21.04.2026
On April 28, at the Energy Club forum «Distributed Cogeneration – 2026», market participants will discuss what has ceased to be a theory: the energy resilience of cities (read: Ukraine’s energy system) today directly depends on whether distributed generation will start working in reality, rather than just on paper.
Despite the course for its scaling declared by the state, the industry has effectively reached a regulatory dead end: market gas prices combined with limited price caps on electricity make cogeneration economically unprofitable. As a result, units are stopping, and investors are postponing new projects and slowing down the development of existing ones.
In this context, the position of Roman Shved, Executive Director of UKRTEPLO, who will be one of the forum’s speakers, is illustrative. In an interview with the Energy Club media department, he states directly: the problem is no longer just the cost of resources, but the absence of an economic model itself. Business cannot predict the return on investment—and therefore, it is not ready to enter new projects.
The expert also emphasizes a systemic conflict: gas is sold at market prices, while the electricity market remains regulated. Under such conditions, cogeneration risks losing its economic sense and, along with it, its investment attractiveness.
A separate problem is the dependence of cogeneration on district heating companies (TKEs), which are themselves in a state of financial crisis. Without resolving the issues of tariffs, debts, and rules of interaction with cities, the full scaling of distributed generation looks unlikely.
– Mr. Roman, looking at the situation through the eyes of a private investor and operator of energy projects, what is the main barrier today to the development of distributed cogeneration in Ukraine: gas prices, price caps, regulatory unpredictability, or the lack of long-term rules of the game?
– Everything mentioned in combination constitutes the barrier. When gas is market-priced, but the price of electricity is not. When businesses don’t know the price of gas, not just in advance, but even after the generation period has begun.
Another example—connection fees were canceled but will return soon, so they will already exist for new projects. Since attracting financing and constructing facilities takes time, this already creates uncertainty in the business plan.
Regarding cogeneration, there is an even bigger problem—heat utilization. It is economically feasible, and therefore possible, only in combination with TKEs. This is another problem of the Ukrainian market: subsidized gas and unrefunded tariff differences on one side; and locations in large cities where mayors are afraid of private investors, the land belongs to someone else, and access to networks is limited on the other. Moreover, cities disconnect gas in the summer, including for cogeneration.
– To what extent does the current market model allow private business to enter cogeneration projects for cities and communities, not as a one-off crisis story, but as a long-term business?
– To be honest, it is a problem to enter cogeneration even as a one-off crisis story. We succeeded quickly because there was already a legal platform built before the war. Also, this is a specialized business: it requires niche specialists and has a very high entry barrier.
For communities, this is a crisis story; only a few (Rivne, Cherkasy, Khmelnytskyi, as well as frontline territories—out of acute necessity and a large amount of donor equipment) view it as a long-term business.
– Is it correct to say that today the problem is no longer just the cost of the resource, but the absence of an economic model in which an investor can actually predict the return on invested funds?
– Yes, the model is no longer very interesting, even with heat. But let’s remember solar—there, 15-20% annual returns in foreign currency with a transparent and predictable cash flow in a calm market were very attractive, especially in a market with low interest rates.
Now, even with heat, the IRR will be 20%, however:
– What signals is the market currently receiving from the state: does Ukraine truly want to scale distributed cogeneration, or are we seeing a contradiction between political statements and actual regulatory practice?
– Unfortunately, for now, it’s a contradiction. But there is an important nuance here—building distributed generation without heat utilization is simply uninteresting due to high fuel consumption and, consequently, low profitability. And with heat utilization, it is very difficult and risky.
– How do low price caps in the electricity market affect the decisions of private companies to invest in new cogeneration units?
– We see a decrease in appetite and the freezing of projects. But we note that international donors continue to supply free equipment to communities and state companies. How is all this together supposed to affect investor appetites?
– Speaking of the next 12 months, what is more important for an investor: the return of special conditions for gas, a review of price caps, or the emergence of a separate support model for distributed generation?
– These are projects with a payback period of at least 4+ years; accordingly, one year solves nothing.
In Ukraine now, more than ever, the need for distributed generation is only growing because so much solar generation has been installed. Consequently, the further we go, the greater the imbalance in Day-Ahead Market (DAM) prices will be (zero prices during the day and very high prices in the evening). Therefore, only one thing is needed from the state—fair and, most importantly, predictable rules of the game. You cannot sell gas at market prices while simultaneously limiting electricity prices.
I am against PSO (Public Service Obligations) or separate artificial support models because these are all subsidies—large expenses for the state. Moreover, the state has repeatedly violated its obligations regarding such models (“green” tariff, debts on the balancing market, memorandum on heat energy tariffs). Accordingly, we will spend money and still won’t build many new facilities.
Therefore, as a conclusion—price caps need to be eliminated or moved to an entirely different level where they serve a different role (for emergencies, rather than permanent daily market conditions).
Separately, we note that we still have a large PSO for heat and an unbalanced situation with tariff differences—consequently, the heat produced by cogeneration will not be paid for.
What could truly work is a state program for war risk insurance for all facilities. This would significantly facilitate investment or the attraction of capital. The state introduced a similar program, but in both the first and current versions, it is very fragmentary, and we are unable to use it.
– To what extent are Ukrainian cities and district heating companies ready to be full partners for private business in such projects today? Where do you see the biggest weaknesses—in finances, contracts, political will, or management capacity?
– Ready to be partners? Theoretically ready—come and install.
Are they ready to be full partners? Not at all—projects are planned to be loss-making, with lawsuits and enforcement proceedings worth hundreds of millions/billions of hryvnias, and the blocking of accounts and gas supplies. TKEs receive gas at a price roughly 3 times cheaper, but at the same time, they are entitled to receive conditionally 50% of the full tariff, which is calculated based on this cheap price. In figures, the full tariff is conditionally 4000-4500 UAH/Gcal, while the applied tariff is around 2000 UAH/Gcal, of which approximately half is the difference from the artificially subsidized “Naftogaz” gas price, and the other half is what the state promises to compensate but fails to do, continuing to accumulate multi-billion debts for TKEs.
At the root of the problem is political will at the state level, which has kept the industry in a catastrophic state for a long time. All other problems exist too, but they are not as significant and are easier to solve.
– Is there a risk that due to current regulatory uncertainty, investors will simply freeze or postpone projects until better times? If so, what signal from the state could stop this process?
– Yes, definitely, there is a risk. Existing projects might work, but likely in a limited mode, while new ones will definitely be frozen unless fair and predictable conditions are established for players (either a full market or a predictable artificial subsidy model).
– What do you see as the optimal model for Ukraine: a focus on municipal cogeneration, private projects, public-private partnerships, or a combined approach?
– The question is what we need. If we need a small volume—slowly, not what is needed but what donors provide—then municipal generation is the right path.
If we need to gain volume quickly—that can only be private projects.
Public-private partnership is a complex, lengthy process that ends with constant active attention from law enforcement agencies. Large projects can be built here, but one must prepare for years before construction begins.
– Speaking as practically as possible, what decisions need to be made before the start of the next heating season so that the topic of distributed cogeneration doesn’t just remain in presentations and public statements?
– It is already too late to talk about the next heating season; decisions made now will be regarding 2027-2028. Generally, the root of the problem is much deeper than it seems to market participants. It is 100-120 billion in subsidies for the price of electricity, 100-120 billion in subsidies for the price of gas, and about 20 billion UAH per year in tariff differences. And while there is a source for electricity and gas subsidies, there is none for the tariff difference, which keeps the TKE network in a constant state of stress.
This is a political issue, and despite pressure from international partners, Ukraine is not resolving this problem. Only when acute imbalances accumulate does it take actions to eliminate them, which look accidental and non-systemic. But they are merely a reaction to the general market structure.
In conclusion: business needs long-term predictable rules of the game. Ideally, this could be the market. If not ready for the market, then an artificial (but guaranteed in performance) long-term support program is needed—for example, 2 years for construction and 5 years for operation.
The key signal from the market today sounds clear: without understandable and long-term rules of the game, even projects strategically necessary for the country will remain only on paper.
And if these rules are not defined in the near future, distributed cogeneration risks remaining not a tool for energy resilience, but merely a talking point in presentations.
These very issues will become central to the discussion at the forum on April 28.
