An Additional 1.5 GW: Will the New Generation Help Prevent Power Outages in Summer and Winter?
26 June 18:26
ANALYSIS FROM 
Ukraine plans to commission 1.5 GW of new distributed gas-fired generation this year. This is the type of generation that is already helping—and will continue to help—ensure the country’s electricity supply during the summer heat and winter cold. "Komersant Ukrainian" investigated how these plans are being implemented
Summer, heat, air conditioners, and… power outages. This has become a familiar, even routine situation—one that’s hard to get used to, though. It’s unlikely we’ll be able to avoid it this summer either. Energy companies are already noting a trend toward rising electricity consumption. For example, on the morning of June 25, consumption was 3.7% higher than at the same time the previous day. The reason for the increase is the persistent hot weather in Ukraine and the increasingly widespread use of air conditioners. And that’s not all: according to energy experts’ estimates, temperatures consistently remaining above 30 degrees result in an additional 25% increase in electricity consumption compared to normal levels. On top of that, summer is the season for scheduled maintenance at nuclear power plants. This year, energy companies have optimized the schedules for these maintenance projects. But at some point, electricity generation may hit a low, while temperatures and air conditioner use reach their peak. And then power outages will be unavoidable. Most likely, such a convergence can be expected as early as the second half of July. Although this summer—as experts acknowledge—the resilience of Ukraine’s power grid has increased, in part due to the development of distributed generation. And this process is ongoing.
Distributed Support
At a meeting of the Congress of Local and Regional Authorities in early April, Energy Minister Denys Shmyhal announced plans to launch 1.5 GW of new distributed gas-fired generation, explaining: “That’s as much as was commissioned during the entire Great War.” This helped everyone—not just those present—grasp the scale of the challenges.
In mid-June, the energy minister shared new figures that help assess how successfully and dynamically the process of expanding new generation capacity is progressing. According to Denys Shmyhal, the total capacity of distributed gas-fired generation in Ukraine has already exceeded 1.8 GW.
“In just the last 3.5 months, the regions have commissioned 338.7 MW. The largest amounts are in the Kyiv and Zhytomyr regions and in Kyiv. Construction work is currently underway to install 249 units with a total capacity of 522.8 MW. We expect work on most of these projects to be completed as early as September–November of this year,” the minister said.
Indeed, the pace of commissioning new capacity has remained high in recent months, and the main focus is now on rapidly deployable gas-fired power plants, which can be commissioned within a few months. These observations were shared with the publication "Komersant Ukrainian" by Stanislav Ignatyev, chairman of the Board of the Ukrainian Renewable Energy Association.
“Overall, it can be said that the distributed generation development program has already moved from the stage of emergency solutions to a systematic expansion of capacity. While the main task in 2024–2025 was the rapid installation of equipment to handle winter peak loads, in 2026 the focus will be on shaping a new power system architecture, one that is more decentralized and resilient to military risks,” the expert emphasized.
Stanislav Ignatyev also noted that the regions with the highest concentration of new generation facilities are those that have the greatest capacity shortfall following Russian attacks and, at the same time, remain important industrial centers. First and foremost, these are the Kharkiv, Sumy, Poltava, Dnipropetrovsk, Kyiv, and Odesa regions, which the government has identified as priorities for the further development of new generation capacity.
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Competitive Expansion of Power Generation
Ukrainian authorities are creating an updated power grid in the country based on the “energy honeycomb” principle. This new energy architecture has three levels: nuclear power generation, which ensures the stability of the energy supply; new distributed generation, which provides flexibility and balancing; and local autonomous generation. While local authorities are primarily responsible for developing the third level, the second level falls under the responsibility of the central government.
Perhaps the most important project aimed at increasing the capacity of the modernized power system is the government-announced tender for the construction of new generation capacity in Ukraine. This is the second phase of the tender. The first stage was not very successful. At that time, the total generating capacity put up for the tender was 700 MW. However, the business sector submitted projects with a capacity of only 78.1 MW. Why so little? Here’s the perspective of Daria Orlova, an electricity market analyst at ExPro.
“Investors still have little confidence in various state support mechanisms, as there are lingering effects of the green tariff, under which debts exceed 10 billion UAH. In addition, there was a significant delay in the actual announcement of the results of the first tender, which led many participants to withdraw from the process.”
According to Gennadiy Ryabtsev, a senior research fellow at the Institute for Strategic Studies, the main reason was, first and foremost, the mismatch between the level of risk and the proposed economic incentives.
“Investors take into account war risks, the high cost of raising capital, uncertainty regarding future market conditions, and the difficulty of forecasting revenues. Furthermore, some potential participants considered the maximum support parameters insufficient to ensure the profitability of new projects. As a result, only a limited number of projects were submitted to the competition,” the expert notes.
Accordingly, the Ministry of Energy’s task ahead of the second stage of the competition was to take business proposals into account and update the rules. The ministry assures that this “homework” has been completed.
New Competition—New Conditions
The scale of the government’s new proposal is somewhat impressive. Initially, 1,322 MW of new generating capacity was put up for the competition. But a few days ago, the government increased the total capacity to be put up for the tender by 183 MW—to 1,505 MW. Whether the construction of such capacity will actually materialize remains to be seen. For example, Daria Orlova, an electricity market analyst at ExPro, does not believe that the full 1.5 GW will be secured. However, she believes that demand from the business sector will be higher than during the first stage of the tender. Gennady Ryabtsev, a senior research fellow at the Institute for Strategic Studies, advises viewing the stated volume of 1,505 MW as a target rather than a guaranteed outcome of the tender.
“Achieving this volume will depend on the availability of financing, the security situation, and investor confidence in the long-term rules of the game. Under current conditions, achieving this goal is possible, but it will require significantly greater investment activity than was demonstrated in the first stage,” the expert emphasizes.
According to Stanislav Ignatiev, chairman of the Board of the Ukrainian Renewable Energy Association, the outlook for this tender is generally positive for several reasons.
“First, a pool of private companies has already formed in Ukraine that have experience implementing small- and medium-scale gas-fired power generation projects. Over the past two years, they have successfully commissioned dozens of new facilities, which reduces technological risks for future participants. Second, the need for balancing capacity is objective and long-term. Even after the war ends, the system will require significant reserves to balance the grid and integrate new renewable energy facilities. Third, the regional approach to the tender allows for a more precise consideration of local grid needs and reduces the risk of investment concentration in only certain regions,” the expert notes.
At the same time, he says, there are factors that could limit the level of competition. These include war risks, the high cost of capital in Ukraine, problems with investment insurance, and uncertainty regarding long-term electricity prices.
The tender terms also stipulate that each facility must have a guaranteed capacity of at least 10 MW and must be equipped with a second level of protection. Already, there are concerns that the requirement for a second level of protection will significantly increase project costs and may reduce investor interest in the tender.
A key incentive introduced in the second stage of the tender is the implementation of a market premium mechanism. Specifically, it is envisaged that a fee of up to 27.92 eurocents per 1 kW·h will be paid for the service of ensuring the development of generating capacity for 5 years after the facility is commissioned. This will apply in cases where the price of electricity during the morning and evening peak load hours designated by Ukrenergo as periods of shortage is lower than the cost per MW·h determined in the tender.
As Stanislav Ignatyev, chairman of the Board of the Ukrainian Renewable Energy Association, explains, the essence of the mechanism is that the investor receives income from selling electricity on the market, and if the market price is insufficient to ensure the project’s profitability, they receive an additional premium.
“This approach is widely used in EU countries because it allows for combining market incentives with a certain level of guarantees for the investor. From the perspective of attracting participants, the decision is logical and more market-oriented compared to direct tariff guarantees. It avoids placing an excessive financial burden on the state while ensuring basic revenue predictability for investors,” the expert emphasizes.
Gennadiy Ryabtsev, a senior research fellow at the Institute for Strategic Studies, also considers such a premium to be a more market-oriented and flexible instrument than a fixed tariff. However, for projects with high capital intensity and significant war risks, the premium alone may not be sufficient.
“Investors also expect guarantees that the state will fulfill its obligations, insurance against military risks, and access to cheaper financing. Therefore, a market-based premium is a necessary but not always sufficient incentive,” the expert notes.
Stanislav Ignatyev, Chairman of the Board of the Ukrainian Renewable Energy Association, emphasizes that if the market premium does not compensate for war risks and the high cost of financing in Ukraine, major international investors may approach the tender with caution. In other words, for many potential participants in the tender, the decisive factor will be not only the size of the premium but also the availability of state guarantees, mechanisms for insuring war risks, and support from international financial institutions.
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