Source: Ekonomichna Pravda
Since October 2025, Russia has reverted to a campaign of massive strikes against Ukraine’s energy infrastructure. However, the objective has shifted: the aim is no longer the isolated destruction of generation assets or substations, but a systemic drive to force the entire grid into collapse. Power grids, thermal power plants (TPPs), and generation and distribution facilities are under simultaneous assault—leaving no room for illusions regarding “specific directions of attack.”
In this climate, the energy community is justified in its insistence that the centralized integrated power system must remain the foundational operational model; abandoning it would be critically hazardous. This is a point difficult to contest. Furthermore, after nearly four years of full-scale war, the country maintains hope for a peaceful settlement beginning in 2026, which, ostensibly, provides little incentive for further grid fragmentation.
Yet, if we are to avoid self-deception, a different question arises: do we not realize that the war with the Russian Federation is an existential conflict that will not conclude as long as the aggressor state exists? Consequently, does this reality not demand the abandonment of established dogmas and a total revision of the logic governing electricity and heat supply? These questions are rhetorical; the answers are self-evident.
The practice of four years of war has provided sufficient concrete examples: renewable generation, maneuverable gas generation, and Energy Storage Systems (ESS)—which together form the bedrock of distributed generation—are capable not only of mitigating the effects of energy terror but of sustaining the basic functioning of the economy. This realization is gradually taking hold within state authorities and the legislature. However, reflecting on the results of 2025, we must honestly ask: are we truly doing enough?
These issues are dissected in this material by Olga Savchenko, Senior Partner at Altelaw & Sempra, and Ihor Retivov, Partner at Altelaw & Sempra.
Olga Savchenko, Senior Partner, Altelaw & Sempra
As of December 1, 2025, the indebtedness of the State Enterprise “Guaranteed Buyer” to renewable energy sources (RES) producers stood at UAH 15.56 billion, effectively correlating with the volume of debt owed by NPC Ukrenergo to the Guaranteed Buyer. Conversely, the settlement level for 2025 reached 95%, which served as a stabilizing signal for the market. This was largely a consequence of approving a transmission tariff closely aligned with economically justified levels. Settlement rates for previous years also remain relatively high: 99.2% for 2023 and 89.3% for 2024.
Nevertheless, even after three years of war, the issue of 2022 arrears remains unresolved, with the settlement level stalled at 66.2%. This problem is systemic, stemming directly from the lack of a regulatory framework for purchasing electricity from producers located in temporarily occupied territories, as well as unresolved issues regarding responsibility for imbalances.
The persistence of such debt forces producers to seek judicial recourse for recovery. This, in turn, imposes an additional financial burden on the Guaranteed Buyer in the form of court fees, legal aid reimbursements, and an enforcement fee amounting to 10% of the debt. Under current circumstances, a resolution is possible only through legislative intervention. Relevant proposals were included in Draft Law No. 13219, and the market awaits their adoption as a confirmation of state guarantees to RES producers.
Against this backdrop, while settlements with alternative energy producers appear relatively more stable than in previous years, the situation on the Balancing Market is critical. As of November 20, 2025, the debt of balancing market participants to NPC Ukrenergo reached UAH 41 billion—a level recently deemed highly improbable for this segment. Throughout 2025, this debt grew by 18.6%, with the increase being systemic rather than episodic, indicating profound structural flaws in the balancing market’s architecture.
Simultaneously, a counter-indebtedness is forming: NPC Ukrenergo’s debt to balancing market participants reached UAH 21 billion in mid-November, an all-time high and a 27% increase since the beginning of the year. Thus, a self-perpetuating “vicious circle” of debt has become entrenched in the balancing system.
The criticality of the balancing market crisis extends beyond absolute figures. Under such settlement conditions, regulatory simplifications or incentives lose their persuasive power for investors, particularly when making Final Investment Decisions (FID) for Energy Storage Systems, the development of which is a priority for the grid.
Theoretically, resolving the NPC’s debt issue involves two classic instruments: credit financing or the redistribution of funds from other revenue streams (specifically through the dispatch tariff). However, given the reputational crises of 2025, securing credit financing has become increasingly difficult; even when obtained, it is strictly earmarked—primarily for the “restoration” of damaged equipment. Furthermore, any surplus in the tariff remains unstable.
This configuration necessitates a conceptual solution beyond ad-hoc financial measures. Primarily, this involves a systemic review of Public Service Obligations (PSO) mechanisms and a genuine resolution to the non-payment issues of major debtors, including critical infrastructure enterprises.
Attempts to regulate procedures for addressing arrears, including the application of sanctions such as the termination of electricity supply, were embedded in Law No. 4213. This law established clear timelines for debt settlement and provided the right to disconnect non-payers. However, in practice, these norms are largely non-operational, as evidenced by judicial precedents.
A salient example is the ruling in Case No. 916/1701/25 (October 9, 2025), in which the court, bypassing the provisions of the law, ordered the Provider of Last Resort (POLR) to restore electricity supply to JSC “Odesa Port Plant,” citing potential environmental and social consequences. Thus, even the formal existence of legal instruments fails to impact the final outcome, proving that without political will, the problem of non-payments in the energy sector will remain systemic.
Ihor Retivov, Partner, Altelaw & Sempra
Ukrenergo Auctions Long-term auctions in the Ancillary Services Market, introduced by NPC Ukrenergo in 2024, have emerged as one of the few truly effective incentives for constructing new ESS and gas cogeneration units (CGU). These auctions provide a five-year guaranteed offtake of declared capacity at prices formed through competitive bidding.
As of December 31, 2025, Ukrenergo conducted four special auctions for the long-term procurement of ancillary services. Consequently, winners committed to constructing up to 810 MW of new ESS and CGU capacity. The deadline for commissioning these assets is set for November 21, 2026.
Notably, installations that were due for commissioning in 2025 under the initial auctions have indeed been constructed and have commenced operations. The cumulative commissioned capacity stands at 423 MW. While not decisive for the overall system balance, this volume is already exerting a positive influence on market operations and grid stability. Thus, the long-term auction model has proven itself to be efficient and viable.
Tenders for New Capacity Construction Under this model, formally provided for by legislation since 2019, a tender was finally announced in March 2025. Its goal was the construction of new maneuverable capacities with subsequent investment cost recovery for the investor over a 10-year period.
Winners were expected to be announced in late April 2025. However, the process stalled due to procedural failures and political-institutional factors. Following the preliminary determination of results, major players whose bids were rejected on formal grounds demanded a review, arguing that “excessive formalism” should not override economic logic. In reality, these demands undermined the very principle of tenders conducted under fixed, pre-defined rules.
The true cause of the delay, however, was not participant complaints, but the personnel and reputational crises within the energy sector. Corruption scandals involving former Ministry of Energy officials and allegations of political interference rendered any decision regarding the tender “toxic.” The tender committee effectively entered a “defensive mode,” preferring inaction over decisions made under political pressure. The procedure was only unblocked in late December following direct intervention by the Cabinet of Ministers, which legalized the conclusion of the tender without a full restart. To date, no information regarding new tenders under this model has been released.
Support Quota Allocation Auctions These auctions are the cornerstone of state support for RES producers. The logic is competitive: the state selects new RES projects, fixes an auction price for 12 years, and compensates the difference between the market price and the auction price via a Feed-in Premium (FiP) mechanism. The model also includes a “clawback” provision: if electricity is sold above the auction price, the producer must pay the difference to the Guaranteed Buyer.
In 2025, four such auctions were conducted, but only one was successful. This result points to systemic flaws in the current model. Auctions for solar (33 MW), wind (100 MW), and other RES sources (47 MW) failed due to a lack of participants, despite maximum price caps of up to 12 eurocents/kWh.
The lack of investor interest stems from a deficit of trust in regulatory stability, chronic arrears of the Guaranteed Buyer, and the legislative unattractiveness of the model itself. The sole success was a 150 MW wind auction on July 31, 2025, where DTEK Tyligulska Wind Power Plant secured support for 120 MW at 7.96 eurocents/kWh. This remained an exception rather than a rule.
Revitalizing investor interest requires legislative changes, specifically: extending the support period from 12 to at least 20 years, modifying the market premium mechanism to abolish the “clawback” obligation, and reducing guarantee payment levels. These proposals are consolidated in Draft Law No. 13219, which has been procedurally stalled for over six months.
In response, some RES producers have sought alternative instruments, leading to the Price Guarantee Fund concept—a private fund capable of guaranteeing a fixed offtake price for RES electricity over a long-term period. Supported by the EBRD and partner nations, a Memorandum on the Fund was signed in July at the Ukraine Recovery Conference (URC). The market expects the Fund to launch in 2026, marking the first example of a cross-border private-partnership support model.
Market Operations It is imperative to note that several Ukrainian and international investors have proceeded without state support, adding 324 MW of wind capacity for direct market operation. Industry estimates also suggest approximately 500 MW of solar capacity has been built, though precise figures are difficult to verify as most solar installations are intended for self-consumption.
Active Consumers The Active Consumer model allows for the installation of generation for self-consumption within permitted capacity limits, with minimal permitting requirements and the right to export 50% of surpluses to the grid. While widely used, the economic impact remains limited as the 50% export cap—which the market expected to be eased—remains in place.
Third-Party and Consumer (Direct Line) Article 58-1 of the Law “On the Electricity Market” allows for simplified interaction (without a supply license) between a third-party investor-producer and a consumer. This allows the investor to build generation with guaranteed offtake, while the consumer receives alternative power at below-market prices. This model is gaining significant popularity as a mutually beneficial business response to energy instability.
Aggregation In 2025, aggregation activities accelerated as a solution to the problem of stranded generating assets, primarily in private and municipal ownership. These resources often exceed the owners’ self-consumption needs but remain fragmented and unintegrated.
Aggregation integrates these installations for joint market participation, including the provision of balancing and ancillary services. From a legal standpoint, an Aggregator is a full market participant responsible for the balance of its aggregated units (on a “one region—one unit” basis). To date, seven companies have obtained dedicated aggregation licenses. In practice, the large-scale launch of this model is hampered by a lack of specialized software for internal dispatching, though IT solutions are expected to mature by 2026.
VAT Cash Accounting Method As of October 1, 2025, amendments to the Tax Code (Law No. 4536-IX) extended the special cash accounting method for VAT on electricity supplies until January 1, 2028. This alleviates the tax burden on market participants caused by late payments.
Tax and Customs Incentives In December 2025, the Verkhovna Rada extended the VAT and customs duty exemptions for energy equipment imports until January 1, 2029 (Laws No. 4710-IX and No. 4698-IX). Crucially, the list of exempt goods was expanded to include wind power components (turbines, towers, blades), which were previously not fully covered. This provides long-term predictability for decentralized generation investment.
Implementation of Law No. 4213
Pending Legislation (2026) Several initiatives are under review to improve the investment climate:
Is the state doing enough to ensure energy resilience? The answer is complex. On one hand, RES, decentralized solutions, and ESS are now integrated into state policy. On the other, the pace of change lags behind the scale of the challenges.
The Ukrainian energy market has reached a stage where further development depends less on the presence of “right ideas” and more on the state’s ability to transform them into consistent policy. Business is ready to invest and bear risk; the state’s task is to ensure these processes are scalable, predictable, and institutionally protected. This represents the necessary shift from reactive crisis management to strategic energy resilience.
Authors: Olga Savchenko, Senior Partner, Altelaw & Sempra Ihor Retivov, Partner, Altelaw & Sempra
More details
More details
More details
