A chronic debt crisis is threatening to undermine Ukraine’s efforts to attract investment into renewable energy sources (RES). “Currently, the debt to producers under the green tariff is about UAH22bn [$526.6m],” said Daria Orlova, analyst at Expro Consulting.

Once a rare success story of international investment in Ukraine, the country's RES sector is now struggling to attract the necessary investment because of long-standing issues with payments to green energy producers.

Ukraine's green tariff is a mechanism designed to stimulate renewable energy development by guaranteeing above-market payments to renewable power producers (RPPs). The Guaranteed Buyer, a special state-owned entity, buys electricity from RPPs at a guaranteed premium, and sells it on the free market.

The Guaranteed Buyer is in turn funded by Ukrenergo, the state-owned grid operator. Ukrenergo funds the Guaranteed Buyer through a transmission tariff paid by end-users as part of their electricity bills and fixed by the National Energy and Utilities Regulatory Commission (NEURC).

Root causes

“The biggest problem that caused the debt crisis was the underfinancing of the Ukrenergo transmission tariff by the NEURC,” said Orlova. This has led to consistent underpayments to Ukraine’s renewable energy producers. According to Expro Consulting, in 2024 the Guaranteed Buyer paid only two-thirds (63.4%) of what was owed to renewable energy producers under the green tariff.

At the end of 2024 the NEURC raised the transmission tariff by almost 30%, which will prevent the accumulation of further debts. The increase was welcomed by Ukraine’s RPPs: “This long-awaited decision will help resolve the prolonged issue of debt accumulation in the market and prevent it from recurring in the future,” said Andriy Konechenkov, chairman of the Ukrainian Wind Energy Association (UWEA), in a public statement.

But in a sign of the difficulties of resolving the debt crisis, the increase in transmission tariffs was also criticised by industrial concerns. Metinvest Group, Ukraine's largest mining and steel company, told the GMK Centre that the increase “will negatively affect all sectors of the Ukrainian economy.”

Whilst the tariff increase will allow the Guaranteed Buyer to cover its obligations in 2025, the persistence of chronic debts to RPPs remains a problem. According to Orlova, there are currently no concrete proposals on how to clear these debts. Vladislav Sokolovsky, chairman of the Ukrainian Solar Energy Association, told Interfax Ukraine that repayment of the debts will require “external funding – it seems we do not have enough domestic resources.”

Impact on investment

These accumulated debts are a red flag for potential investors in Ukraine’s renewable energy sector. “Persistent debt is a sign of structural dysfunction in the industry and system,” said Olga Ryabchuk, managing director of Elementum Energy, in an interview with Energobiznes.

This dysfunction comes as Ukraine is attempting to rebuild its energy infrastructure after catastrophic war damage. Following Russia’s full-scale invasion, from a pre-war installed capacity of 56.1 GW, Ukraine has lost 18 GW to occupation, and a further 9 GW to destruction from Russian aerial bombardment.

Around 25% of Ukraine’s RES facilities are currently occupied by Russia, mainly comprising wind farms in the country’s southern regions, according to a report by the International Energy Charter. According to the Kyiv School of Economics, Ukraine’s energy sector will require $50.5bn of investment to address the country’s future energy needs.

Investment in renewable energy is seen as crucial to Ukraine’s future security. Solar and wind farms involve distributed generation facilities spread across multiple locations rather than centralised power plants, making them much harder to knock out with targeted strikes. 

Ukraine has also been keen to position itself as a key partner in Europe's decarbonisation efforts: “Ukraine is making every effort to create a climate-neutral European continent and is an integral part of achieving the goals of the European Green Deal,” Prime Minister Denys Shmyhal stated in 2021.

Past successes 

Ukraine's renewable energy sector has undergone a dramatic transformation over the past decade and a half thanks to the introduction of the green tariff. First introduced in 2008, in its early iteration the scheme was widely perceived as a sop to figures close to the government.

A provision stipulating that RPPs had to use Ukrainian-made equipment closed the market to outside investors. In 2014, for example, 85% of all solar generation in Ukraine came from one company, Activ Solar, which was controlled by Andriy and Sergey Klyuev, close associates of then-president Yanukovych.

Following the 2014 Maidan revolution, Ukraine set a goal of producing 25% of its electricity from renewable sources by 2035, and introduced a generous green tariff that was higher than equivalent rates offered to RPPs anywhere else in Europe. The result was a boom in investment: between 2014 and 2019 more than €4bn was invested into renewable energy, and the total capacity of biofuel, solar, wind and hydroelectric power plants (HPPs) increased from 967 MW in 2014 to 4.9 GW in 2019.

In a country that had struggled to attract outside investment, the scheme was a rare example of Ukraine successfully attracting foreign capital. According to the Razumkov Centre, by the end of 2021 the share of foreign investors in Ukraine’s installed renewables exceeded 35%. On the eve of Russia’s full-scale invasion, RES accounted for around 15% of Ukraine’s total installed capacity.

The successful development of Ukraine’s renewable sector, however, meant that the cost of supporting the industry through the green tariff became a significant burden, with substantial payments flowing to dominant players in the power generation sector. DTEK, controlled by Ukraine's wealthiest businessman Rinat Akhmetov, emerged as the primary beneficiary under the tariff, and several other high-profile business figures and politicians similarly established considerable renewable energy holdings.

Electricity market reforms

A series of chaotic reforms introduced in 2019 compounded the problem, as Ukraine attempted to move from its state-controlled electricity market to a liberalised model aligned with European standards. The country was not ready for this, and debts quickly piled up between market players. Ukraine’s balancing market, where electricity supply and demand are matched in real time to maintain grid stability, continues to creak under the weight of massive debts.

The Ukrainian government ultimately declared that the green tariff had become too burdensome and began looking for ways out of the commitment. As bne IntelliNews reported, the proposed cuts triggered a crisis amongst RPPs, seriously damaging Ukraine’s already weak investment image. President Zelenskiy ultimately signed a law reducing the green tariffs paid to RPPs, and a number of companies filed arbitration claims in response.

Ukrenergo issued a $825m bond in November 2021 in order to pay off its debts to the Guaranteed Buyer. Further headaches for the government were caused by reports that government officials had instructed the Guaranteed Buyer to withhold payments owed to DTEK under the green tariff scheme in order to put pressure on Akhmetov, who was at the time involved in a dispute with President Zelenskiy's administration. 

Green auctions

Another part of Ukraine’s efforts to reduce the strain imposed by the green tariff was the introduction of auctions for renewable energy capacity, where developers would compete to offer the lowest acceptable rates rather than receiving the fixed premium prices set by the green tariff.

Five years later, and Ukraine is still struggling to extricate itself from the costly consequences of the green tariff, which continues to undermine confidence.

"The debt crisis is hampering investment in the energy sector and overall trust in Ukraine, as the problem is related to the state. An important indicator is the green auctions held in 2024. There was no interest from investors," said Orlova.

The first green auctions were held in October and November 2024 for 11 MW of solar energy and 88 MW of wind energy. The solar auction attracted no participants, and only one investor, Turkish Atlas Global Energy, put in a bid for wind. Commenting on the auctions’ failures, the UWEA stated that the “auctions revealed a concerning lack of trust from both national and international investors in the state and its inefficiently implemented support mechanisms for renewables.” The UWEA highlighted the outstanding market debts as a major turnoff for investors.

The problem is also not limited to Ukraine’s RPPs: “The debt crisis in the energy sector concerns not only the green tariff, but also other segments, in particular, the balancing market and Public Service Obligations for households. The debt crisis is a major problem for investors in the Ukrainian energy sector and requires an immediate solution,” said Orlova.