Decentralisation of Energy in Ukraine: Between the Need for Rapid Recovery and the Return to “Manual Regulation”

After three years of large-scale attacks on the country’s energy infrastructure, Ukraine has effectively reconsidered the very philosophy of its energy security model. The war has shown that the centralised system of electricity and heat supply inherited from the Soviet period is highly vulnerable in the context of modern warfare. The destruction of large generation facilities, substations and heating infrastructure results in simultaneous blackouts across entire cities and regions.

As a result, one of the key trends of the last two years has been the decentralisation of the energy sector through the development of distributed generation, cogeneration units, local energy sources, backup systems and localised energy solutions at the level of municipalities, neighbourhoods, residential buildings and critical infrastructure.

Importantly, the need for decentralised generation is now recognised not only at the regulatory level, but also by key actors within the energy market itself. As Volodymyr Kudrytskyi, former CEO of NPC Ukrenergo, noted, “the only way to build a sustainable, safer and more resilient energy system is to replace one 1,000 MW power plant with 200 plants of 5 MW each.” In this context, the issue is not merely increasing the number of generation facilities, but rather developing the balancing segment of generation — that part of the energy system responsible for flexibility and the ability to respond rapidly to fluctuations in electricity consumption.

In many respects, the war has forced Ukraine to move toward the same energy model that a number of developed jurisdictions have been building for decades.

However, while in Ukraine decentralisation has primarily become a matter of physical resilience and national security, within the European Union the development of distributed generation historically emerged from climate policy objectives, decarbonisation and energy efficiency considerations.

Today, distributed generation makes up one of the core elements of European energy policy. According to the Ukrainian Renewable Energy Association, distributed generation in EU countries accounts on average for approximately 10% of total electricity production, while in some jurisdictions the figure is substantially higher. In Denmark, for example, the share of distributed generation reaches nearly 50%.

Ukraine is now moving in the same direction — but significantly faster and under wartime conditions.

In 2024, the Cabinet of Ministers of Ukraine approved the Distributed Generation Development Strategy until 2035. Importantly, the Strategy directly acknowledges the vulnerability of Ukraine’s historically centralised energy system in the context of full-scale war. The document recognises that the Ukrainian energy system was originally designed around large nodal power plants and high-voltage transmission infrastructure, creating critical risks under conditions of targeted attacks on energy facilities.

Ukraine has, for the first time at the level of state policy, officially recognised the need to transform the architecture of its energy system from a highly centralised model toward distributed generation.

It is important that the Strategy goes far beyond renewable energy development alone. It covers small and medium-scale generation facilities, cogeneration units, local energy storage systems, microgrids, backup power systems, self-generation and the integration of local energy solutions at the municipal level.

Resolution No. 393 of the Cabinet of Ministers dated 20 March 2026 regarding the implementation of an experimental project aimed at ensuring rapid and efficient implementation of regional and municipal resilience plans became one of the most illustrative regulatory developments in this area.

In practice, the state is attempting to create a “fast-track” mechanism for implementation of critically important infrastructure and energy projects. This is a logical response to wartime realities: traditional urban planning and permitting procedures proved too slow for conditions in which municipalities must prepare for heating seasons under the constant threat of missile attacks.

Moreover, the experimental regime introduces unprecedented simplifications of land use and urban planning procedures for resilience-related projects. In certain cases, projects may be implemented even before formal land rights are fully registered, provided that consent from the landowner or land user has been obtained. Certain facilities may also be developed irrespective of the functional designation of land plots or specific provisions of urban planning documentation.

In practical terms, Ukraine is temporarily creating a special legal regime for critical infrastructure and energy resilience projects. While such an approach is understandable under wartime conditions it does, at the same time, create fundamentally new challenges for the urban planning and land regulation system.

Traditionally, urban planning documentation, land-use designation and digital permitting procedures have served as key instruments for ensuring predictability of development and minimising administrative discretion. The experimental regime, however, effectively allows deviation from some of these principles in favour of implementation speed.

For the market, this creates both new opportunities and new risks. On the one hand, implementation timelines for critically important energy projects are significantly reduced. On the other hand, there is a risk of creating a parallel “manual approval” mechanism that may undermine long-term investment predictability.

This issue becomes particularly sensitive in light of Ukraine’s broader course toward digitalisation of the construction sector and alignment with European approaches to urban governance. Over recent years, Ukraine has attempted, through the Unified State Electronic System in Construction, to minimise the “human factor”. However, wartime resilience mechanisms partially return the system to a model based on individual administrative decisions.

Today, the discussion is no longer limited to large power stations. Ukrainian municipalities are increasingly implementing local cogeneration facilities, backup systems for apartment buildings, modular boiler houses, small gas-powered stations and localised energy supply systems. Kyiv has already launched an experimental project aimed at installing independent backup power systems in residential buildings to ensure the functioning of heating and water supply systems during emergency blackouts.

Importantly, municipalities themselves are gradually becoming central actors in the new energy model. Whereas local authorities historically functioned primarily as consumers within a centralised energy system, they are now increasingly involved in local energy planning, resilience strategies and the implementation of distributed generation projects. Energy resilience is becoming part of a broader urban governance and the country’s security agenda.

In many respects, Ukraine is currently attempting to balance speed of recovery with institutional predictability.

And this may ultimately become the key challenge for the Ukrainian model of distributed generation: not merely constructing new energy infrastructure quickly, but developing a system capable of simultaneously ensuring:

• energy resilience;
• procedural transparency;
• digitalisation;
• investment predictability;
• and compatibility with European approaches within the framework of EU integration.

Paradoxically, this war is accelerating transformations that in peacetime could have taken decades. Ukraine is simultaneously rebuilding its energy system, reforming urban regulation, integrating into the European energy market and developing a new model of municipal resilience.

War has already transformed the Ukrainian energy sector. The question now is whether Ukraine will be able to turn forced decentralisation into systemic long-term reform.