Девон Арчер: Энергонезависимость без альтернатив

29 May 2015

Devon Archer, Independent Director at Burisma Holdings Limited, on how to provide new energy sources for global energy security

Devon Archer, co-founder and managing director of Rosemont Capital, LLC — a U.S. entity that specializes in private equity — believes that the Ukraine has an historic chance to pivot its economy away from its legacy and into innovation. When Europe faced a particularly acute volatility problem a few years ago, a number of Western countries adopted national programs to promote the use of renewable energy sources. Many countries have succeeded — notably Germany and Italy — and geothermal resources came to the fore as a way to ensure energy independence.

We sat down with Devon Archer, an independent director at Burisma Holdings, to discuss how alternative energy can contribute to the energy independence of European countries, and in particular, Ukraine.

Why should many countries shift from traditional to alternative energy projects?

The world is facing a lack of resources, and counties are becoming more dependent on each other’s economies. Oil and gas are non-renewable resources, and each field has a life cycle. Many once rich hydrocarbon reserves are now in their final stages. Clearly we cannot maintain the same level of production in perpetuity. We lack areas ready to compensate for this drop. We must strengthen alternative energy sources and change our way of thinking in order to switch to renewable, environmentally friendly, resources and innovative projects. The U.S., the E.U. and a multitude of other countries have shown global stimulus measures in this regard.

Ukraine is also verging on deposits flattening and production decreasing, so today we need a new approach to energy and furthermore an increased awareness of the strengths of geothermal energy. The country has three paramount energy objectives — to minimize its dependence on imported energy, to provide its consumers with affordable energy, and to abandon the chokehold of foreign gas. The transition to a completely new energy economy model will transform the country from a net importer to a net exporter.

When it comes to alternative energy, geothermal seems marginalized. Is this because the technology is too expensive?

This is a big misconception that thrived throughout the past century. As an example of the lasting power of geothermal resources: the first geothermal power station was built in the Italian town of Larderello at the beginning of last century, and over a century later the same field is still being used for heat and electricity production. Furthermore, the recent price fluctuations in and exhaustions of traditional resources have been making geothermal energy attractive even compared with other renewables.

Geothermal power plants have compelling economics. Even though the initial capital expenditure to install 1 MW is more than that of solar and wind power, the output is not tied to either weather or time and the payback period is almost identical (7–10 years). Most rewarding, though, is the comparative longevity: geothermal power stations have a life more than double that of solar and wind stations.

What if the state does not have the financial resources to quickly replace imported gas with geothermal resources?

Private, not public, resources are the answer. The state’s role should be to create conditions for attracting private investment into the sector. A “Green” electricity tariff, free network access and state guarantees along with national insurance instruments can serve as state support. If the state researches and identifies geothermal resources, the costs of compiling these geothermal topologies can be offset by permit costs.

In some countries, there are targeted state and municipal programs that support the development of geothermal energy. Last year a plant in Unterhaching, Germany, was transformed so that it could be used for geothermal energy production. Furthermore, the ecologically positive substitution of natural gas for geothermal energy in heating households is taking hold. Similar state programs operate in the United States, Italy, Turkey, Indonesia and the Philippines.

Do you think U.S. and international investors are ready to come to Ukraine?

Let’s use Africa as an example here. According to the World Bank, every dollar provided by the World Bank Group to finance projects related to renewable energy and energy efficiency has secured an average of ~$5 received from investors, governments, and other donors. After the 2004 Bonn International Conference for Renewable Energies, the World Bank Group annual funding increased by 20%. In 2005, the total amount of allocated funds amounted to almost $750 million. An international project under the auspices of the United Nations Environment Program in Kenya’s Rift Valley region will provide energy to several million people in East Africa. The construction of geothermal power plants by 2020 will create 1,000 MW of energy, equivalent to the electricity needs of several countries in the region. In total, Africa has the potential to unlock 7,000 MW of unused geothermal energy resources.

Turkey, Mexico and Egypt have all received funding to support environmentally friendly technologies totaling $5.2 billion. The World Bank and other multilateral development banks also administer this fund. Fund donors are the governments of Australia, Germany, Spain, United Kingdom, United States, France, Sweden and Japan. It is clear that investors are willing to work in this direction and Ukraine should provide similar economic incentives.

Where do you see the social significance in the reorientation of the economy to alternative resources?

At a consumer level, in the medium term, the diversification of energy sources will make life cheaper: utility bills will decrease, while traditional energy resources will be continue to become more cost prohibitive each year. At a state level, the country develops its own industry, creates new jobs, trains new engineers, and introduces innovations to gain energy independence.

You are on the Board of Burisma Holdings, the international gas company with assets in Ukraine. Does this mean that the company intends to shift its emphasis from dominating today’s natural gas production in the direction of increasing the share of renewable energy?

No. Burisma Holdings’ core business will still be natural gas production. However, just as we have been an innovative leader in natural gas production, we also intend to introduce proven new technologies to the Ukrainian market. We are ramping our efforts in this direction because we believe geothermal energy is an extremely promising conduit to create energy independence globally. There are a plethora of dry holes in Ukraine today that had been drilled for oil and gas. We can use these wells as geothermal wells and provide the nearest residential areas and industrial facilities with thermal energy. It is possible that someday this trend is going to be dominant in the company structure, since geothermal energy, unlike oil and gas, is an inexhaustible resource.

Are you satisfied with the current development of the company? What are your plans for this year?

Last year was ultimately extremely productive in a challenging environment for Burisma Holdings Limited. We made a qualitative technological leap, which has greatly increased natural gas production, capacity and the efficiency of internal processes. In October, Burisma Holdings completed the construction of a methanol recovery unit on the Rakytnyanske field. It is unique not only for Ukraine, but for our competitors in Eastern Europe. The installation allows us to reuse up to 85% of the methanol that is used in natural gas production. This innovation has removed the issue of methanol import dependency and ultimately is a reduction in gas cost for consumers. The Natural Gas Liquids production unit was put into operation on the Rakytnyanske field. Thus, we have once again confirmed the status of Burisma Holdings as a pioneer in implementing unique and eco-friendly technology. This year, we plan to continue not only on the geographical diversification activities of Burisma Holdings, but also on expanding the innovative and technological potentials of the company. By using the latest equipment and innovations, and implementing the best global practices, we will continue to be a leader among private gas producers.