Policy Brief “Supporting Ukraine’s Energy Sector: Keeping Ukraine’s Accession to the EU in Sight”

The energy sector in Ukraine has faced unparalleled challenges in recent years. Russian aggression against Ukraine, including the occupation of strategic assets and extensive infrastructure damage, has brought the country’s energy systems to the brink. As of November 2024, the shortfall in electricity generation and transmission has jeopardized basic services like heating and water supply. However, this crisis also presents an opportunity for Ukraine to transform its energy sector and align with European Union (EU) standards, positioning itself as a strong candidate for EU accession.

The Florence School of Regulation, in collaboration with the Dixi Group think tank, has published a policy paper, “Supporting Ukraine’s Energy Sector: Keeping Ukraine’s Accession to the EU in Sight”. This work highlights the key challenges Ukraine faces in the energy sector due to Russian aggression, as well as provides recommendations to ensure its recovery and integration into the European energy space.

Restoring Energy Supplies Efficiently

Ukraine’s energy system, once robust enough to export electricity to neighboring countries, has suffered significant damage. According to a 2023 UNDP and World Bank report, 42 out of 94 critical high-voltage substations in Ukraine-controlled territories were damaged or destroyed during 2022-2023 and attacks on such facilities continue. Additionally, over 19 GW of installed capacity was lost or remains under occupation. For the winter of 2024/2025, Ukraine needs 18 GW of available capacity to avoid blackouts, but as of early November, only 13 GW was operational. Even with the potential to import 2.1 GW from the EU, the shortfall remains a pressing concern.

Addressing these issues requires significant international collaboration. The International Energy Agency (IEA) has recommended actions such as:

Enhancing the physical and cyber security of critical infrastructure.
Accelerating the delivery of repair equipment.
Expanding decentralized power systems like solar and wind installations with storage capacities.

While importing electricity from EU countries and strengthening transmission infrastructure are critical, the gap between supply and demand persists, underlining the need for continued support.

Overcoming Systemic Barriers

Beyond immediate measures, Ukraine’s energy crisis necessitates deeper systemic reforms, particularly in tariff formation and market competition. Cross-subsidization, where industrial consumers subsidize households, distorts market mechanisms and discourages investment. Significant debts in the balancing market exacerbate financial instability and hinder energy sector liquidity. Resolving these issues will require a holistic approach and consistency.

Challenges in International Support

The EU and international donors have pledged substantial support for Ukraine’s energy sector. By November 2024, the EU Energy Support Fund had accumulated over €768 million, supplemented by bilateral aid. These funds are managed transparently, with Ukraine’s Ministry of Energy prioritizing assistance requests. However, gaps remain:

Installation and commissioning costs are often excluded from funding, placing undue pressure on local resources.
Many energy facilities require comprehensive rehabilitation, which current funding structures do not fully cover.
Restrictions on high-liquidity assets like vehicles and fuel create operational bottlenecks, delaying critical maintenance.

To enhance international support, the following steps are critical:

Expanding funding to cover associated costs like installation and maintenance.
Encouraging European service providers to operate in Ukraine.
Aligning European manufacturing priorities with Ukraine’s reconstruction needs.

Addressing Institutional Challenges

Institutional and human resource challenges further complicate Ukraine’s energy sector recovery. The war has caused a significant population decline, exacerbating skill shortages. Key issues include the loss of skilled personnel, limited capacity to attract specialists, and an aging workforce. The transition to renewable energy and digital technologies adds urgency to the need for new competencies.

To address these challenges:

Modernize educational programs and integrate EU standards into university curricula.
Establish specialized training centers and partnerships with energy companies.
Develop short-term emergency training programs alongside long-term professional certification systems.

Enhanced EU-Ukraine cooperation, including the expansion of the EU4Energy program and fostering educational partnerships, will build capacity and align with EU standards. Regular tracking of progress through key performance indicators (KPIs) will ensure accountability.

Aligning Short-Term Efforts with Long-Term Strategy

Ukraine’s National Energy and Climate Plan (NECP), adopted in June 2024, aims to align the energy sector with EU decarbonization goals. Key objectives include:

Reducing greenhouse gas emissions by 65% compared to 1990 levels.
Achieving climate neutrality by 2050.
Increasing renewable energy’s share to 27% of total consumption.

Balancing immediate restoration needs with long-term strategic goals is critical. Short-term measures should align with NECP objectives, ensuring consistency with decarbonization and energy efficiency targets. Regular updates to the NECP will reflect evolving circumstances, and a dedicated team of EU and Ukrainian officials should oversee these efforts.

Fully Involving Ukraine in the European Green Deal

Ukraine’s integration into the EU’s Green Deal Industrial Plan offers significant opportunities. The EU aims to strengthen its competitiveness in green and digital industries while achieving climate neutrality. Ukraine’s rich mineral resources and IT expertise position it as a valuable partner in sectors like renewable energy, battery production, and semiconductor manufacturing.

Digitalization also plays a crucial role in the energy sector’s transformation. Advanced technologies such as artificial intelligence, blockchain, and IoT can optimize energy systems and improve resource utilization. EU programs like Horizon Europe and the Digital Decade Policy Programme provide frameworks for Ukraine to enhance its digital capacity and participate in collaborative projects.

Ukraine’s energy sector stands at the crossroads of crisis and transformation. The systematic targeting of energy infrastructure by Russian forces since October 2022 has battered Ukraine’s energy systems, threatening economic and humanitarian stability. As the winter of 2024 approaches, Ukraine’s priority remains the restoration and reinforcement of its energy infrastructure.

Despite these challenges, Ukraine has the potential to rebuild a modern, sustainable, and integrated energy system. By leveraging its strategic position and aligning with EU priorities, Ukraine can emerge as a pivotal contributor to Europe’s energy and industrial future. Success will require sustained commitment, adaptive strategies, and an unwavering focus on both immediate needs and visionary goals.

The European Commission supports the EUI through the European Union budget. This publication reflects the views only of the author(s), and the Commission cannot be held responsible for any use which may be made of the information contained therein.

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