Renewables before and after

Ukraine built a large solar and wind sector in a short period, then had a payment crisis, then rebuilt the sector on a different basis. The sequence is instructive for anyone designing renewable support anywhere.

The support scheme

A feed-in tariff — the state guaranteed to buy renewable output at a fixed, generous price for a long period. It worked exactly as intended: investment arrived rapidly and capacity grew far faster than forecast.

Why it went wrong

The tariff was set high to attract early investment and was not reduced as technology costs fell. Solar equipment prices dropped dramatically worldwide while the guaranteed price stayed where it was, so the sector became extremely profitable and grew faster than the mechanism funding it.

That mechanism was ultimately paid for by other electricity consumers through the state offtaker, and the arithmetic stopped working. Arrears accumulated, investors were not paid, and a restructuring had to be negotiated.

The lesson

A feed-in tariff must have automatic degression built in from the start — a scheduled reduction that tracks falling technology costs. Every country that omitted this had the same crisis, and Ukraine was neither the first nor the worst.

Where the sector is now

Auctions rather than fixed tariffs, which discover the price instead of guessing it. Corporate power purchase agreements, where a private buyer contracts directly with a generator. And, since 2022, a strong practical case for distributed renewables with storage for reasons that have nothing to do with climate policy: a solar array with a battery on a hospital keeps the hospital running.

A generous subsidy builds a sector quickly and attracts the wrong people just as quickly. I have watched the same thing in the machinery market: while support lasts everyone is a supplier, and when it ends you find out who actually had a service network. What Ukraine's renewable experience left me thinking is that the question to ask when designing an incentive is not who it attracts but who remains once it is withdrawn.