Ukraine's solar gamble: auctions for decentralized energy

THE BIG STORY: How Ukraine is rebuilding its energy sector

Solar energy has become the primary focus of the initial reconstruction of the energy sector, as it is cost-effective, quick to deploy and decentralized. But the mechanism that was supposed to kickstart this market has been falling apart right at the start.

Over the past two years, two major pieces of legislation have been passed to form the backbone of decentralized energy auctions: 

Together, these provisions define how the auctions work. Developers compete for the right to receive government support for a new power-generation facility at an auction intended to advance renewable energy. 

The minimum support price is specified by each participant, which is expressed in euro cents per kilowatt-hour – the price at which they are willing to build. The winner receives a guarantee of this premium above the market price of electricity for a fixed term. In turn, the government controls the amount of new capacity entering the grid by setting a quota — the total number of megawatts offered in each bidding round. 

"For investors, the key point is that the market is becoming more predictable, has a longer planning horizon, and offers a lower entry barrier for new projects," said Vladislav Sokolovsky, chairman of the board of the Ukrainian Solar Energy Association (SEAE).

The distributed generation development strategy through 2035, adopted by Ukraine's Cabinet of Ministers in July 2024, was based on the assumption that smaller facilities are harder to target for attacks but can be deployed more quickly.

"The market is moving toward projects that are better integrated into the power grid. This is important for investors because such assets are more likely to offer a more stable revenue model in the future," Sokolovsky told BuildBack.

On March 13, 2025, Ukraine held its first auction to support solar energy, with 33 megawatts (MW) up for grabs. But no one showed up. The April 2025 auction for 100 MW of wind energy also faltered — though it did produce one winner, DTEK RES, with a 120 MW project. DTEK RES is the renewable energy subsidiary of DTEK, which is Ukraine's largest private energy company. On May 12, an auction for 47 MW of other renewable energy sources was held and also failed.

There were several key problems: 

"The previous model effectively capped investor revenues," Sokolovsky told BuildBack. "The maximum support price was set at up to 8 Euro cents per kilowatt-hour.”

“Under those conditions, investors saw no economic logic in participating. For the solar segment specifically, small quotas combined with an unattractive initial support offer meant solar investors showed no interest at all,” Sokolovsky said.

"We have investors who are very reluctant to work with state-owned consumers," said Anastasia Vereshchynska, CEO of the European-Ukrainian Energy Agency. "And we also have international financial institutions that are reluctant to provide loans to enterprises that are linked to the state-owned consumer."

Debt by the Guaranteed Buyer — the state-linked entity responsible for payments to renewable energy producers — accumulated significant unpaid debt to existing producers. 

"Accumulated debt to existing renewable energy producers was the strongest negative signal for any new investor," Sokolovsky said. "If the state or state-linked entities do not meet their obligations to existing producers, a new investor has no certainty that future payments will be stable."

The damage was cumulative and each broken promise to renewable energy producers added another layer of skepticism that new legislation alone cannot dissolve.

"Technically, conditions are better now, but the first step must be to restore the broken trust between investors and the Ukrainian government," said Kostyantyn Krynytskyi of the non-governmental organization Ekodia, which brings together experts and activists to protect the environment.

Even if the support formula were correct and payments guaranteed, a third obstacle would remain — the war itself. Foreign investors building generation assets in Ukraine face the possibility that those assets are destroyed. Ukraine has no mechanism to fully cover that loss.

"Without reliable insurance or loss-compensation mechanisms, foreign investors won't commit significant private capital to new-generation assets,” Sokolovsky said. “Ukraine needs an effective international war risk insurance mechanism — it is now beginning to be introduced.”

Under the new law, NEURC — Ukraine’s national energy regulator — must bring its own regulations into compliance with the new auction framework within six months — giving it until August 10, 2026. 

“Until this process is complete, auctions under the new rules cannot fully function,” Sokolovsky said.

“The auction results will serve as an indicator of whether the relevant legislative amendments have been effective,” said Hutarevych. 

On April 1, 2026, the Cabinet of Ministers approved quotas for 2026-2029, the government revised the 2026 figure upward to a total of 1 GW across all renewable technologies, including 700 MW of wind, 50 MW of solar, and 100 MW for solar combined with storage systems.

The approved quotas cover only five percent of Ukraine's projected solar generation needs through 2030, according to renewable energy producers estimates from the Center for Strategic and International Studies.

“Auctions cannot be the only answer to the capacity deficit,” Sokolovsky said. “On paper, the 2026-2029 quotas provide for roughly 1.4 gigawatts of supported capacity across all renewable technologies — a significant volume, but one that covers only part of what the system needs. And even if the support program is extended to 2034, it will still not be enough to fully close the gap.”

FRAMEWORK TAKES SHAPE

Two new laws, a restructured support mechanism, and billions in international financing represent a genuine attempt to fix what went wrong, even if the fixes are incomplete.

"The market premium model is a step in the right direction — it doesn't cap the investor's potential revenue with a fixed ceiling, and allows combining state support with the actual market price," Sokolovsky said. 

For lenders, the change in formula is necessary but not sufficient. 

"For banks, the issue is not only the formula used to calculate support payments, but also the certainty that such payments will actually be made when due," said Nataliia Hutarevych. "While the new legislation improves the structure of the support scheme, it does not entirely eliminate concerns regarding payment risk."

Sokolovsky argues three things would make the difference: an escrow mechanism as an alternative to bank guarantees, a functioning international war risk insurance instrument, and finalized NEURC regulations. “Investors still need payment discipline, war risk insurance, and regulatory certainty,” he said.

MEANWHILE, THE MONEY MOVED

While the auction mechanism was being reformed, funds were flowing through other channels.

In April 2026, the European Bank for Reconstruction and Development (EBRD) approved a $45 million loan to a Kernel, Ukraine’s largest agricultural conglomerate, subsidiary to construct a 106 MW solar power plant with a storage system in southern Ukraine, backed by partial guarantees from the European Union. The company plans to develop 600 MW of renewable capacity with a total investment of approximately $400 million. 

OKKO, Ukraine’s largest fuel retail network, received €157 million ($182.7 million) through the European Union's investment framework for Ukraine for wind projects. KNESS, a Ukrainian energy storage and renewables engineering firm, secured a €9.6 ($11.2) million loan from state-owned bank Oschadbank, guaranteed by the EBRD, for battery systems.

Donor support in the form of loans helps build power generation capacity, but large-scale IFI-backed plants contradict the decentralized logic Ukraine’s own state was built on. Furthermore, the construction of large-scale power plants creates a monopoly, which contradicts the logic of a competitive environment that, over time, lowers electricity prices for consumers.

Ukraine's energy investment landscape is now effectively divided, Sokolovsky argues. "An auction segment intended to create a long-term architecture for a competitive renewable energy market, and an institutional segment — IFIs, donors, international support programs — serving as an operational bridge during the active phase of the war," he told BuildBack. "The key question for the future is whether Ukraine will be able, once war risks decrease, to integrate these two tracks into a single market system."

The first auction under the new rules is expected in the fall. Under the new framework, the winner will receive a premium on top of the market price rather than a bilateral contract. Only time will tell if anyone will show up.

To understand what is at stake, consider what Ukraine is rebuilding from.

Since February 2022, Russia has destroyed or damaged more than 50 percent of Ukraine's energy infrastructure. By October 2024, 90 percent of thermal power generation capacity –  coal and gas-fired plants – had been destroyed. 

While the country's available generating capacity was approximately 38 gigawatts prior to the invasion, it dropped to 11 GW by January 2026. As of April 2026, Ukraine had restored about 4 GW of the lost capacity, but a serious deficit remains to get it back to pre-2022 levels.

According to estimates from the World Bank, the EU, and the UN, as of February 2026, the restoration of energy and heating networks alone will cost $90.6 billion, while the total cost of Ukraine's reconstruction exceeds $588 billion, three times the country's 2025 GDP.

At a working meeting of the Norwegian-Ukrainian construction hub in April 2026, participants discussed using abandoned underground facilities to house large-scale energy storage systems.

The logic is that underground infrastructure is safer from missiles, and stable temperatures make underground spaces an ideal environment for battery systems.

Ukraine has 13 underground gas storage facilities with a total working capacity of 32 billion cubic meters — the largest in Europe. Until 2022, they were actively used to transport Russian gas to the EU, but since transit ceased in 2025, most of the capacity has remained unused. The idea of repurposing this infrastructure is becoming increasingly relevant in negotiations with the EU.

As Ukraine rebuilds its energy sector, most solar panels and battery storage systems being deployed are Chinese-manufactured — cost-competitive, but subject to an increasingly demanding EU regulatory framework that includes product conformity standards, lifecycle and recycling requirements, grid integration rules, and cybersecurity obligations.

The question of what happens when Ukraine joins the EU — and some of this equipment no longer meets European standards — is already on the radar of investors and project developers. In practice, regulatory alignment in the energy sector is expected to happen progressively rather than instantaneously upon accession, with transitional arrangements for high-impact areas and differentiated timelines for existing assets, new projects, and system upgrades.

The financial exposure is real, however, and how it is allocated is ultimately a matter of contract. In renewable energy project structures, change in law provisions are designed to manage uncertainty from future regulatory shifts, including those stemming from EU accession. The financial consequence typically rests with the project owner and operator. 

"Equipment manufacturers are generally only responsible for compliance at the time of manufacture and delivery, and are not obliged to retrofit or upgrade products in response to subsequent regulatory changes unless this is expressly agreed," according to analysis by Sayenko Kharenko.

A key exception arises where the manufacturer also provides long-term operations and maintenance services — in those cases, the contractor may assume limited compliance obligations within the agreed service scope.

In May, President Zelenskyy visited Slavutych — a city built for workers at the Chornobyl Nuclear Power Plant, which has repeatedly been left without power due to attacks on substations in the winter of 2026. He inspected the construction progress of the energy hub, which is funded by the European Union.

"What is the importance of building distributed generation?" If you have 10 cogeneration plants and one of them goes down, you lose 10% of your generation. You can manage with the remaining 90%, adjust your schedules, and restore the lost capacity fairly quickly. However, if you have a single large combined heat and power plant, one strike could cost you 100% of your capacity, and restoration would take much longer,” said Yurii Fomichev, mayor of Slavutych.

The 2.2 MW hub is scheduled for completion by June 2026. It includes cogeneration units, solar equipment, and storage systems and will meet over 60 percent of the city's electricity needs.

On May 24, the first new hospital built in Ukraine since the start of Russia's full-scale invasion opened in the city of Brody in Lviv Oblast, western Ukraine. The pediatric facility will serve 120,000 children and their families in the region, which has taken in thousands of displaced people from the east of the country since 2022 and has faced a sharp increase in demand for medical care.

The project was implemented by the nonprofit organization Sunflower Network and cost $8 million.

"The project is a proof of concept for Ukraine's reconstruction: local leadership, global support, and modular construction that can be replicated in other communities with an urgent need for critical medical infrastructure," Jackson Weinberger, Associate Account Executive at Sunflower Network, told BuildBack.

The hospital was built using modular technology. The construction components were manufactured in Poland, transported across the border, and assembled on-site, while foundation work and the construction of a bomb shelter were completed simultaneously on-site in Brody. According to the developers' estimates, this approach reduces construction time by up to 50 percent compared to traditional methods.

The facility has been transferred to the ownership of the Brody City Hospital and is fully integrated into the Ukrainian healthcare system. The first patients are expected to arrive within 24-48 hours of the opening.

The project was designed by the American architectural firms CannonDesign and Pelli Clarke & Partners in collaboration with local Ukrainian and Polish teams. Partners include Northwell Health, Hines, the Polish construction company Climatic (as the module manufacturer and general contractor), Stanford Health Care, UCLA Health, and BJC HealthCare.

By: Oksana Zabolotna

Experimental Framework Agreement Procurement for War Recovery Projects Resolution of the Cabinet of Ministers of Ukraine №520 dated April 24, 2026

Why it is important: The resolution aims to speed up reconstruction procurement by allowing pre-qualified contractors to be selected in advance and reused for multiple projects. 

At the same time, the model creates governance and competition risks, as long-term framework agreements, simplified procedures, broad qualification mechanisms, and the use of non-price evaluation criteria may reduce transparency and limit competition during martial law.

Proposals: 

Stage: Will enter into force on June 25.

Initiator: The Cabinet of Ministers of Ukraine

What's next: Entering into force and implementation of the resolution.

RECONSTRUCTION | URC 2026 will take place in Gdańsk on June 25-26. The conference focuses on energy, critical infrastructure, and logistics, with a separate track on security and defense for the first time.

EU ACCESSION | On June 15, the EU opened the first cluster of accession negotiations with Ukraine — the "Fundamentals" cluster covering rule of law, public administration reform, public procurement, and economic criteria. The Commission says it is technically ready to open all six clusters; the optimistic timeline puts membership at 2030-2031.

FINANCE | The World Bank has approved $3.39 billion in financing for Ukraine to support reforms, job creation, and private-sector development. The package targets SME support and private investment attraction, veteran entrepreneurship and women's labor market participation, and Ukraine's further integration into EU markets, including energy and agriculture. 

CRITICAL MINERALS | The European Commission has granted a Ukrainian lithium project strategic status, which means expedited access to EU funding and streamlined permitting procedures.

ENERGY | In April, the EBRD and the Ukrainian government agreed to support the construction of 700 MW of new generating capacity, including cogeneration, distributed generation, and battery systems, by the start of the 2026-2027 heating season. Tenders for equipment and construction are expected to be announced in the coming weeks.

FINANCE | Naftogaz — Ukraine's largest company by share of GDP, a leading enterprise in the country's fuel and energy sector — has repaid the first tranche of a nearly €1 billion loan from the EBRD, which it took out to purchase gas.

FINANCE | In April 2026, the European Commission and the EIB announced a new financial package worth over €600 million for urgent reconstruction projects in Ukraine: roads, railways, power grids, and energy efficiency.

"Can't you see the glass is falling?" exclaimed a café worker near one of the impact sites in Kyiv on May 24.

"Could you be a little calmer? We've also had a sleepless night, we might not be paying attention!" replied a passerby, clearly annoyed by the remark.

Both of them went back to their business within a minute. The passerby headed to the post office to pick up a package that had miraculously survived. The café worker cleaned up the mess inside caused by the attack.

No matter how the night goes, morning always follows.