More mechanisms to stimulate the distributed generation development

On 9 February 2025, Law of Ukraine ‘On Amendments to Certain Laws of Ukraine in the Fields of Energy and Heat Supply on Improvement of Certain Provisions Related to Conducting Business Activities and the Effect of Martial Law in Ukraine’ No. 4213-IX (the ‘Law’) came into effect. It, inter alia, aims to attract private investment for the installation of distributed generation on the sites owned by the state, local communities and municipalities.

The Law improves the conditions for the installation of the energy storages and power generating facilities from renewable sources – along the EU policies of the Clean Energy for All Europeans Package (2019), which emphasised an importance of self-sustainability and self-organisation of consumers and producers into autonomous energy communities and balancing groups. The restated wording of Article 9-6(20) of Law of Ukraine ‘On Alternative Energy Sources’ encourages an increase in power prosumers among the (i) private households, (ii) state-owned or municipally owned enterprises, and (iii) state and local authorities.

In accordance with the Ukraine’s national 2035 Distributed Generation Strategy, it is possible to combine the status of (i) producer and prosumer, (ii) cogeneration plant operator and prosumer. Previously, the statutes were interpreted to the effect that electricity market participant could have only one status determined by the largest share in the business entity's turnover or consumption. The ‘exclusive’ status, however, first shifted in 2022, when the energy storages were requested to have separate meters, thus, allowing one entity to be both a ‘producer’ and an ‘operator of energy storage’.

PPP in generation and cogeneration

The Law introduced new mechanism for third parties installing generating and energy storage facilities at state-owned and municipal property, which is, effectively, a public-private partnership (PPP) in the Build-Operate-Transfer (BOT) form, with the following key aspects:

• Third parties become tenants of state/municipal property and/or land plots and install generating plants on this basis;
• The balance holder of the plot (the property lessor) will purchase the entire volume of electricity generated, with the term of the electricity purchase and sale agreements being equal to the term of the lease agreement; 
• The balance holder of state/municipal property may acquire the status of an active consumer and sell surplus electricity. Such relations are not considered to be the supply of electricity to the consumer within the meaning of the Law of Ukraine “On the Electricity Market”.

The complexity of implementation for such BOT lies in the fact that municipal and state-owned companies, most of the time, do not own land plots, they have a permanent use easement. A permanent user cannot remain a balance sheet holder in the case of a lease to a third party - in such scheme, the land plot returns to the balance sheet of the owner - the state or a territorial community. Such balance sheet holders, however, do not engage in the purchase and sale of electricity as a commercial operation activities. The situation is quite similar when other property (e.g., buildings or networks) are leased: municipal and state-owned companies own those assets under the full economic management title (or, potentially under ‘usufructus’ (Article 14(8) of the Draft Law No. 6013 of 09.09.2021 ‘On Peculiarities of Regulation of Entrepreneurial Activity of Certain Types of Legal Entities and Their Associations in the Transition Period’, awaiting signature or veto by the President of Ukraine). That means the property in the form of ‘ongoing concern’, in many cases, cannot be leased directly but needs be returned to the owner's possession in order to be leased. Therefore, the scheme should be adjusted to reflect the actual state of property rights to the state and municipal property, including land plots. In addition, there may be additional value-added tax (VAT) liability taxation of assets transfers back and forth, which significantly increases costs of the investment phase, therefore, it would be preferrable to have an option of paying it in instalments or delay until the asset is returned (under the initial lease agreement) so that the credit and liability offset each other for the most part.

State and local incentives

The Cabinet of Ministers of Ukraine has delegated authority to approve a national special purpose economic programme for stimulation of distributed generation development.

In parallel, local governments are entitled, in addition to the national ones, to grant local incentives for the construction of generating facilities and energy storages through adoption and budget subsidies for territorial special purpose programmes. Such decentralisation of the support will allow, inter alia, to account for the regional consumption patterns as well as the needs of developers (investors) and new capacity operators.

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Read about other changes for developers of the renewable generating facilities in the Law 4213-IX:

Ukraine introduced capacity reservation mechanism for wind power plants