28.09.2026
Hanna Pozdniakova, Director of RSE Group Ukraine
Until just a few years ago, discussions about on-site generation often started with the question: “What capacity do we need?” Today, that is no longer enough. If a company plans to raise debt financing, the bank will ask a different question: what will generate the cash flow needed to repay the investment?
According to the National Bank of Ukraine, as of early September, Ukrainian banks had financed energy projects in 21 regions, with total financing reaching UAH 63.3 billion. The capacity of financed generation projects exceeded 2 GW. Another 895 MW accounted for energy storage and heat generation projects.
For comparison, at the beginning of February, the total volume of such financing stood at UAH 36.6 billion, while the financed generation capacity amounted to 1.37 GW. These are official NBU figures.
This dynamic points to an important shift. Energy projects are gradually moving from the category of urgent crisis-response expenditures into the category of full-fledged investments. Banks are already prepared to finance generation, energy storage and the modernization of heating infrastructure. But having equipment in place does not automatically make a project bankable.
For a business, on-site generation can create economic value in several ways. It can replace electricity purchased from the grid, enable the use of heat, reduce losses caused by production downtime, or generate revenue through electricity sales and participation in energy markets.
For a bank, the key is whether this economic result can be quantified, verified and forecast over the entire loan term.
If a project is designed primarily to meet the company’s own energy needs, its main financial benefit will be cost savings. In that case, the project should demonstrate an actual consumption profile, current electricity and heat costs, the expected operating pattern of the equipment, and the projected reduction in grid purchases.
The cost of downtime also matters. For a cold-storage facility, metallurgical process, food production plant or data centre, even a short power interruption can cost more than the electricity itself. However, these losses need to be supported by actual production data rather than a general statement about the importance of uninterrupted operations.
If, on the other hand, a project plans to generate revenue by selling electricity, the bank will assess the buyer, the price, the contract term and the risk of changing market conditions. The World Bank identifies a power purchase agreement as one of the key documents in an energy project because it establishes the main revenue stream and allocates risks between the parties. Its terms directly affect the project’s ability to secure financing.
A forecast of high electricity prices is not a financial model in itself. A bank will almost certainly test what happens under a less favourable scenario. For example, what if the market price falls, fuel becomes more expensive, commissioning is delayed, or the equipment operates fewer hours than expected?
A viable project must be able to service its debt not only under an optimistic forecast.
Cogeneration projects require particularly careful modelling. A gas engine-based cogeneration unit produces electricity and heat simultaneously. The economic advantage lies precisely in making useful use of both outputs.
The European Commission defines cogeneration as the simultaneous generation of electricity and useful heat. When the thermal energy is properly utilized, the overall efficiency of a cogeneration unit can approach 90%. However, this is not an automatic characteristic of every project. The benefit arises only when the heat is actually used in production, hot-water systems, heating, drying, steam generation, or cooling through absorption technologies. This follows directly from the European Commission’s approach to high-efficiency cogeneration.
If a business needs heat for only a few months of the year and releases it into the atmosphere during the rest of the year, the economics change. The financial model must reflect actual hourly and seasonal demand rather than nominal thermal capacity. Alternatively, the project may incorporate a heat pump and chiller to make more efficient use of the heat or convert it into cooling.
That is why a larger unit does not necessarily mean a better project. Oversizing can result in operation at partial load, more frequent shutdowns, lower efficiency and a longer payback period. A bank is not looking at the maximum figure in the equipment’s technical specifications. It is looking at how many hours per year the equipment can operate in an economically justified mode.
For gas- or diesel-fired generation, the fuel model is one of the core elements of the project.
It is not enough to take today’s gas or diesel price and carry it forward for the next seven years. Several scenarios are needed, taking into account changes in market prices, transmission and distribution tariffs, taxes, regulatory conditions and exchange rates.
The physical availability of fuel is a separate issue. For a gas-fired unit, the project needs to confirm the technical connection conditions, required pressure, available network capacity and the timeline for constructing the necessary gas infrastructure. For diesel generation, important considerations include reserve volumes, storage conditions and the ability to replenish supplies during a prolonged outage.
In conventional project finance, a fuel supply agreement sits alongside the power purchase agreement, grid connection arrangements, construction contract and operations and maintenance agreement. Together, these contracts allow risks to be allocated among the fuel supplier, contractor, equipment operator and project owner.
Financial models often calculate equipment costs in great detail while underestimating maintenance and servicing. Yet every unplanned outage means lost revenue or a return to more expensive electricity purchased from the grid.
That is why the bank needs to understand who will service the equipment, where critical spare parts are stored, how quickly a service team can respond, and what availability levels the supplier guarantees.
A good service contract should cover more than scheduled maintenance. It should specify response times, the responsibilities of each party, emergency repair procedures, a major maintenance schedule and a clearly defined operating budget for the entire service period.
For battery energy storage systems, this also includes projected battery degradation, the permitted number of cycles, manufacturer warranties and the potential need to expand capacity in the future. For cogeneration, important factors include service intervals, engine life and the schedule for major overhauls. For a backup diesel generator, regular load testing is required even if the unit is rarely used.
In other words, a lender assesses not only whether the equipment can generate energy. It also assesses the probability that the equipment will be available precisely when the financial model depends on it.
In Ukraine, technological and market risks are compounded by war-related risks. These affect insurance, the collateral value of equipment, the cost of capital and an investor’s willingness to enter a project.
MIGA, the World Bank’s Multilateral Investment Guarantee Agency, explicitly notes that political and war-risk insurance has become a prerequisite for many investors operating in Ukraine. Such insurance can cover non-commercial risks, including damage resulting from war. At the same time, it does not eliminate the need for a high-quality project. MIGA guarantees can reduce part of the external risk, but they cannot compensate for a weak financial model, inadequate servicing arrangements or unconfirmed fuel supply.
This makes physical protection, equipment diversification, redundancy of critical components and a recovery plan increasingly important. These measures need to be incorporated at the design stage and included in the project budget rather than added after the loan has been secured.
A company does not necessarily need to come to the bank with a fully completed project. But a single commercial offer from an equipment supplier is not enough either.
I would advise businesses to prepare at least the following:
Financing for such projects is already available in Ukraine. For example, the EBRD’s Energy Security Programme has a total volume of €2 billion and operates through partner banks in Ukraine. It supports investments in distributed generation, renewable energy, energy storage and energy efficiency. However, even when credit and guarantee programmes are available, the financing decision ultimately depends on the ability of a specific project to demonstrate clear economics and manageable risks.
More than 2 GW of financed generation capacity indicates that Ukraine’s energy market is becoming more mature. Banks have developed experience in financing these types of assets, the regulator has created additional enabling conditions, and businesses have gained access to a broader range of financial instruments.
The next challenge is not simply to increase the number of installed megawatts. It is to develop projects with predictable cash flows, secured fuel supplies, efficient use of generated energy and the ability to operate reliably for years.
A bank does not finance the equipment itself. It finances the logic that allows the equipment to generate economic value and repay the capital invested in it.
