The systematic targeting of Ukraine's energy infrastructure since February 2022 has resulted in unprecedented damage to the country's power system. Following intensified attacks in the spring of 2024, nearly two-thirds of the country’s dispatchable power generation capacity was occupied, damaged or destroyed. While Ukraine works to repair and reconstruct after each attack, Russia continues to target the country’s power generation facilities and transmission infrastructure. Air defence and passive protection measures have repelled the bulk of the attacks but remain unable to prevent extensive damage. 

These attacks have had a devastating impact on the daily lives of citizens across Ukraine, affecting access to electricity, heating and water. Ukrainians across the country are living with the effects of rolling blackouts as well as unscheduled power outages. Most citizens have faced these daily power cuts with resolve, but the limited availability of electricity has affected services ranging from education to health services, making daily life difficult. With peak demand this winter likely to reach 18.5 gigawatts (GW), the supply deficit could increase to as much as 6 GW, which would result in longer and more widespread power cuts. While managing this immediate crisis, Ukraine must also plan for the years ahead. Without urgent investment, the country faces power shortages not only during winter peak demand, but also in the summer months when maintenance of the nuclear fleet and the unavailability of combined heat and power (CHP) plants constrain available supply.

Decisions about rebuilding Ukraine's power sector should address both critical generation needs and longer-term modernisation objectives. In the short term, the country needs to rapidly increase power generation capacity, improve energy efficiency and enhance system resilience to withstand and recover from attacks, with urgent action required to ensure security of supply through 2025 and 2026. Looking ahead, Ukraine envisions developing a modern, decarbonised power system that is fully integrated with European markets, a vision that is outlined in key policy documents such as its 2050 Energy Strategy and 2030 National Energy and Climate Plan (NECP). The key challenge is to ensure that today's decisions on power sector reconstruction, market design, and new generation assets immediately bolster the security of energy supply while supporting this longer-term transformation.

As Ukraine rebuilds its power sector, system flexibility emerges as a critical challenge. Prior to the full-scale invasion, Ukraine managed variations in demand and increasing levels of variable renewable energy (VRE) through its coal fleet and hydropower plants. Russia’s ongoing attacks have left Ukraine with insufficient flexible generation capacity. While VRE assets have also been affected, the impact has been smaller, with their share of VRE in the generation mix remaining largely stable at 8.7% in 2024, compared with 9.4% in 2021. As Ukraine reconstructs its power system and increases VRE deployment driven by energy security needs, cost-competitiveness and decarbonisation objectives the need for flexible resources to manage daily demand variations and VRE generation patterns is becoming increasingly important. 

Distributed energy resources (DERs) emerge as a key solution that can support Ukraine's immediate needs while advancing its longer-term vision. DERs comprise a diverse set of technologies – including solar PV, wind, batteries and small, modular gas turbines – that offer multiple strategic advantages. Their geographical distribution across the network enhances system resilience against targeted attacks while enabling power generation closer to demand centres. At the same time, their modular nature enables rapid deployment to address generation shortages where they are needed. The IEA's modelling analysis for this report, examining interconnected scenarios for 2025 and for 2030, demonstrates how DERs can address Ukraine's dual challenges: meeting pressing generation needs and enhancing system resilience while also supporting longer-term decarbonisation goals through the increased deployment of solar PV and wind, supported by flexibility resources for reliable system integration.

DERs can fulfil Ukraine's 2025 power system needs while delivering a cost-optimal solution. IEA modelling shows that rebuilding Ukraine's power system based on small modular gas turbines and gas engines alone would require USD 13.4 billion in upfront investment. A more diverse DER deployment, including variable renewables and batteries, would require between USD 15.5 billion and USD 23 billion upfront investment. However, it represents the most cost-effective solution over time when ongoing fuel costs are factored in. With the appropriate policies and regulations in place, this diverse DER scenario would reduce annual system costs by an estimated 5.6.% through operational savings, particularly in terms of fuel costs and electricity imports. This annual cost reduction could increase to 6.3% with enhanced interconnection with the continental Europe system (adding just 500 MW of additional import capacity), which would also reduce upfront financing needs by almost USD 2 billion. Furthermore, DERs provide significant system-wide resilience, the value of which is not captured in these cost comparisons.

Ukraine's pathway to achieving its 2030 energy targets builds on the immediate deployment of distributed energy resources. Ukraine has set clear objectives in its National Energy and Climate Plan (NECP) for the period through 2030. The IEA's baseline scenario shows that these targets can be met by focusing on an optimal mix of DERs and new gas-fired generation assets, rather than just rebuilding lost thermal capacity. Assuming the extension of Ukraine's current nuclear fleet operation through 2030, achieving the NECP goals would require approximately 24 GW of solar, 11 GW of wind, and 6 GW of energy storage capacity, in addition to existing assets. This deployment pathway aligns with Ukraine's stated goals of integration with the European Union and its decarbonisation objectives. 

Drawing on the analysis of Ukraine's power system needs in 2025 and 2030; this report presents seven key recommendations to support both rapid reconstruction and longer-term transformation. These recommendations are aimed at laying the foundation for scaling up the deployment of DERs and realising Ukraine's vision of a modern, decentralised power system. Some actions would need swift implementation to enable rapid DER deployment and address current shortages, while others require early initiation due to their longer implementation timeframes. The recommendations are structured to reflect both the urgency of addressing immediate power system needs and the complexity of some the institutional and regulatory changes required to maximise DER benefits in the longer term.

Create a vision of a decentralised power system for Ukraine. By developing a holistic DER strategy, Ukraine can align its near-term power system recovery with its future goals prioritising resilience, decarbonisation and affordability. This successful evolution requires coordinated work across sectors and stakeholders, from scaling up supply chains and local manufacturing to upskilling the energy workforce. Regulatory and legislative alignment is key to ensuring that the vision of a modern, decentralised power system can become a reality.

Improve the regulatory framework. While a complex task, particularly during wartime, Ukraine can begin to take steps to enable a rapid post-war regulatory transition. Addressing the regulatory and administrative barriers that disproportionately affect DER deployment can lay important foundations and ensure a diverse set of resources. Tariff reforms can help encourage a more prominent role for consumers, supporting the deployment and operation of consumer-side DERs, as well as better demand management and the uptake of more efficient devices, reducing peak capacity needs.

Reform electricity markets. The design of Ukraine's electricity and ancillary services markets needs to accommodate the volume and variety of DERs necessary for a secure, sustainable and affordable power system. Regulators and system operators need to improve market access for smaller-scale resources while ensuring price signals accurately reflect system requirements. Removing market distortions and introducing temporal and locational granularity can steer investment towards a cost-optimal technology mix. Market design rules should enable DERs and batteries to provide multiple system services at both local and system levels.

Strengthen capacity and coordination at the transmission and distribution levels. As the share of generation on the distribution network increases, distribution utilities will need to play a greater role in the planning, operation and supervision of the power system. This will require capacity building for utilities to be able to fulfil their evolving role in a more decentralised power system. In terms of planning, this would involve Ukrainian energy sector stakeholders shifting from a traditional supply-side approach to one that is more integrated and coordinated, involving actors from across the energy sector as well as across the electricity supply chain. Given the increasingly decentralised nature of the power system, it is essential that the Transmission System Operators (TSO) and the Distribution System Operators (DSOs) work in close collaboration, while policy makers and regulators need to take steps to clearly redefine the roles and responsibilities of DSOs towards a reliable and efficient power system.

Establish clear technical requirements for connection of new assets. As Ukraine's power system accommodates a growing share of DERs, transmission and distribution grid codes require updating to ensure the quality and reliability of supply and accurate information on system operations. Requirements should range from improved forecasting of behind-the-meter resources to minimum technical performance standards for DER behaviour during fault conditions. System operators and the regulator should collaborate with Ukraine's standards body to establish technical standards for original equipment manufacturers (OEMs) that ensure compliance with grid code requirements.

Enhance asset visibility, monitorability and control to ensure system security. A decentralised system requires robust data infrastructure for system planning, operations and supervision. This means not only understanding where new consumer-side assets are located, through measures such as DER registries and advanced metering infrastructure (AMI), but also being able to monitor the low-voltage networks that will host a significant part of this new capacity. An increasingly smart grid will enhance system security and enable consumer participation through price signals and aggregator models like virtual power plants (VPPs). Overall, this requires a strong level of cybersecurity, with collaboration between power sector stakeholders, particularly system operators and regulators.

Set appropriate legislative foundations and financial instruments to scale up DER deployment. Rapid decentralisation requires innovative financing mechanisms, particularly during wartime. Blending public, donor and private funds can help reduce the high cost of capital in Ukraine’s energy sector. Legislative and regulatory frameworks for private sector investment must be established now to safeguard financing beyond the war period and enable large-scale DER integration. Supporting regional and municipal-level investment through capacity building and financial assistance is crucial for wider DER adoption.