21.04.2026
The situation at KP “Cherkasiteplokomunenergo” has become indicative of the entire industry: following changes in state regulation, the enterprise has effectively lost the ability to operate its cogeneration units. The lack of a mechanism to purchase gas for electricity production, combined with contradictions between government decrees and market rules, has led to a forced shutdown of equipment, risks of technical degradation, and the disruption of preparations for the heating season. This is no longer just about economics; it is a real threat to losing a portion of municipal generation.
In light of this, Pavlo Karas, Director of KP “Cherkasiteplokomunenergo,” will speak at the Energy Club professional meeting “Distributed Cogeneration 2026: Barriers on the Path to Energy Resilience and Urban Survival,” to be held on April 28.
In an interview with the Energy Club Media Department, he candidly outlined the key industry issues: why cogeneration has fallen outside the realm of economic viability, how regulatory decisions have effectively blocked municipal generation, and why enterprises cannot even purchase gas to run their units. He also addressed the technical risks of prolonged downtime, the potential loss of equipment and personnel, the withdrawal of investments in new capacity, and the risk of losing already installed distributed generation.
Pavlo Karas also highlights specific steps that could quickly unblock the situation—from implementing a market-based gas procurement mechanism to resolving regulatory inconsistencies between markets.
— After the cancellation of subsidized gas for electricity production, you stated that there is virtually no working mechanism left for District Heating (DH) companies to buy gas for cogeneration. What does this regulatory problem look like in practice?
— Following the amendments to Cabinet of Ministers Decrees No. 812 and No. 222, which took effect on April 1, a stalemate emerged: using gas under Decree No. 812 for electricity production is prohibited, yet there is no mechanism to buy gas at market prices for cogeneration. We cannot change suppliers because we would immediately lose subsidized gas for heating households and public institutions. Theoretically, an allocation agreement with two suppliers exists, but there is no experience in applying it in Ukraine, and in practice, it’s nearly impossible. The decision was made late on the night of March 30 without any consultation with heat providers or industry associations. It was a mistake that must be corrected.
— Pavlo Mykolaiovych, you recently stated that heat providers are ready to work within the market, but only under clear and fair conditions. What conditions are currently missing for cogeneration to become economically viable again?
— We are ready for the market, but we need clear rules. Today, the state has simultaneously tightened price caps on electricity while deregulating gas prices. These are two opposing actions that together destroy the economics of cogeneration. We need to either remove price caps in the electricity market—letting it balance itself—or provide a transparent mechanism for buying gas at market prices. We aren’t asking for cheap gas; we’re asking for clear rules of the game.
— You provided specific calculations for the cost of electricity depending on gas prices. In simple terms, under what market parameters can cogeneration units operate at a break-even level?
— We calculate this precisely. At a gas price of 28,000 UAH/thousand cubic meters, our electricity cost is about 7 UAH/kWh. During hours when the market price is lower, we don’t sell; the machines stand idle. At that gas price, we would work about 6 hours a day. At 30,000 UAH—only 4 hours. At 25,000 UAH—up to 12 hours. A machine is profitable when it operates more than 6 hours a day. The optimal option is a gas price around 25,000 UAH/thousand cubic meters, which would allow us to cover operating costs, earn for winter preparations, and operate the equipment stably.
— How critical is the forced shutdown of cogeneration units during the off-season? Is it just about lost revenue, or are there technical risks to the equipment?
— It’s not just lost revenue—it’s a direct threat to the equipment itself. A reciprocating cogeneration engine is not a gas boiler that you can stop in March and turn on in November. If a machine stands idle for more than two weeks, it requires scheduled maintenance. If it’s down for four months, a major engine overhaul is needed. Preservation of one megawatt of capacity costs about a million hryvnias, and municipal enterprises simply don’t have that money. Therefore, I predict: in the fall, the vast majority of machines that do not work in the summer will fail. We will lose not just income, but the hardware itself.
— You also raised the issue of the inability to purchase gas in advance during more favorable periods. How much could a model of forward contracting or seasonal gas reservation change the situation?
— Radically. In May 2024, when the gas price was 14,000 UAH/thousand cubic meters, I personally proposed to “Naftogaz Trading” that we buy gas and pump it into storage. I received a refusal without explanation. We even had a 100 million UAH credit line open specifically for this. The ability for seasonal gas reservation would allow us to buy during cheap periods, store it, and use it during peaks—this is classic market logic. But we are not allowed into this logic.
— Am I correct in understanding that the problem today is not just the price of gas, but the general lack of coordination between the gas market, the electricity market, and regulatory restrictions for DH companies?
— Absolutely. This is a systemic inconsistency. On one side is the gas market where prices are rising. On the other is the electricity market with rigid price caps that cannot reflect real value. And in the middle are regulatory restrictions for DH companies that strip us even of the right to buy gas at market prices. All three systems are moving in different directions, and district heating is caught in the jaws between them. The NEURC should be the market regulator, not the government. As long as this isn’t the case, we will face this situation repeatedly.
There should be a market value for gas. I am for a gas market. But then we must also create a real electricity market—remove price caps and make the market open, so that, like in Europe, it can soar to 50 UAH per kilowatt or drop to negative values. Then there are no questions, and distributed generation will prove its efficiency. Instead, they decided to “save gas,” kept the price caps (even tightened them), and as a result, we returned to scheduled hourly blackouts.
We need a full-fledged gas market. Let JSC “Ukrgasvydobuvannya” sell gas on the exchange, because currently only a tiny fraction is traded there, and the rest is distributed in an unclear manner. No one knows the price of gas or at what rates “Naftogaz of Ukraine” buys gas abroad. Why? Is it a trade secret? This is a public procedure, and I want to know at what price, where, and how much gas Naftogaz is buying.
Then the question arises: at what prices does the Ukrainian chemical industry receive gas? How do they pay for it? Mineral fertilizers can be imported. In extreme cases, one can even sow crops without fertilizers. Yes, yields will drop, but we will survive the winter. Do we have chemical industry debts for gas? No one says a word about the fact that the chemical industry consumes many times more gas than all distributed generation combined.
— It is often said that cogeneration for cities is primarily a matter of energy security, not just commercial expediency. Where should the line be drawn between market logic and state responsibility for urban survival?
— Cogeneration is primarily about energy security, and only then about commerce. Cherkasy survived one of the most difficult winters with blackouts without disconnecting critical infrastructure precisely because of our distributed generation. About 30,000 families moved to us from Kyiv. That is a concrete result. The state must take responsibility where the market cannot compensate for security risks. If gas prices are inflated today due to a crisis in the Middle East, that is a geopolitical factor, not a market one. The state should smooth out these peaks rather than leaving cities alone with these risks.
— If the situation doesn’t change soon, what will be the consequences this fall and winter for cities relying on cogeneration?
— I’ll be blunt: if the situation doesn’t change, we risk not surviving the next winter normally. Most cogeneration units not preserved in the summer will fail when we try to start them in the fall. Depreservation takes at least a month and a half, so we would need to start in late August. Convincing mayors to allocate funds for this in August, when winter still seems far away, is almost impossible. Consequently, I predict most municipal machines will fail. Not only will we lack additional megawatts of distributed generation, but we will lose existing ones. Business will likely preserve its equipment, and private entities have the ability to work for a few peak hours. Municipal generation cannot work at all under these conditions. Most DH enterprises are in such a financial state that several million hryvnias for preservation is an unbearable cost. The money simply isn’t there.
Parallel to this, we risk losing qualified personnel—engineers and mechanics who will immediately be snatched up by auto services, private businesses repairing equipment for the Armed Forces, or military maintenance units that offer 100% draft deferment (reservation).
I’ll tell you honestly: I am now reorienting toward energy storage systems and am in negotiations. After the government’s actions, I definitely won’t install additional distributed generation, except for the two units already ordered and in transit. “Cherkasiteplokomunenergo” has about 1.2 MW of storage capacity, mainly at small sites. I plan to install at least 10 MW of storage. Currently, it turns out to be more economically viable.
— What three decisions should the government, NEURC, and Parliament make as a priority to avoid losing existing cogeneration capacity?
— First: an urgent change to the Decree—allow “Naftogaz Trading” to sell gas to DH companies at Ukrainian Energy Exchange prices. Then there are no problems. We can sign a contract with one supplier at daily UEE prices. This can be done with one amendment. Currently, “Naftogaz Trading” offers so-called “commercial price” contracts, but they are not market-based, meaning we cannot sign them because the Decree explicitly states we must buy at market prices.
Second: cancel or soften electricity price caps, or introduce a special gas price for distributed cogeneration at 25,000 UAH/thousand cubic meters. Third: amend the Gas Code to introduce a full mechanism for allocation agreements at technological metering points. This is more complex but will make the system truly market-oriented for the future, allowing us to go to the exchange independently and buy from anyone.
— Under what conditions are DH companies still ready to invest in new units, and when will they be forced to pause these plans?
— We have already paused. The mayor and I had plans to build another 20 MW of distributed generation in Cherkasy. I have sites ready for two machines (2 MW total) that are on their way. I will connect them within a month and a half of arrival, as prep work—foundations and utilities—is done. But I won’t rush: instead of June, I’ll connect them by December because there is no economic sense in accelerating. As for the other 14 MW planned—I am refusing them. I won’t spend funds that bring no economic benefit; I see no sense in it. The key issue is economics.
Under current regulation, the topic of new distributed generation in Ukraine is effectively closed due to lack of economic feasibility. It’s important to understand: there is a queue for equipment until the end of 2027. It takes over a year from order to delivery. Currently, these units are in high demand in the Persian Gulf and Middle East. European countries are also setting up distributed generation for their resilience plans. For instance, at Jenbacher, the order window is already at the end of 2027. If we refuse equipment now but try to order in winter, we won’t get it until 2028. This window of opportunity is closing. That’s why the government’s decision was a mistake. If the state wants 1.5 GW of distributed generation—that is a realistic figure, but only with predictable state policy.
There are definitely regulatory flaws. In my conviction, the government should not manage market regulation—that is the NEURC’s job. I hope this mistake is corrected in the next two weeks so we can continue preparing for another extremely difficult winter. The only upside is that it’s April, not late July. It’s not too late to realize the mistakes, fix them, and move forward.
Whether these decisions are made soon will determine not just the fate of individual enterprises, but the ability of Ukrainian cities to pass the next winter without losses. There is no more time for errors: either the rules change shortly, or cities enter winter with worn-out equipment and lost opportunities. This is no longer a theoretical scenario, but a very real risk.
The discussion at the Energy Club platform on April 28 should serve as a venue for finding these solutions while the situation can still be corrected without critical losses for the industry and the cities.
