The Russian invasion of Ukraine has exposed flaws and fragility in the country’s energy infrastructure, much of it a legacy of the Soviet era. Centralized and inefficient, Ukraine’s energy system relied greatly on coal-powered plants and was proving inadequate even before Russian attacks damaged or destroyed critical infrastructure. In addition to severe human hardships, the loss of energy production capacity also poses significant threats to Ukraine’s long-term security and economic prospects.

The clouds of war, however, may bear a silver lining: the devastation of energy infrastructure has forced Ukraine into a kind of “fast-track decarbonization”, leaving it well-positioned, after reconstruction, to be among the cleanest energy producers in Europe. It will never be able to do this alone. Fortunately, the United States is ideally suited to assist and even has a blueprint for developing a modernized, efficient, cleaner energy system based on developments in one of its states: Texas.

It is often said that Ukraine is a country the size of Texas. But the Lone Star State can be a model for Ukraine in another way, too. While Texas is more famously known for producing 40% of America’s oil, it has become a national leader in renewable energy generation, even beating California on wind and solar power production. The reason? Texas makes it comparatively easy to build significant infrastructure projects.

By adopting a forward-looking approach that draws on American expertise, technology, and investment, Ukraine can reinvent itself as an energy powerhouse, following Texas’s lead. Ukraine has also liberalized its regulatory environment, reducing the permit processing time for new power generation projects to just 6-10 months, compared with 7-12 years in European Union member states. This creates an opportunity for international investors to capitalize on regulatory arbitrage, building new, cleaner, gas-fired capacity for export and trading with the EU (where the Ukrainian power grid and gas pipelines are already fully integrated).

Such development will require not just focused investment, but regulatory reform and strategic international cooperation. In particular, US government entities like the International Development Finance Corporation (DFC) and the United States Agency for International Development (USAID) can play pivotal roles in unlocking private investment and fostering a climate of innovation.

By adopting a forward-looking approach that draws on American expertise, technology, and investment, Ukraine can reinvent itself as an energy powerhouse, following Texas’s lead. 

The Burden of Soviet Legacy

Ukraine’s energy infrastructure was designed in a time when energy systems were centralized and built for geopolitical purposes rather than efficiency. The Soviet-era model Ukraine inherited relied heavily on large-scale thermal and nuclear power plants, many located far from urban centers. This necessitated an extensive transmission infrastructure of transformer stations and high voltage lines which made the grid less efficient, more difficult to maintain, and more vulnerable in times of armed conflict.

Also, the Soviets and later the Russians focused on developing “cheap” Siberian gas, largely freezing the development of Ukrainian gas deposits. For example, the exploration of Ukraine’s Shebelynske gas field in the Kharkiv region revealed significant deposits, but it remained underexploited, partly because the Soviets lacked the necessary technology and partly because of Soviet focus on politically motivated projects, such as the vast gas transportation network to pipe Siberian gas to Europe. Today, however, Ukraine ranks third in Europe for gas reserves.

A Vision for Energy Modernization

In the face of destruction brought about by Russian missile strikes, Ukraine’s energy system has demonstrated impressive resilience. Over the past year, the country has managed to bring over 200 MW of new energy capacity online thanks to significant reforms that have streamlined the permitting process. This efficiency starkly contrasts the bureaucratic inertia in many European countries. As in Texas, Ukraine’s ability to fast-track energy projects has positioned it as a potential energy hub for the region, attracting investment that could address domestic energy needs and broader regional challenges.

Ukraine already has a 2,500 MW energy export capacity to other European countries, with plans to increase this to 4,000 MW in the near future. As Europe transitions toward renewable energy sources, it faces the challenge of ensuring grid stability. The intermittent nature of renewable power—such as wind and solar—requires flexible, dependable baseload energy generation to maintain grid stability. Ukraine’s potential in gas-fired generation and its potential to expand could fill a critical gap in Europe’s energy supply, creating opportunities for Ukraine to export reliable low-carbon power to the European market.

Regulatory Arbitrage: A Strategic Advantage

A key advantage for Ukraine lies in its regulatory environment. In Europe, the focus on renewable energy has created a significant deficit of baseload and peaking power generation due to both regulatory hurdles and the underdevelopment of new thermal power plants. Meanwhile, Ukraine’s more agile permitting system allows for the rapid construction of new energy infrastructure, an edge that could be leveraged to create a competitive advantage for the country.

Ukraine’s potential in gas-fired generation and its potential to expand could fill a critical gap in Europe’s energy supply, creating opportunities for Ukraine to export reliable low-carbon power to the European market.

This is where regulatory arbitrage—the ability to fast-track energy projects—comes into play. By taking advantage of the simplified approval processes, Ukraine can develop new thermal generation capacity quickly and at a lower cost than many European countries. This positions Ukraine as a critical player in the European energy market, potentially providing stability for “renewable-heavy” grids in the region.

American companies are well-positioned to take advantage of this opportunity, providing high-quality technology and expertise to enable Ukraine to become a regional energy hub.

The Role of the DFC: Unlocking American Investment

The DFC has the tools necessary to support large-scale energy infrastructure projects in Ukraine. The DFC can mitigate the risks of investing in conflict zones by offering political risk insurance, loan guarantees, and contract assurances. These tools are crucial for attracting private capital to Ukraine’s energy sector, especially in an ongoing war.

The DFC’s involvement can be strategically targeted in key areas that would make the most significant impact on Ukraine’s energy independence and export potential:

1. Better Distributed Gas Generation: Smaller, decentralized gas-fired power plants built near urban centers can provide more reliable and flexible energy solutions, reducing transmission losses and making the national grid more resilient to attacks. These plants are quicker and cheaper to build than large, centralized thermal power plants, and they align with global trends toward more localized, flexible power systems.
2. Domestic Gas Production: Ukraine has extensive untapped gas reserves that could meet its domestic needs and potentially be exported to other European countries. American energy companies can help unlock these resources by providing cutting-edge technologies and expertise in the extraction and production of natural gas.
3. Gas Storage and LNG Infrastructure: Ukraine’s existing gas storage facilities, some of the largest in Europe, provide a unique opportunity to facilitate American LNG exports. By enhancing its storage and transportation infrastructure, particularly with Poland, Ukraine could become a key transit hub for US LNG, helping stabilize European energy markets during peak demand.

Bridging the Investment Gap

While the DFC can help de-risk and increase the attractiveness of private investments as well as provide long-term financing, USAID is critical in laying the groundwork for these projects. The agency can fund feasibility studies and prepare turnkey investment proposals, helping to bridge the gap between project development and execution. Much like an angel investor in the tech world, USAID’s early-stage funding can help accelerate the development of high-impact projects, moving them from ideation to construction with unprecedented speed.

USAID can also support capacity-building initiatives, funding local teams to conduct pre-feasibility studies, obtain necessary permits, and coordinate with the DFC for risk insurance and loan guarantees. This collaborative approach will streamline the process and attract American companies eager to invest in Ukraine’s energy future.

USTDA is the third “angle” of a potential “magic triangle” that can boost the rebuilding of Ukrainian energy, participation of US businesses in the renovation of Ukraine, and – from a middle-term perspective – save the EU from a power deficit. Providing funding for project preparation and partnership-building activities that develop sustainable infrastructure, USTDA can be another driver of rebuilding the Ukrainian energy industry by US business.

“The Texas of Europe?”

The long-term goal of this effort is to create a new model of a resilient energy system in Ukraine that is integrated with Europe and resilient to military threats. Ukraine already has gas pipelines and a power grid fully synchronized with the EU and can achieve energy independence by embracing a Texas-style decentralization model, innovation, and regulatory streamlining while contributing to regional energy stability. In addition, this approach would reduce Ukraine’s reliance on coal, improve air quality, and create a path for integrating cleaner technologies, such as biogas and hydrogen, into the energy mix.

The broader implications of this strategy are profound. If successful, Ukraine could not only meet its own energy needs but also become, in energy terms, “The Texas of Europe”— a key energy supplier for the entire continent and a vital player in European energy security for generations to come.

Ukraine already has gas pipelines and a power grid fully synchronized with the EU and can achieve energy independence by embracing a Texas-style decentralization model, innovation, and regulatory streamlining while contributing to regional energy stability.

A Strategic Imperative

The flipside of the terrible energy infrastructure destruction brought by the Russian invasion of Ukraine is the lessons it provides and the opportunity to rebuild better. The rebuilding of Ukraine’s energy sector is not just an economic opportunity but a strategic imperative. By adopting a decentralized, flexible energy system, Ukraine can secure its future, bolster regional stability, and cement its ties with the West. The partnership between American investors, Ukrainian innovators, and US government agencies like the DFC and USAID will be crucial in achieving this vision. Together, they can drive Ukraine’s energy transformation and help the country become a regional energy leader for innovation, resilience, and independence. In the process, Ukraine will safeguard its energy future and serve as a powerful example of what can be achieved when nations work together to harness their full potential.