Empowering Ukraine – Small distributed generation and reforming the energy system
In response to the Russian invasion and the attacks on the energy infrastructure, Ukraine’s government has prioritised energy decentralisation as one of the directions for improving energy security and resilience. The author of the brief, Oleksii Romanov, covers the current state of the industry and the stimulation system, analyses the plans for reforming this system, drafts the principles to guide future policy and the potential areas of German-Ukrainian cooperation for the decentralisation of Ukraine’s energy system.
Executive Summary
Small-scale distributed generation began to develop rapidly in Ukraine in the mid-2010s, driven by the government’s incentive system, which is based on green tariffs. Solar photovoltaic (PV) power plants have come to dominate this sector. This has increased the security of the local electricity supply but has also resulted in an imbalance between production and consumption.
To address these issues, Ukraine is planning a comprehensive reform of its incentive system. The reform will introduce “net billing” and promote the use of hybrid power plants that have energy storage systems. This reform aims at a more balanced and sustainable development of distributed generation as part of Ukraine’s green transition. Measures which might further incentivise the development of small distributed generation include the following:
- Providing support for households and critical infrastructure facilities to cover the cost of acquiring standalone or combined renewable and storage technologies;
- Liberalising the electricity market, including by easing the price caps in the wholesale electricity market;
- Abolishing subsidised electricity tariffs for households in the retail electricity market.
These measures could create effective economic stimuli for increases in energy efficiency and generation for self-consumption as well as for new business cases such as price arbitrage and stimuli for the aggregation of distributed energy resources of active consumers.
However, it is important to note that small-scale distributed generation is associated with potential drawbacks as well as benefits for the energy system, consumers, and society. This makes a carefully balanced and proactive policy approach essential.
Overall, distributed generation can contribute to Ukraine’s economic development and green energy transition. Germany is a European leader in this area, and Ukraine could benefit from policy, technological, investment, financial, and educational cooperation with Germany.
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