The New Law on Decentralized Generation: What It Offers to the Market and Where Gaps Remain

Olga Savchenko, Senior Partner at Altelaw & Sempra, participated in the DiXi Group panel discussion “Energy Security Talks: Summer Outlooks,” dedicated to navigating the summer season and developing decentralized energy in Ukraine.

The law responds to market demands but comes late.

The recently adopted Law No. 437-K has become the core legislative act for the development of decentralized generation and renewable energy. Initially intended to regulate support quota allocation auctions (“green auctions”), it ultimately addressed a much broader scope of issues across its 60 pages.

“The law is generally positive and directly addresses market proposals and needs. However, it emerged in the fifth year of the war. Given the urgent need for private investment in the energy sector, we must act faster with both primary legislation and the secondary regulatory framework beneath it,” noted Olga Savchenko.

What the Law Changed: Key Innovations

Auctions received new capabilities. The implementation period has been extended until 2035, the entry threshold for participants has been lowered, technical non-compliance issues of already constructed facilities have been resolved, and project implementation deadlines have been extended to account for martial law. A new category for SPP (Solar Power Plant) + BESS (Battery Energy Storage System) auctions was introduced with a price cap of €12/MWh. The auction quota for 2026 is set at 1 GW.

A major systemic change: while the auction mechanism previously functioned essentially as a contract for difference (CfD), it has now shifted to a pure market premium (feed-in premium). “This is exactly what the market wanted and needed,” Olga comments.

However, a fundamental issue remains regarding the counterparty. The counterparty under the auction model is still the State Enterprise “Guaranteed Buyer” (GarPok), an institution burdened with accumulated debts from 2022 and subsequent years. Due to a lack of institutional trust in this mechanism, European investors and financial institutions view it with inherent skepticism. Resolving the debt issue is a task that should have been handled “yesterday.”

Flexible Connection: The law established the possibility of utilizing existing substation capacities with subsequent scale-ups of connection capacity. Secondary legislation is actively being drafted. At the same time, practical approaches among different DSOs (Distribution System Operators) vary significantly, which requires strengthening control mechanisms and accountability for timely, high-quality fulfillment of obligations.

“Connecting everyone to everyone.” The new configuration allows consumers, producers, and various types of generation to interact with each other, opening up opportunities to utilize consumers’ unallocated/free capacities.

Yet, a gap remains concerning ESS (Energy Storage Systems). An energy storage system co-located with a producer receives the right to preferential tariffs for distribution, transmission, and dispatch, but lacks the right to charge from the grid without obtaining separate technical specifications (grid connection conditions). Given the large volume of already built solar facilities that require balancing, this bottleneck hinders incentives for developing ESS alongside such assets.

Bilateral Agreements for Gas Cogeneration: The law enabled their execution. However, combining this provision with current price caps fails to create sufficient conditions for developing decentralized gas generation adjacent to consumers.

Guarantees of Origin: The law regulated the mechanism for their recognition. Making this tool fully operational will potentially open up opportunities for exporting electricity at a premium.

Legislative progress is real, but the speed of adopting secondary legislation, resolving the Guaranteed Buyer’s debt issues, and fine-tuning regulations for ESS remain critical conditions for the new rules to truly serve as a powerful investment signal.

Altelaw & Sempra provides comprehensive support for projects in renewable energy, ESS, and energy facility construction at all stages: from securing permits and technical documentation to commissioning and market entry.