New investment opportunities for the construction of shunting generation in Ukraine

Ukraine’s energy sector faced unprecedented challenges in 2024 due to ongoing Russian drone and missile attacks on the country’s power grid. According to official data from Ukrenergo, Ukraine lost more than 9 GW of generating capacity in 2024. This led to an electricity shortfall for Ukrainian consumers of about 35%.

In view of this, the government decided to stimulate investment by offering subsidies for the construction of new shunting power plants as part of competitive procedures for the construction of new generating capacities provided for in Article 29 of the Law of Ukraine “On the Electricity Market”.

On August 13, 2024, the Cabinet of Ministers of Ukraine adopted Order No. 756-r “Some Issues of Holding a Tender for the Construction of Generating Capacity and Implementation of Demand Side Management Measures” (hereinafter – Order No. 756), which launched the process of preparing for tenders for the construction of new generating capacity.

Over the following months, the tender committee developed draft tender documents for the tender.[1] On January 10, 2024, Ukrenergo held a presentation for interested market participants. The next two months will be crucial as participants prepare their proposals. In this article, we present an overview of the key conditions and requirements for projects that will be eligible for support.

Terms of support

Tender winners will receive unprecedented support from Ukrenergo including compensation for the cost of construction of power plants up to EUR 854,977.5 per 1 MW.

To receive support, the winner of the competition must:

• conclude an agreement with Ukrenergo on the provision of services to ensure the development of generating capacity;
• build and commission the power plant by December 31, 2027.
• when operating in the electricity market, submit offers in the balancing market or the ancillary services market.
• receive the fee in equal monthly installments for 10 years from the date of commencement of work in the electricity market.

Requirements for contestants

Existing and potential market participants who can confirm compliance with the requirements for project implementation experience and a sound financial position are invited to participate in the tender.

Experience in the construction and reconstruction of power plants with a capacity of at least 20 MW

To fulfill this requirement, it is necessary to confirm that the tender participant was a customer and/or general contractor/contractor of new construction, or carried out the reconstruction of power equipment at energy facilities with a capacity of more than 20 MW.

Stable financial position, namely:

• minimum annual average turnover that ensures project implementation;
• no current debt to the state budget of the bidder;
• no current debt to Ukrenergo.

If one or more of these criteria are missing (for example, project implementation experience), the bidder has the right to enter into an agreement with a guarantor or subcontractor with the relevant experience.

What projects of power plants will Ukrenergo consider for participation in the tender

Tender participants can submit power plant construction projects that meet the following requirements

• Installed capacity – from 5 to 80 MW (although the meeting discussed reducing the minimum installed capacity to 1 MW);
• new generating equipment manufactured no later than January 1, 2023;
• minimum guaranteed (design) service life of the generating unit’s equipment is at least 20 years (or 100,000 hours in generation mode);
• compliance with the defined technical requirements for the power plant’s operating modes.[2]

In addition, additional requirements for projects include the ability to operate the power plant on backup fuel (for example, liquefied petroleum gas for gas-piston power plants), equipping the power plant with engineering protection (such as protective gabions), etc.

What you need to participate

In order to participate in the tender, interested participants must submit a package of documents to NPC Ukrenergo by February 28, 2024, including the following:

• application for participation in the competition;
• qualification package of documents:
• terms of reference for the design of an electric power facility, taking into account the established technical requirements;
• copies of documents confirming compliance with the established requirements for the tenderer (certificates, agreements with the guarantor, subcontractors, etc.);
• a certificate describing the project’s financing structure;
• documents confirming the right of ownership or use of the land plot where the construction will be carried out;
• a document on the payment of a guarantee fee of EUR 100,000 and EUR 1,000 for each MW of installed capacity of the facility offered for the tender (this fee will be returned to the participant, except in cases of withdrawal of the tender offer or refusal to conclude the contract after winning the tender);
• price offer – up to EUR 854,977.5 per 1 MW.

These documents are submitted in Ukrainian and English.

The procedure for the competition

After receiving the bids, the tender committee will hold two stages of the competition.

At the first stage, the tender committee will evaluate the proposals for compliance with the qualification criteria. This stage will last until April 5, 2025. Participants who meet the tender criteria will be admitted to the next stage.

In the second stage, by April 15, 2025, the tender committee will determine the best price offers and allocate support quotas. In total, 700 MW of support quotas will be distributed:

• 500 MW in priority regions, including: Kyiv, Chernihiv, Cherkasy, Poltava, Sumy, Kirovohrad, Mykolaiv, Odesa, Kharkiv, Dnipro, Zaporizhzhia, Donetsk, Luhansk and Kherson regions.
• 200 MW in non-priority regions, which include Ternopil, Chernivtsi, Vinnytsia, Zhytomyr, Ivano-Frankivsk, Lviv and Zakarpattia regions.

The bidders with the best price offers within the quota will be announced as winners. Such companies will be required to provide a financial guarantee of fulfillment of obligations in the form of a bank guarantee in the amount of EUR 30,000 per 1 MW of installed capacity and enter into a service agreement for the provision of services to ensure the development of generation in the form attached to the tender documentation.[3]

If the tender is successful, NPC Ukrenergo will consider further use of this instrument to attract investments in the energy sector of Ukraine.

Ivan Bondarchuk, LL.M. Partner, Head of Energy & Project

[1] https://ua.energy/uchasnikam_rinku/konkurs-na-budivnytstvo-generuyuchoyi-potuzhnosti/

[2] The technical requirements for power plants include the following:

• the ability to change the load in normal mode at least four times per day and/or up to eight times per day in some cases
• start and stop with a maximum permissible downtime between two consecutive start/stop cycles of 15 minutes (including command processing time), a total of 1800-2000 starts per year;
• control range of the generating unit is not less than 80% of the installed capacity
• time of entering operation (full activation) from the stopped state is not more than 15 minutes from the moment of receiving the corresponding command (taking into account the command processing time)
• guaranteed continuous operation time at maximum power is at least eight hours per day;
• to be able to start up in the absence of voltage in the external network;
• the average service life before the first overhaul and between overhauls should be at least 2000 starts or 6000 hours of operation under load.

[3] https://ua.energy/wp-content/uploads/2024/12/Konkursna-dokumentatsiya-3.pdf