Podcast “Reconstruction” with Roman Nitsovych: The Fragile Resilience of Ukraine’s Energy Sector

On Western assistance with energy equipment

The flow of Western technical assistance has been ongoing since the beginning of the full-scale invasion when the first strikes on energy infrastructure began. The question now is one of priorities.

Of course, generators are the top priority now. The government has ambitious plans to ensure that all critical infrastructure, including schools, hospitals, administrative buildings, and all(!) heating and water supply systems, are equipped with these backup power sources before winter.  

It’s important to understand that we need different types of equipment. For example, small generators, which are familiar to many, are suitable for schools, but industrial pumps require much larger generators, which are the size of a large room.

In addition to the diverse needs, they are also constant. Even in a hypothetical situation without further attacks, it’s still necessary to repair damaged infrastructure. You can’t just buy a turbine for a power plant like you would a power bank. For its repair or replacement, Ukraine either requests equipment from decommissioned power plants in friendly countries or procures it through a special order (often with external financial support—Ed.), which takes considerable time.

Of course, without humanitarian aid, none of this would be possible.

On the risk of fuel shortages

It is unlikely that a critical fuel shortage will occur due to increased generator demand. The first concerns about this arose in November 2022, but even then, the demand didn’t change significantly (only a 10-15% increase).

The thing is that the typical fuel consumption of a household generator is comparable to the regular consumption of a passenger car in a city. Therefore, any sudden increase in demand would not be as “shocking” as some might fear. 

Currently, there are even fewer reasons to worry about fuel shortages, as logistics have been completely restructured over the past two years, fuel is distributed across various storage facilities, and the market is competitive and non-monopolized. As a result, it is capable of meeting higher demand levels.

On the 3D model

Currently, the energy discourse revolves around the concept of “diversification.” This usually refers to diversifying energy production and Ukraine’s plans for building new infrastructure. This concept is part of the so-called “3D model for Ukrainian energy,” which includes diversification, decarbonization, and decentralization.

Diversification means a country’s energy sector does not rely on a single technology or energy source. When it comes to electricity, despite a slight tilt toward nuclear energy, Ukraine did well in this regard even before the war.

Our energy mix is quite balanced. Over 70% of all electricity was produced using nuclear and renewable energy sources, which is something not many countries can boast about. However, this is still not ideal, and we need to accelerate our transition away from coal-based energy toward cleaner sources and toward decarbonization—reducing carbon emissions. 

Of course, anything that can be restored from coal-fired power plants should be, but the country’s long-term plans do not include expanding this type of generation. It’s not an economically rational decision, and it’s unlikely that partners would allocate funds for such projects, as these decisions don’t align with progressive Western energy trends.

Finally, decentralization. Our energy system is a legacy of Soviet-era “gigantomania”: huge thermal power plants, nuclear power plants, and high-voltage transmission lines designed to deliver electricity to the end consumer. This is the opposite of decentralization. The idea of decentralized, distributed generation is based on placing energy production as close as possible to consumption: “produced here and consumed here.” 

As a result of this approach, high-voltage lines and large installations become unnecessary, while the role of distribution system operators and new market players increases. These include aggregators, energy storage facilities, and prosumers (consumers who also produce electricity, partially covering their own demand and even selling excess energy on the market).

This energy model is already embedded in our legislation and aligns with modern European regulations. 

On the future of electricity tariffs

The government raised electricity tariffs for households by 64% on June 1. From the perspective of long-term industry development goals, this is only a “half-step.”

The logic is as follows: when the state sets low electricity prices for the population, someone is losing revenue and incurring losses. In our case, two state companies—Energoatom and Ukrhydroenergo—are effectively subsidizing local suppliers. The constant lack of funds prevents investments and hinders recovery, modernization, and the construction of new plants and distribution systems. Most of these facilities were inherited from the Soviet Union. For the last 30 years, we’ve simply been relying on this legacy without the funds to offer anything new in return. 

This year’s price increase slightly narrows the gap between the set and the actual market value of electricity, which should currently be at least UAH 5-6 /kWh, thus somewhat “smoothing the rough edges” of the losses.

Of course, real incomes have decreased due to the war, especially for public sector employees and vulnerable populations. Hence, establishing a full market price for electricity is not feasible at the moment. However, in the future, we must understand that European integration will require us to take this step. 

In European countries, the price of electricity can reach up to €0.40/kWh. While it is often regulated and reduced, this is only for truly vulnerable consumers, where “vulnerability” is clearly defined by specific criteria.

Even in cases where certain population groups are protected, the state still has to compensate the difference to producers or suppliers. Ukraine’s generosity in “protecting everyone” with low tariffs is something even the most developed countries cannot afford.