. What is the program about, why do you think it is important for Ukrainian participants to know more about this subject? What are your expectations of the program and the group?
First of all, I am very pleased that Kyiv School of Energy Policy trusts my capacities to spread some know-how on energy law and policy. The course will also be taught by two other superb experts – Dr. Tetiana Komarova (an acknowledged Ukrainian professor of EU law) and my dear friend Dominykas Gustainis (a practitioner of procurement mastery and constants speaker at top-level procurement events in the Baltics). So the course will be much more than my personal contribution. Needles to say that I feel much safer with the support of such experts.
As regards my particular share, I will provide a crash course on EU energy law and policy, including legal essentials, policy making, political and strategic developments, core elements of the internal energy market, legal and political background of Ukraine’s European energy integration, and many other interesting details. During my career I worked a lot with engineers and economists, so my study materials are always designed and balanced so as to be interesting not only to fellow lawyers, but also to those people who from other fields of the sector.
One cannot become an energy law and policy virtuoso in a month. But this course will give some extra knowledge to both those who are just starting their energy journey and also those who are already far on the road. Repetition, if so happens, is also a very healthy booster in the process of self-development.
Since EU energy law and policy are now one of the main factors shaping Ukrainian energy policy making and regulatory practices, it is the thing worth to be understood by everyone whose professional activities are somehow related to energy. The more we know, the stronger we are. And then less mistakes we make.
My ultimate expectation is to spread my know-how, practical experiences, and my undeniable passion for energy law and policy. And, of course, to have some fun together with the group. Energy is very much about light, warmth, and love, so let us share it and spread it around.