Ukraine is holding pilot renewable energy auctions today to attract investments in renewable power projects, but high debt and a lack of trust in state payments threaten any fast progress.
Ukraine’s energy sector is cash-strapped, as Russia has damaged, destroyed or occupied around two-thirds of its pre-war generating capacity.
As wind and solar parks are more decentralised than thermal power plants, they are harder to hit with missiles and drones. Attracting investors to finance the buildup of more renewables is therefore crucial.
However, such projects in the country are currently not profitable.
“There are hardly any projects that pay off,” Michael Salcher, head of energy at KPMG, told the author. “Investments in Ukraine are currently more social and humanitarian than an investment question.”
For this reason, today's auctions are trying to crowd private capital through a state-funded feed-in-premium, meaning that the state-owned 'guaranteed buyer' covers the difference between the auction and the market price.
Various stakeholders see the auctions as a positive step toward creating a functioning market.
“We hope that this pilot project will be replicated next year but with a larger volume,” said Oleksandr Selishchev, CEO of the renewable energy company DTEK Renewables, to Euractiv.
The auctions, however, have one major weak spot: the government's involvement. There are misgivings within the investor community, given the troubled past of government intervention in renewable funding in Ukraine.
Back in 2009, the government introduced a 'green tariff' which allowed investors to sell their renewable electricity at a higher price. But as the electricity generation from solar and wind power increased, the government lacked the financial means to pay the higher tariff, and retroactively cut the tariff by 40% in 2019.
While the government repaid parts of the debt to investors in 2024, a clear repayment plan for the future remains unclear.
“We have investors that are very reluctant to proceed to work with the state-owned off-taker,” Anastasiia Vereshchynska, CEO of the European-Ukrainian Energy Agency told Euractiv.
“Rebuilding the broken trust between the investors and the Ukrainian government would be the first step,” said Kostiantyn Krynytskyi from the NGO Ecoaction. But “I think it can be really difficult.”
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