Wind against barriers: what hinders the development of wind energy in Ukraine

According to BCG's forecasts, the share of green energy in Ukraine will grow to 28% in 2040, with wind power plants having a good chance of accounting for a third of the country's energy supply, along with solar energy and biofuels. However, to achieve this, the market, together with the state, must overcome a number of systemic challenges.

This was discussed by participants of the sectoral conference “Green Energy for Recovery” organized by the We Build Ukraine think tank in partnership with the Ukraine Facility Platform.

New projects and infrastructure map of the industry According to Andriy Konechenkov, Chairman of the Board of the Ukrainian Wind Energy Association, 4 wind farms were partially built in Ukraine during the war - Tiligul wind farm in Mykolaiv region, Dniester wind farm in Odesa region, Skole wind farm (EcoOptima) in Lviv region, and the Friendly Wind Technology plant was relocated from Kramatorsk to Zakarpattia.

“At least seven new wind farms are already under construction, including the second phase of the Tiligul wind farm, which is the largest project not only during the full-scale invasion but also in Europe as a whole. Such examples form a new infrastructure map of the industry. Currently, wind energy projects with a total capacity of more than 4 GW are at various stages of implementation. At the same time, systemic barriers remain too serious to ensure a more significant scaling of the sector,” he said.

The key gap, in his opinion, is between market readiness and government policy - private companies see real development potential, while government strategies lag behind the pace and needs of the market. Despite the availability of dozens of ready-made projects, most of them are frozen due to unresolved issues of auctions, feed-in tariff debts, and the lack of long-term off-takers.

Lack of off-takers is the main obstacle. It is the shortage of off-take (guaranteed purchase of electricity) that is called a critical obstacle by all market participants without exception. Without the ability to enter into long-term contracts, projects do not have a sufficient level of bankability and therefore do not receive funding. 

According to Ihor Retivov, Head of Regulatory Affairs at DTEK, even with institutional progress - the launch of price lists and market liberalization - financing is impossible without off-takers. 

“In fact, there are no consumers who are ready to sign a long contract for a large volume in a volatile market. The culture in Europe is to establish long off-take contracts. There is movement in this direction, but this issue needs to be addressed systematically in order to launch global project financing,” Retivov said.

Oleksa Konenko, Head of the Renewable Energy Department at OKKO, agrees with the importance of off-takers. He noted that both quota options and the support mechanism of the minimum price guarantee fund are effective mechanisms.

“Commercial organizations today, unfortunately, do not perceive the market price and the market mechanism as a sufficient guarantee of off-take,” he explained. 

OKKO's green projects were created exclusively for the market. The company is currently building the first wind farm of almost 150 MW in Volyn. By the beginning of the first quarter of next year, all 25 wind turbines will be installed. Preparations are underway for the construction of a second wind farm, also in Volyn, which will be somewhat more powerful - 190 MW.

According to Retivov, the launch of green auctions could partially solve this problem. Currently, a compromise has been reached on them, which will make it possible to guarantee banks a refund of their funds, while there will most likely be no additional costs for the Guaranteed Buyer.

According to Retivov, two associations - the Ukrainian Wind Association and the European-Ukrainian Energy Agency - are working to create a fund to guarantee the minimum price. 

Retivov added that despite the war, the company continues to develop this area, in particular, the second stage of the Tiligul wind farm is being completed. This is almost 400 MW, and at the end of 2026 it will be 500 MW. In addition, the company plans to build a 650 MW Poltava wind farm and is already in the process of building 200 MW of energy storage systems. 

At the same time, Oleksiy Orzhel, head of the Kyiv office of the Energy Community Secretariat, believes that attempts to create a guaranteed price fund are no substitute for systematic work on market conditions. The alternative is mechanisms that will cover military, political and technical risks and allow for the launch of transparent, controlled instruments to compensate for losses.

“The idea is to create an appropriate account that will protect the facilities in case of destruction or in case of need for quick completion. We verify the information, and then release money to restore the equipment,” he explained.

Tax barriers: VAT on wind turbines

The participants also believe that the problem of paying VAT on imports of wind turbines remains unresolved for the market. Andriy Konechenkov noted that they should be exempt from taxation.

“The sun is exempt, biomass is exempt, hydropower is exempt, cogeneration units are exempt, and wind is blocked. That is, today the Ministry of Finance believes that the state will lose a lot of money on taxes, although everyone knows that VAT is refundable,” he emphasizes.

Konenko also agreed with this. According to him, wind turbines are a fairly complex object that no one imports in separate parts, but only as a complex object, respectively, under one UKTZ code.

“As a result, not all initiatives to abolish this VAT are effective. Today we have paid VAT, but of course, we are filing for a refund almost immediately. But this is time, and we need to invest, and in fact, spending time on refunding this VAT, which should be spent productively, directly on project implementation,” he emphasizes.

Insurance of military and political risks

Market participants emphasize another problem that hinders the market: insurance of military and political risks. According to Ihor Retivov, the second issue is that the war factor makes it very difficult for an investor to make a decision and believe that the company building the renewable energy project will be able to return the money. And it's not just investment insurance, it's also insurance of people, the construction site, and everything related to the construction process.

Konenko agrees, noting that in the absence of such insurance, the company will not rebuild the facility at its own expense. This will have to be done by attracting foreign financing, which requires an effective political risk insurance mechanism. 

Corporate PPA and integration with the European energy market

One of the constructive solutions could be the introduction of corporate long-term contracts (corporate PPAs), as discussed by EY partner Borys Lobovyk. According to him, Ukrainian legislation already allows for the conclusion of such contracts, and at the end of 2024, the first practical cases appeared. However, to turn them into a working tool for the broader market, an awareness campaign, contract templates, and the involvement of powerful consumers capable of becoming off-takers are needed.

Connecting to networks remains a problem. Commercial companies propose to allow private customers to hold tenders and purchase equipment on their own under the supervision of the regulator. This would avoid unnecessary bureaucracy and speed up project implementation, especially in times of infrastructure vulnerability.

Against this background, domestic production is beginning to play a separate role. 

As the example of Friendly Wind Technology shows, the relocation of the plant from Kramatorsk to Zakarpattia allowed not only to maintain production but also to modernize it: today the company produces turbines with a capacity of 4.8 MW, and the new line has a capacity of 5.2 MW. The plan for the coming years is to reach 100 wind turbines per year.

At the same time, experts call energy integration with the EU a strategic step. Suppose the markets are united by the first quarter of 2027. In that case, Ukrainian wind farms will have access to a liquid European consumer, and the cost of such projects for investors will increase significantly. However, this requires not only technical synchronization but also reforming the regulatory environment in line with EU principles.

According to Oleksiy Orzhel, if Ukraine wants to attract private capital, it needs, among other things, to unify the market to become a full-fledged participant in the European market. Igor Retivov agrees with this. In his opinion, there is hope that Market Coupling will happen soon.