What is holding back funding for gas-fired power generation – discussion between businesses and banks at the UNBA

To provide loans for new gas-fired power generation projects, banks require a predictable cash flow, an investor’s equity contribution, and risk-sharing mechanisms. A business model that relies solely on a preferential gas price is not a sufficient basis for financing.

As part of the collaboration between the UNBA and the Association of Distributed and Flexible Generation Operators, a roundtable discussion titled «Financing gas-fired power generation: opportunities and limitations» was held. The event was opened by the Committee chairman Andriy Shabelnikov and the discussion was moderated by his deputy Vitaliy Zhadobin. Representatives from parliament, the business community and banks participated in the event.

Chairman of the Subcommittee on combating corruption in the energy and housing and utilities sectors of the Verkhovna Rada Committee on energy and housing and utilities Oleksiy Krasov noted that concentrating generation in a single location within large cities creates risks during shelling, which is why the state supports the development of distributed generation.

At the same time, following the cancellation of the preferential gas price in March, producers began purchasing fuel at market prices. This was reported by chairman of the Association of Distributed and Flexible Generation Operators Maksym Marchenko who noted that as a result, the operating time of individual plants has been reduced from 12–16 to 2–4 hours per day, revenue has decreased, and banks have lost incentives to continue providing financing.

A representative of Ukreximbank Roman Lukyanchuk explained that banks are cautious in evaluating projects whose financial models depend on the imposition of special obligations to supply gas at a preferential price. To secure financing, a project requires an owner with a positive credit history, a professional team, a market-based business model, and a risk-sharing arrangement between the bank and the investor. Under martial law, banks do not provide pure project financing for a new gas-fired power generation project built from scratch without alternative collateral or other cash flows.

According to the expert’s assessment, the base payback period for gas-fired generation is approximately seven years. Regarding financing for gas purchases, he suggested using letters of credit or bank guarantees, which allow for locking in the future price of fuel and calculating the project’s economics.

However, a representative of MTB Bank Oleksandr Borisov is convinced that insurance coverage for war risks amounting to 30 million UAH is insufficient compared to the cost of the power generation facilities. In his opinion, state guarantees for cogeneration must be expanded, and a mechanism for sharing war risks must be introduced. A decline in revenue worsens the borrower’s credit rating, forcing the bank to set aside additional reserves and restrict further lending.

Separately, participants discussed the issue of electricity debt in the balancing market. M. Marchenko reported that producers pay in advance for gas purchases but do not receive payment for the electricity they generate. R. Lukyanchuk clarified that such accounts receivable do not constitute hard collateral for the bank and require alternative security. At the same time, the bank may consider it depending on when the debt arose and the projected repayment period.

O. Krasov noted that further construction of gas-fired power generation will depend on two conditions: the difference between the electricity sales price and the cost of gas must ensure loan repayment, and the business must have access to effective insurance against war risks. R. Lukyanchuk added that a viable model could involve equal shares of bank and equity financing, with payments calculated at market prices and a seasonal payment schedule. However, he noted that there is currently no universal insurance mechanism for all market participants. Creating such a mechanism would require the participation of the government, banks, donors and international partners.