Ukraine can unleash energy investment even amid war
Volodymyr Kudrytskyi is the former CEO of Ukrenergo, Ukraine’s transmission system operator. This essay is part of the Global Energy Agenda.
A key energy security objective for Ukraine is to create stability for investors to finance the deployment of new, decentralized generation in the country. How to ensure that investments can hurdle over obstacles in a profoundly challenging environment is the crucial challenge that Ukraine must solve in 2025.
The Ukrainian power system is in the midst of one of the greatest trials in human history. It has already survived thirty-one Russian onslaughts since February 2022. Of this unprecedented number, thirteen missile and drone attacks took place in 2024. According to officials, more than 2,000 missiles and countless drones have targeted Ukrainian power plants and high-voltage substations since the beginning of full-scale war.
Russia’s strategic goal is clear: to devastate the Ukrainian power grid to benefit Russian troops on the battlefield. The tactics of this Russian energy terrorism are also obvious: to destroy the grid’s ability to deliver power to consumers and to remove balancing capacity from the system. While nuclear generation still covers most baseload consumption, Ukraine has already lost more than 10 gigawatts (GW) of balancing power plants—mostly thermal and hydropower—which play a crucial role in meeting peak demand.
After the integration of Ukraine’s power system into the European continental grid in March 2022, the national grid operator, Ukrenergo, discovered how to defend and recover transmission capabilities of Ukraine’s high-voltage infrastructure. With the help of US and European Union (EU) financing, we built unique passive engineering protection for critical elements of the grid. Ukrenergo has accumulated one of the largest stocks of high-voltage equipment in the world. There are 1,500 trained and highly qualified specialists on Ukrenergo’s restoration teams, working 24/7 to keep the lights on for the Ukrainian people. Of course, without adequate air-defense systems, this will not suffice. The high-voltage grid remains a primary target for the adversary’s aerial attacks, but the Ukrainian transmission operator is gaining experience in quick recoveries after massive shelling and is strengthening its ability to balance the grid in wartime.
As the grid becomes more resilient with time, the traditional electricity generation base is being deteriorated. Big power plants are also trying to restore capacity, but sometimes take on irreversible damage or require years to be brought back online. Therefore, the main strategic task for Ukraine to achieve in 2025 and beyond is to rebuild its balancing generation capacity to compensate for the power shortages caused by Russian missile attacks on thermal and hydropower plants.
Building back better the Ukrainian way means rolling out hundreds of new generation facilities of up to 10 megawatts (MW) each, instead of dozens of larger plants that could be exhausted with Russia’s latest assault. At Ukrenergo, we determined that the Ukrainian power system will need 12 to 13 GW of new generation capacity in the next three to five years. This means adding more wind and solar plants, high-maneuverability gas peakers, biomass plants, and battery storage. Such technologies should be spread throughout the country to deprive Russia of the ability to knock out large amounts of power capacity with one strike.
To roll out this decentralized generation, Ukraine would require around €10 billion in investments. Such a volume could be effectively deployed only by the private sector—the public sector doesn’t have the money, and it is impossible to decentralize generation in a centralized way.
The interest of Ukrainian and foreign investors in reshaping the country’s energy system was demonstrated in August 2024, when Ukrenergo provided special auctions for the ancillary service market. In two auctions, we received nearly 1,000 bids from different businesses, which were ready to roll out nearly 1 GW of new generation to receive five-year-term offtake contracts with Ukrenergo for the provision of grid-balancing services.
It was like a gunshot at the start of a big race. But to get across the finish line, these pioneers in deploying decentralized generation still face three key obstacles.
1. Uncertainty in regulation and market debts
The current price for electricity on the Ukrainian market determines the whole process. Price on the Ukrainian wholesale electricity market is measured by regulated price-caps. In the periods of highest demand, these price caps are not relevant to the prices on the EU market, which is regulated only by supply and demand without any political interference. This difference impacts trade between the EU and Ukraine, and investors’ ability to finance new generation capacity. So, investors need assurances that price depends on supply and demand, and not the wishes of politicians to manually control it through administrative measures like price caps.
It is critical that Ukrainian regulators exercise fully independent judgement and decision-making. Wise decisions would include setting cost-reflective tariffs for natural monopolies (including Ukrenergo) and taking measures against customers who consume energy without paying for it. This would eliminate market debts, which currently do not allow businesses to achieve their full market potential and make returns on investment less certain.
2. Access to finance
The Ukrainian energy sector could be injected into the power system. However, access to financing remains one of the main problems for potential investors.
A state program offers low interest rates for businesses willing to build new generation facilities, but a typical efficient energy project investment far exceeds the program cap, disqualifying many projects from accessing these loans.
Moreover, Ukrainian businesses don’t have access to liquidity from international financial institutions and multinational banks, which require at least five-year offtake contracts and have extensive pledge requirements to secure credit lines.
To roll out up to 13 GW of new generation in Ukraine, we must connect businesses and financial institutions so that they can cooperate effectively. Unused donor money could be leveraged to create financial instruments like insurance, guarantees, and extra collateral to make investments more attractive for banks. This would effectively multiply the generation capacity that every donated euro can pay for.
3. Coordinating between communities and businesses
Installing new generation facilities requires finding land and securing permits, both of which fall under the responsibility of local communities. These communities are interested in technologies that will benefit their local area, not the whole system. Better communication and cooperation are needed between the private businesses that are able and willing to roll out new generation and the local communities that need it.
Unleash the private sector
Rolling out decentralized balancing capacity along with renewables would not only make the Ukrainian power system resilient to Russian attacks, it would also enable Ukraine to virtually complete the clean transition of its power system, as the new electricity mix would be about 90 percent carbon free. Moreover, the new power system would be cheaper to run than the current one, because of the domination of nuclear and renewable generation with lower marginal cost than the Soviet-era coal-fired power plants.
Ukraine has unique starting parameters to achieve this quickly: strong nuclear and hydropower, good solar and wind potential, and a sharp deficit of electricity, which supports high market prices and quick payback on energy projects. The main priority of Ukrainian energy strategy for the next five years should be to remove the stumbling blocks and let private initiative do the job—it always does.
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The Global Energy Center develops and promotes pragmatic and nonpartisan policy solutions designed to advance global energy security, enhance economic opportunity, and accelerate pathways to net-zero emissions.
Image: An aerial view shows a gas compressor station near Volovets, Ukraine, October 7, 2021. Picture taken with a drone. REUTERS/Gleb Garanich