The Discrepancy Between Plans and Decisions: How Ukraine Is Building New Distributed Generation While Dismantling the Existing One
13 April 15:34
ANALYSIS FROM 
This year, Ukraine plans to commission 1.5 GW of new distributed gas-fired generation capacity. "Komersant Ukrainian" investigated what might hinder or, conversely, help bring these plans to fruition.
The country is set to establish a network of “energy cells”—autonomous or semi-autonomous clusters where critical infrastructure can operate even when the central grid is damaged. This is the vision of government officials. And it is precisely this network that is to become a key component of Ukraine’s new energy security architecture. According to Energy Minister Denys Shmyhal, the new energy architecture has three levels:
– nuclear generation, which provides stability;
– new flexible, responsive generation, which will operate where the system has technical shortcomings;
– local autonomous generation: cogeneration and small gas-fired units, etc.
And another tender
So where will this 1.5 GW of new distributed gas generation come from? The main hopes are pinned on a new tender planned for this year to build up to 1.3 GW of new generation capacity. It will be conducted under updated rules. Among the regions where new generation capacity is expected to emerge are Poltava, Sumy, Kharkiv, Chernihiv, Kyiv, Odesa, and Dnipro. There are also plans to hold auctions for the allocation of renewable energy support quotas, also under updated rules. Quotas totaling 330 MW have been set for 2026: 250 MW for wind power plants, 33 MW for solar power plants, and 47 MW for other types of renewable energy sources.
In fact, all these megawatts are intended to boost the regions’ energy capacity. Stanislav Ignatiev, Ph.D. in Engineering, agrees with the feasibility of creating “energy clusters,” citing Kharkiv’s “energy island” experience, while also pointing out other important nuances:
“This is a long process. First, Ukrenergo must present its vision and calculations: where and what needs to be built—and what can be built—to avoid destabilizing the grid. Then, conditions must be created to attract private capital investment into such projects, as investors have significant distrust of the state, particularly due to the debts of the state-owned enterprise “Guaranteed Buyer” to power generators under the “green” tariff. At the same time, there are projects demonstrating their effectiveness under wartime conditions—such as the example of Kharkiv, which is moving toward creating an “energy island”—and thus confirming the feasibility of establishing such “energy hubs,” the expert notes.
Investors’ distrust of government initiatives is fueled by references to the previous tender for the construction of new generating capacity. As a reminder, in 2025, Ukraine had already planned to build over 400 MW of additional electricity generation capacity. The business community showed interest in the tender, but this interest was “successfully” neutralized by Ukrainian officials at the time. The participants’ financial proposals were opened and evaluated. In April, the winners of the tender were even officially recorded in the minutes. But then a complaint was filed, and ultimately the process “stalled.” It is said this happened not without the assistance of the Ministry of Energy’s leadership at the time. At the end of the year, under a different leadership, there was an attempt to conclude this controversial tender. In December 2025, the Cabinet of Ministers even adopted a resolution changing the procedure for conducting the tender. It was announced that the new commission would be ready to make a decision on the tender proposals already submitted by participants without the need for a re-evaluation of those proposals. But something went wrong. And now the current leadership of the Ministry of Energy is announcing a new competition in the hope that it will yield results. According to the government, the following measures should contribute to this: the introduction of a new market premium model as a mechanism to incentivize investors to build new power plants; holding competitions for regional lots; and simplifying the qualification and financial requirements for competition participants.
But last year’s tender, which remains unfinished, left many questions unanswered. Gennadiy Ryabtsev, a senior research fellow at the Institute for Strategic Studies, has these questions as well. He is also puzzled as to why not a single tender for the construction of new capacity has been held in the past few months. The expert also has questions regarding the principles of power system development.
“It is important that all measures to be taken be aimed at increasing the stability and reliability of the entire system, rather than at energy separatism and the creation of isolated energy islands that are in no way connected to one another. And that resources be concentrated on solving the tasks that are a priority. Once these basic principles for developing the power grid had been implemented, a comprehensive Ukrainian plan would have needed to be approved. But instead, we have approved regional and city-specific resilience plans that contradict one another and will compete for 278 billion hryvnias—funds that are not in the budget to implement these plans,” the expert emphasizes.
At the same time—and this is also worth noting—specific officials in Kyiv will determine exactly who receives funds and how much. It will be interesting to see what the capital, for example, ends up receiving. As a reminder, the total budget for Kyiv’s resilience plan, at least according to the city government’s version, amounts to 61.6 billion hryvnias. Of this amount, the city can cover 10.6 billion hryvnias with its own resources. The need for additional funding is 51 billion hryvnias. The government, however—at least for now—is operating with figures of a different order of magnitude. On April 10, by government decision, regional state administrations were allocated “a total” of just over 732,510,000 hryvnias from the state budget’s reserve fund.
Regional Resilience
According to government estimates, the regions’ additional need for equipment currently exceeds 500 MW. Plans are in place to address this need in collaboration with international partners, particularly through the Energy Support Fund. Just last week, First Deputy Prime Minister and Minister of Energy of Ukraine Denys Shmyhal used a meeting of the Congress of Local and Regional Authorities under the President of Ukraine to tell community representatives how the government would support them.
“The government has already allocated funds from the reserve fund for the installation and connection of existing cogeneration plants in eight regions of Ukraine. The first tranche of 307 million hryvnias will be disbursed shortly. This will allow for the connection of 75 plants with a total capacity of 96 MW,” the official stated.
The Minister of Energy also announced that, in collaboration with the Ministry of Development and the Ministry of Economy, draft government decisions are being developed to simplify the procurement procedures for equipment within the framework of resilience plans, as well as related installation work. It turns out that previous decisions regarding the simplification of procedures were insufficient. This is confirmed by Stanislav Ignatiev, Ph.D. in Technical Sciences:
“There is a problem with connecting cogeneration plants to the grid. It takes quite a long time—about 9–10 months—to modernize power substations for connecting such plants. In other words, these projects cannot be implemented quickly.”
Gennady Ryabtsev, a senior researcher at the Institute for Strategic Studies, echoes this sentiment.
“Everyone says that everything is simplified here—both the design and commissioning. But when you start looking into it, it turns out that it’s not that simple. Indeed, if you’re a major investor—one who can, for example, get an appointment with the head of the regional administration, a minister, or another high-level official—then yes, the duration of design, supply, commissioning, and connecting the systems to the grid could take you about 7 months. “In other words, if you start now, a large investor, in the best-case scenario, will be able to commission this facility—which is currently being designed—just at the start of the heating season. If the investor is smaller, then the opportunities will be significantly fewer,” the expert notes.
The Minister of Energy also encouraged businesses seeking to establish their own power generation by noting that the government is currently separately addressing the issue of extending the use of PPA contracts to entities engaged in distributed gas generation. To clarify: Power Purchase Agreements (PPAs) allow for locking in electricity prices for the long term and minimizing risks associated with fluctuations in energy prices. The Ministry of Energy also plans to extend support to all newly constructed distributed gas generation facilities in frontline regions—that is, those commissioned starting in December 2022, rather than only from December 1, 2025.
The government is focusing the development of new generation capacity specifically on frontline and right-bank regions, which faced perhaps the most significant energy supply challenges this winter. It is specifically for CHP plants and cogeneration facilities operating in frontline regions that began operations after December 1, 2025, that the option to purchase gas at preferential prices has been retained. Given the government’s plans, facilities commissioned starting in December 2022 will soon be eligible for the same benefit. For other electricity producers, preferential gas prices were abolished on March 30. At the same time, as is well known, the cap on electricity prices was lowered. According to the Association of Distributed and Maneuverable Generation Entities, this price imbalance threatens the development of distributed generation in Ukraine: many facilities are forced to either limit their operations to peak hours only or shut down entirely.
And this unbalanced approach, which is being practiced in the country, also deters investors. This is emphasized by Oleksandr Kharchenko, director of the Center for Energy Research.
“All the investors who were considering investments in gas-fired generation have said, ‘That’s it, thank you, we’re no longer considering it.’ They were evaluating these investments based solely on market prices. But if you buy gas on the market and are offered to sell electricity at half price—that simply cannot be. Logically, the market price of electricity must match the market price of gas. Until we all face reality, the amount of generation will continue to decline. If, however, we change our approach to the electricity market, then those who are ready to invest money and build new capacity will come,” says the expert.
For a more realistic assessment of Ukraine’s needs and, of course, its plans, it is worth recalling a few more figures cited by the President of Ukraine at the beginning of the year. According to him, on January 15, electricity consumption in Ukraine stood at 18 GW, while the system’s capacity was only 11 GW. This imbalance has likely not changed significantly over the past few months.
Author: Serhiy Vasylevych
