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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