Ukraine’s Energy Sector Amidst War and Recovery: Investment Opportunities and Outlook

Valeriia Gudiy, Attorney, Partner

Anastasiia Leontieva, Lawyer

Source: EnergoBusiness

In the context of full-scale war, Ukraine’s energy sector has transformed from a purely economic industry into one of the key elements of the state’s defense capability. The scale of destruction inflicted by the enemy’s missile and drone attacks on critical infrastructure objects is unprecedented: according to international experts and KSE Institute reports, direct damages to Ukraine’s energy system exceed billions of US dollars.

These challenges have catalyzed market modernization – a strategic transition has begun in Ukraine from the centralized Soviet model to distributed generation integrated into the single EU energy space.

For large-scale businesses and foreign investors, such modernizations create a unique window of opportunity. As lawyers supporting the legal implementation of energy projects in Ukraine, we see that the foundation for a future “boom” is being laid right now through the adaptation of legislation to EU standards and the introduction of new market mechanisms.

New System Architecture: Decentralization and ENTSO-E

Ukraine’s Energy Strategy through 2050 clearly defines the priority: a shift away from vulnerable large-scale thermal power plants (TPPs) in favor of distributed generation. The development of such priorities is influenced not only by the security aspect but also by the state’s direction toward European integration.

Today, the allocation of cross-border interconnection capacity with Ukraine is already managed via European platforms, specifically the Joint Allocation Office (JAO). This means that the rules of the game are becoming clear for Western capital, and cross-border trade is becoming transparent.

At the same time, it is not all that simple, as Ukrainian legislation continues to apply within the territory of Ukraine; therefore, it is necessary to ensure the full compliance of the investor’s activities with Ukrainian law and the dynamic norms of regulatory bodies that determine the procedure for capacity allocation and the rules of operation in internal market segments.

Technological Vectors of Energy Market Development: Where to Find Profit?

Today, renewable energy (RES) projects, regulated by the Laws of Ukraine “On Alternative Energy Sources” and “On the Electricity Market,” are undergoing a modern transformation. We are observing a gradual shift from the guaranteed “green” tariff model to the introduction of competitive auctions and a transition to market-based sales conditions.

Solar Generation in Ukraine

Solar generation remains the most dynamic segment, currently having the highest installed capacity in the country. However, changes in state support policy have reoriented investor interest toward new operational formats:

• Industrial SPPs (Solar Power Plants) are oriented toward the free market, where the resource is sold at current market prices.
• Self-consumption model, which allows enterprises to cover internal power needs, directing only surpluses into the general grid.
• Small and medium-scale generation, the key goal of which is the direct optimization of business operating costs for electricity.

The “prosumer” (producer-consumer) model has allowed small producers to sell surplus electricity to the market and operate through aggregation mechanisms. For business, solar generation has become not only a source of income but also a tool for energy autonomy, which is especially important in conditions of restrictions or emergency blackouts.

Wind Energy in Ukraine

Wind energy remains one of the most promising directions for the development of decentralized generation, with a special focus on the southern and western regions of Ukraine. Before the start of the full-scale invasion, the installed capacity of wind farms (excluding the AR of Crimea) was approximately 1.5 GW. Despite current security challenges, the Government’s energy strategy and industry forecasts define an ambitious goal – bringing the total capacity of the sector to 10 GW by 2030, provided the situation stabilizes, and necessary financing is attracted.

From a practical and legal point of view, the entry of a foreign investor into this segment is a complex process that requires the sequential fulfillment of the following stages:

• Corporate structuring: creation and official registration of a business entity in Ukraine.
• Licensing: obtaining a license for the right to conduct activities related to electricity (NERC).
• Technical connection (interconnection): entering into agreements with NPC Ukrenergo and/or the relevant distribution system operator (DSO).
• Market integration: joining a balancing group and establishing imbalance settlement mechanisms to ensure stable operation in market segments.

Energy Storage Systems (BESS)

The newest but strategically important direction is the development of Energy Storage Systems (Battery Energy Storage Systems, BESS).

Legislative changes in 2022–2024 allowed business entities that have installed electricity storage systems to participate in the electricity market as separate participants – energy storage facility operators.

From legal and commercial perspectives, particularly according to the Law of Ukraine “On the Electricity Market,” the status of an energy storage facility operator opens wide opportunities for full participation in key market segments. Such an entity receives the right to conduct the purchase and sale of electricity on the Day-Ahead Market (DAM) and Intraday Market (IDM), strictly adhering to the established market rules and relevant regulations. In addition to standard purchase and sale operations, the operator can provide balancing services and ancillary services, which are of critical importance for maintaining stable frequency and the operational reliability of the entire energy system.

This allows facilities to accumulate the resource during periods of surplus and low prices, ensuring its release into the grid during peak load hours to obtain maximum margins. At the same time, investors should take into account that secondary regulation and specific legal models for the participation of such facilities in market processes are still in the stage of active formation, which necessitates thorough legal support during the development and implementation of projects.

Strategies for Entering the Ukrainian Electricity Market

For an investor in the Ukrainian energy market today, four main monetization vectors are available, each of which has its own legal specifics.

Day-Ahead Market and Intraday Market (DAM and IDM)

The legal basis for the operation of this direction is the Law of Ukraine “On the Electricity Market” and the relevant Rules approved by NERC Resolution No. 308 dated March 14, 2018. The DAM operates on the principle of an auction (trading) with the formation of an hourly price for the next day, while the IDM allows participants to adjust their trading positions closer to the actual time of electricity delivery. The organizer of the auctions is JSC “Market Operator,” and the deals themselves are concluded on a transparent electronic platform. For an investor, the DAM and IDM mean:

• the opportunity to sell electricity without long-term obligations;
• a mechanism of advanced financial security (settlements are carried out through special bank accounts with 100% financial security, which reduces the risk of non-payment);
• potential for obtaining increased margins during periods of deficit;
• the opportunity to receive additional income due to sharp daily price fluctuations.

In wartime conditions, the NERC periodically sets price caps (price limits) that directly affect the profitability strategy. These restrictions fix the maximum and minimum cost of electricity for different hours of the day. For highly maneuverable generation and energy storage systems, peak consumption hours create an opportunity for significant income growth, especially during system deficits, since it is the difference between the lowest (night) and highest (evening) price that forms their core margin.

Electricity Arbitrage

For energy storage facilities (ESF) mentioned above, an arbitrage model is characteristic: the facility charges during periods of energy surplus and low prices (for example, at night), and selling energy to the grid is possible during peak load hours, earning on the price difference. In addition to classic price arbitrage, the investor has the opportunity to enter another high-margin segment – the ancillary services market. Its functioning is regulated by the Transmission System Code (NERC Resolution No. 309 dated March 14, 2018). The essence of this market is that NPC Ukrenergo pays the battery owner simply for the readiness to instantly respond to the dispatcher’s command. Additional income here is formed from:

• providing frequency containment reserves (the battery automatically responds to the slightest fluctuations in the grid within fractions of a second);
• automatic and manual frequency restoration reserves (output or consumption of energy upon request to balance the system);
• providing other ancillary services to support the reliability of the energy system.

Although this direction requires the investor to undergo a special equipment certification procedure, high forecasting accuracy, and significant technological readiness, the implementation of such projects creates real opportunities for income diversification. This, in turn, can significantly accelerate the return on investment (ROI), which is a critically important factor in conditions of an unstable market situation.

Foreign Economic Activity (Export/Import)

The basic principles of cross-border electricity trade are established in Article 38 of the Law of Ukraine “On the Electricity Market,” and the direct rules for access to cross-border power lines are regulated by the Procedure for Allocation of Cross-Border Interconnection Capacity, approved by NERC Resolution No. 763 dated April 3, 2020. The allocation of cross-border interconnection capacity is carried out according to European and Ukrainian rules through Joint Allocation Office (JAO) auctions jointly with NPC Ukrenergo. For an investor, this income model is built on cross-border arbitrage – using the price difference between Ukraine and neighboring EU countries (Hungary, Slovakia, Romania, Poland, as well as Moldova). Marginality depends on the successful purchase of rights at the border crossing in daily, monthly, or annual auctions. To become a participant in cross-border trade and export/import electricity, a Ukrainian company must perform at least the following steps:

• obtain an EIC code (Energy Identification Code);
• acquire market participant status (obtain a NERC license for the right to conduct activities in supply or resale/trading of electricity);
• enter into agreements with NPC Ukrenergo (on imbalance settlement and on participation in capacity allocation);
• ensure financial guarantees to cover potential risks to transmission system operators;
• obtain accreditation at customs.

And for a foreign company to conduct cross-border trade with Ukraine, it is necessary to register as a participant in the wholesale energy market of Ukraine (provided that the activity complies with the requirements of Ukrainian legislation).

Aggregated Groups

A similar model allows small businesses to:

• minimize risks of penalties for deviations;
• obtain access to the wholesale market without creating their own staff of traders;
• significantly increase the economic payback of their projects.

The legal status of aggregators and active consumers is fully established in the Law of Ukraine “On the Electricity Market.” The practical mechanism for combining such participants is detailed in the Market Rules, approved by NERC Resolution No. 307 dated March 14, 2018. For small producers and active consumers, independent participation in the market faces obstacles in the form of strict requirements for forecasting accuracy: for any deviation of actual output from the forecast, the participant pays penalties for the cost of imbalances.

In addition, direct participation requires licensing, posting financial guarantees, and constant work on trading platforms. The aggregation model simplifies such obstacles, as it is a model of combining small objects into a single balancing group under the management of a professional participant-aggregator. In this model, the aggregator acts as the Balance Responsible Party (BRP) and takes on all operational work, including the formation of the deviation forecast and conducting trading in the wholesale market segments on behalf of the group.

The experience of Ilyashev & Partners team in fully supporting a foreign investor in the Ukrainian energy market clearly demonstrates that, despite complex regulations, the market is open. We help foreign players navigate the path from company registration to the first trading operation on the market without stress. Our task as a legal advisor is to turn complex bureaucratic procedures (licensing, opening special accounts, agreements with Ukrenergo) into a clear and predictable algorithm. Energy success today depends not only on technology but also on how competently the project is structured from a legal point of view.

This is the only reliable foundation for investment protection in a country at war. One of the stages is the legalization of activities and obtaining the appropriate status of a market participant. After the successful creation of a business entity in Ukraine and the assignment of the necessary identification EIC codes, our lawyers provide support for the licensing procedure at NERC – clear preparation of the document package allows for obtaining a license for the right to conduct electricity resale (trading) activities in the short terms, which is the foundation for further commercial activity of the investor.

The most significant challenge for foreigners is the process of concluding mandatory agreements with NPC Ukrenergo and opening bank accounts, which requires time and patience. But thanks to a balanced legal position and constant professional dialogue with the technical departments of the transmission system operator and bank employees, this process passes for the client without nervous stress. Ilyashev & Partners’ team continues to provide constant consulting on all legal issues that arise in the process of the company’s activities.

Why should foreign businesses enter the market now?

Ukrainian energy is currently entering the phase of forming a new model – more flexible, decentralized, and fully integrated into the European space. That is why the issue of entering the Ukrainian market should be considered not as a reaction to the end of the war, but as a strategic decision made directly at the moment of system transformation.

Waiting for post-war stabilization may lead to the loss of the most promising opportunities, as the further development of the industry will inevitably cause an increase in asset value and intensified competition for land plots. Despite existing military risks, the current period opens unique advantages for investors: access to strategic locations and significantly higher flexibility in negotiation processes, which allows for occupying a significant niche before the moment the market is saturated with global players.

We are convinced that the successful implementation of energy cases is possible not only through a technological base but also through the legal structuring of the project, which acts as the main foundation for protecting investment capital.