M&A in the Energy Sector: Legal Aspects and Strategic Risk Management

According to the International Energy Agency, global investment in renewable energy exceeded $2 trillion for the first time in 2024. Approximately one-third of these investments are executed through mergers and acquisitions. Despite security risks, the Ukrainian energy sector continues to attract interest from strategic and financial investors. Between 2023 and 2024, at least 12 such deals in renewable energy and energy infrastructure were publicly announced.
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However, this positive momentum is accompanied by a complex legal landscape. The most common legal challenges include:

1. limitations regarding land rights (ranging from restricted land use categories to encumbrances in the State Land Cadastre);
2. permitting and licensing risks (including those involving the State Energy Supervision Inspectorate and the NEURC);
3. instability in the terms of Power Purchase Agreements (PPAs) and balancing agreements;
4. currency restrictions on capital repatriation and cross-border payments;
5. changes in the regulatory environment or the implementation of force majeure regimes.

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Successful execution of such transactions is impossible without comprehensive legal support that accounts for the specifics of energy regulation.

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The legal team at Fedotov & Partners possesses deep expertise in the energy sector, infrastructure projects, and investment support. We provide assistance to investors at every stage of a transaction—from asset due diligence, deal structuring, and regulatory approval to closing and post-closing support.

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In this article, we examine the key legal aspects of M&A deals in the energy sector and provide practical guidance for minimizing legal risks.

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Typical M&A Scenarios in Energy

Mergers and acquisitions in the energy sector have a number of specific features driven by the technical nature of the assets (renewable energy sources, trading, supply, and conventional generation facilities) and the specifics of sectoral regulation.

This section examines the most common scenarios for executing M&A deals within Ukrainian and cross-border projects, as well as the associated legal factors that influence their structuring and implementation.

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1. Energy company mergers: synergy between generation and trading/supply

Agreements between electricity generation companies and entities involved in supply or trading can serve as a tool for vertical integration. This approach consolidates operations across different segments of the electricity market and potentially reduces regulatory and price risks.

In the context of Ukraine's liberalized electricity market model, such structures require proper legal assessment, taking into account requirements for licensing, operational transparency, and antitrust regulation.

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During legal due diligence for energy projects, it is recommended to separately evaluate:

1. compliance by the trader or supplier with licensing conditions, particularly regarding ownership structure, staffing requirements, and reporting to the NEURC.
2. the existence of overdue or current debts to the transmission system operator or the market operator for imbalances;
3. the term of the power purchase agreement (PPA) under the feed-in tariff, as well as the existence of a guaranteed purchase agreement, its amendments, extensions, or potential grounds for early termination.

2. Acquisition of shovel-ready renewable energy projects

Projects at the shovel-ready stage (i.e., with a formalized package of permits) represent a distinct category of assets for potential acquisition. These are facilities for which land use rights have already been secured, project documentation has been developed, grid connection technical specifications have been obtained, and other necessary permits are in place.

Such assets are typically of interest to investors looking to bypass the initial planning phase and reduce the regulatory uncertainty associated with navigating permitting procedures.

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Tip:  Check:

1. validity and expiration dates of technical specifications;
2. existence of easements/emphyteusis for access roads;
3. validity of construction permits (especially in cases where project implementation has been paused).

3. Acquisition of energy assets amid the transition to a "green" course

Due to the gradual implementation of decarbonization strategies, some companies operating in the thermal power generation sector (particularly coal-fired) are selling assets or restructuring their corporate frameworks. Additional pressure comes from tightening environmental regulations, specifically the European Union's expected full implementation of the Carbon Border Adjustment Mechanism (CBAM) for imports from Ukraine.

In this environment, there is growing interest in structured M&A deals that involve the transfer of energy assets to entities focused on renewable generation or modernized supply sources.

Before finalizing a deal, it is advisable to conduct a legal analysis of the consequences of the energy asset transformation for:

1. compliance with balancing obligations regarding electricity production, supply, or trading (taking into account the terms of agreements with the transmission/distribution system operator);
2. meeting criteria for attracting targeted ("green") financing in accordance with EU principles or lender requirements;
3. fulfillment of obligations under existing supply contracts, including potential penalties or restrictions on the assignment of rights and duties under contracts.

4. Joint Ventures vs. Acquisitions: Structuring specifics

In some cases, investors choose to create a joint venture instead of a full acquisition of corporate rights to an energy asset. This approach can provide:

1. shared distribution of operational and regulatory risks;
2. retention of the local partner's management and technical expertise;
3. flexibility in the financing structure and potential reduction of restrictions related to currency regulation and capital repatriation.

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Tip:

Before signing a JV corporate agreement, we recommend analyzing:

1. provisions for a participant's exit from the company (specifically the procedure for share buyouts and put/call option mechanisms);
2. the structure of management bodies and decision-making procedures (including veto rights, quorum, and the competence of the general meeting);
3. terms for controlling the use of joint financing, including rights of access to reporting, budget approval procedures, and the execution of significant transactions.

Comparison of typical M&A scenarios in the energy sector

Within the framework of energy M&A structures in Ukraine, three scenarios remain the most common: vertical integration (generation + trading/supply), acquisition of shovel-ready projects, and the creation of joint ventures. Each approach has both advantages and inherent legal risks.

1. Integrating generation with trading or supply. This scenario allows for the consolidation of electricity production and sales within a single corporate structure, providing greater operational flexibility and control over margins.

Legal risks: the need to comply with licensing requirements across multiple market segments (production, trading, supply), as well as the potential for regulatory audits.

Recommendations: conduct an audit of compliance with obligations in the day-ahead market (DAM) and the balancing market, and review the contractual framework with counterparties for any outstanding claims.

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2. Acquiring projects at the ready-to-build stage. Investors often choose these assets due to the shorter timeline to project completion and greater predictability regarding approvals and permits.

Legal risks: the risk of losing grid connection technical specifications, or the existence of land use restrictions or encumbrances in the registry.
Recommendations: conduct a comprehensive legal due diligence with a focus on land use documents, construction permits, and access rights (easements, land allocation, access roads).

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3. Establishing a Joint Venture. This format allows for the distribution of investment burdens, leveraging a partner's local expertise, and optimizing the tax and regulatory structure of the transaction.

Legal risks: the potential for corporate disputes, decision-making difficulties, and imbalances in capital participation and control.
Recommendations: define clear exit conditions (including options), establish corporate governance mechanisms that reflect the level of investment, profit sharing, and control, and mitigate the risk of deadlock.

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What should you check from a legal perspective during an M&A deal?

Energy sector M&A deals require comprehensive legal analysis covering regulatory requirements, licensing conditions, land use issues, and the specifics of operating in energy markets.

Inadequate legal preparation during the early structuring stages can lead to disputes, project suspension, or a loss of the asset's investment appeal after the deal closes.

1. Due Diligence: a thorough check is half the battle

Legal due diligence is a key stage in preparing for any M&A deal. In the context of energy projects, it must be expanded to analyze specific areas, including:

1. Permits and licensing documentation. Verification of the existence of licenses and permits, their validity periods, and their compliance with actual business activities and regulatory requirements (specifically NEURC).
2. Electricity contractual framework. Assessment of existing agreements: feed-in tariff contracts (PPAs), other bilateral electricity purchase agreements, and contracts with the Guaranteed Buyer, traders, or system operators.
3. Land aspects. Analysis of the legal basis for land use (lease, superficies, permanent use), the existence of easements, land designation, and restrictions or encumbrances according to the State Land Cadastre and registries.
4. Energy infrastructure facilities. Verification of commissioning documents, grid connection technical specifications, compliance with technical standards, and the availability of certificates of readiness and technical passports.

 Evaluate the asset not only from a legal perspective but also in terms of its future operational viability.

2. Regulatory restrictions and permits: NEURC, AMCU, EIA

The energy sector in Ukraine is highly regulated. Entering into an agreement to acquire an energy asset or a controlling stake in corporate rights may require prior approval or notification of the relevant government authorities. Depending on the asset structure and the terms of the deal, the following aspects should be considered:

1. National Energy and Utilities Regulatory Commission (NEURC): If there is a change in the control structure of a licensed business entity, it may be necessary to submit a notification or obtain approval for the changes in accordance with the license terms.
2. Antimonopoly Committee of Ukraine (AMCU): If the thresholds defined by the Law of Ukraine "On Protection of Economic Competition" are met, prior authorization for concentration must be obtained.
3. Ministry of Environmental Protection and Natural Resources of Ukraine / State Environmental Inspectorate: If the facility's operations are subject to the mandatory Environmental Impact Assessment (EIA) procedure, a change in control or the planning of a new implementation phase may require updating documentation or submitting new applications.

3. PPA / Pre-PPA / Feed-in tariff: verification of financial guarantees

In renewable energy projects, one of the key assets is the Power Purchase Agreement (PPA) under the feed-in tariff, concluded with the State Enterprise "Guaranteed Buyer".

As part of the legal due diligence, it is important to verify:

1. the validity of the agreement and the presence of all annexes and approvals;
2. the compliance of the agreement and supporting technical documentation with the requirements of the NEURC and the State Enterprise "Guaranteed Buyer";
3. the absence of material breaches of contractual obligations by the electricity producer (e.g., exceeding volumes, failure to meet schedules) or by the buyer (payment delays, penalties);
4. the existence of documentary evidence of the power plant's registration in the relevant registries.

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Tip: Analyze:

1. whether the declared capacity has been exceeded;
2. whether there are any disputes regarding settlements;
3. whether the project has a history of curtailment

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4. Land-related aspects: potential pitfalls in detail

The land plot is a key legal element in the implementation of any energy project. Legal due diligence in this area should identify the following typical risks:

1. lease agreements containing restrictions on permitted use, assignment of rights, or the installation of infrastructure, as well as instances where agreements were concluded without proper state registration;
2. lack of registered easements to ensure access to the site, laying of cable lines, vehicle access, or equipment maintenance;
3. use of temporary or inadequate legal mechanisms during the pre-project preparation stage, in particular agreements with vague subject matter, preliminary agreements, or leases without a clear link to the cadastral plot.

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5. Guarantees of Origin (GoO)

Within the framework of renewable energy projects, the practical importance of Guarantees of Origin (GOs) is growing — these are electronic certificates confirming that electricity has been produced from renewable sources in accordance with approved procedures.

Such guarantees can be the subject of separate transactions, hold commercial value, and be considered an additional asset in the project structure, particularly for foreign investors or entities focused on exports to EU countries.

‍ Include the transfer of rights to GoOs in the agreement structure if they are to be generated.

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Strategic risks and how to manage them

When structuring a merger or acquisition in the energy sector, legal support must be comprehensive, combining legal analysis with the identification of regulatory, technical, and operational risks.

Even in cases where there are no obvious legal defects in the documentation, a project may face obstacles, such as the lack of permits for key infrastructure facilities, technical limitations on grid connection, or litigation regarding land plots.

‍Recommendation: during the deal preparation stage, it is advisable to conduct a parallel assessment of the legal, technical, and financial prerequisites for its implementation, involving specialized consultants.

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1. Political and regulatory risks

Energy projects in Ukraine are highly dependent on changes in legislation, regulatory approaches, and administrative practices. Decisions regarding tariff regulation, terms of Power Purchase Agreements (PPA) with the Guaranteed Buyer, payment delays, or the introduction of new licensing restrictions can have a direct impact on a project's financial model and overall investment attractiveness.

‍Legal risk: changes to the regulatory environment (e.g., revision of feed-in tariffs or updates to licensing requirements) that directly affect profitability or the feasibility of project implementation.

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Recommendations:

1. include stabilization clauses in contractual structures to protect against changes in the legal regime;
2. consider utilizing international investment protection mechanisms, such as political risk insurance through MIGA (Multilateral Investment Guarantee Agency);
3. ensure key agreements include mandatory international arbitration clauses (e.g., under ICC or SCC rules) with the selection of a neutral jurisdiction.

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2. Financial risks

After a deal is signed, an investor may face restrictions on capital repatriation, currency fluctuations, or the discovery of debt obligations not identified during the legal or financial due diligence phase.

Legal risk: restrictions on profit repatriation, unsettled intercompany loans, unofficial guarantees or sureties, and currency regulation instability affecting debt servicing or investment returns.

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Recommendations:

1. conduct a comprehensive analysis of the project company's (SPV) financial structure, including intercompany financing, guarantees, and third-party liabilities;
2. utilize an escrow account mechanism for deferred payments to mitigate the risk of discovering post-closing liabilities;
3. perform sensitivity analysis on key project parameters—such as tariff changes, exchange rates, and cost structures—with the support of a financial advisor or auditor.

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3. Operational risks

Energy asset transactions involve significant technical and infrastructure components that directly impact the facility's actual ability to conduct business operations.

Failure to properly verify the technical condition of an asset can lead to substantial equipment restoration costs, operational downtime, or disputes with contractors.

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Legal risks include:

1. discovery of defects or worn-out equipment not covered by manufacturer or EPC contractor warranties;
2. absence of valid warranties for key facility components (inverters, transformers, modules, etc.);
3. limitations or instability in grid connection parameters that were not confirmed in technical specifications or handover certificates.
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Recommendation from Fedotov & Partners: incorporate Technical Due Diligence into the deal structure, review EPC/O&M contracts, and require the provision of warranty certificates, as well as commissioning and power handover certificates.

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Our case study: Successful representation of an electricity and natural gas supplier during NEURC audits!

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Tips:

1. Conduct technical due diligence of the asset concurrently with legal due diligence;
2. Include provisions for post-closing price adjustments or contract renegotiation if critical technical defects are discovered;
3. Evaluate the performance of EPC contracts and contractor warranties.

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4. Environmental risks and ESG requirements

Compliance with environmental legislation and ESG (environmental, social, and governance) criteria is increasingly a prerequisite for securing financing, obtaining insurance coverage, participating in international tenders, or gaining investor accreditation.

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Legal risks include:

1. failure to conduct an Environmental Impact Assessment (EIA) or performing it as a mere formality without substantive content;
2. breach of environmental permit conditions or lack of evidence confirming compliance with environmental protection laws;
3. uncertainty regarding ESG compliance: lack of environmental reporting, corporate responsibility policies, or audits conducted according to international standards.

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Recommendations from Fedotov & Partners:

1. incorporate a dedicated environmental and ESG assessment into the legal due diligence process;
2. verify the status of environmental permits, the completion of the EIA procedure, and the company’s public commitments regarding environmental management;
3. include specific provisions in the Sale and Purchase Agreement (SPA) regarding the allocation of liability for environmental risks and penalties, including indemnity clauses.

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5. Force majeure, war, and unforeseen circumstances

Recent events have shown that force majeure is no longer just a theoretical risk. Military actions, the destruction or damage of energy infrastructure, restrictions on the movement of goods and personnel, and changes in customs and currency regimes must all be taken into account at the deal structuring stage.

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Legal risks:

1. total or partial inability to fulfill contractual obligations due to military actions or extraordinary circumstances (force majeure);
2. suspension of construction work or the inability to complete a deal due to changes in security or political conditions;
3. loss or damage to the asset that is not covered by existing insurance policies.

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Recommendations from Fedotov & Partners:

1. include force majeure clauses in project and transaction documents that are adapted to martial law conditions, including clear definitions of circumstances, notification procedures, and consequences for the parties;
2. utilize international investment insurance mechanisms, particularly through institutions such as the DFC (U.S. International Development Finance Corporation), MIGA, or export credit agencies;
3. provide for the possibility of deferring deal completion dates or modifying performance obligations in contracts in the event of a material change in circumstances.

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Key risk categories and management tools:

1. Political and regulatory risks: changes in legislation, tariff regulation, or licensing.
   Solution: stabilization clauses in contracts, international arbitration, and political risk insurance (MIGA).
2. Financial risks: currency restrictions, exchange rate fluctuations, and hidden debts.
   Solution: analysis of SPV financial structure, escrow account mechanisms, and sensitivity analysis.
3. Operational risks: worn-out equipment and unavailability of grid connection capacity.
   Solution: technical audit, post-closing adjustment clauses, and verification of EPC guarantee performance.
4. Environmental / ESG risks: lack of environmental impact assessment (EIA) and violations of environmental legislation.
   Solution: ESG audit as part of due diligence and environmental representations and warranties in contracts.
5. Force majeure risks: shelling, suspension of work, and project blockages.
   Solution: adapted force majeure clauses, insurance instruments, and contractual flexibility regarding performance timelines.

How to properly structure a deal while accounting for legal nuances?

The structure of an M&A deal in the energy sector determines not only the mechanism for transferring ownership or corporate control but also the parties' tax liabilities, regulatory requirements, timelines for government approval, and the potential for securing future financing.

The choice of structuring model (e.g., share purchase, asset purchase, or joint venture) should be based on both legal parameters and strategic factors: expected payback period, availability of permits, project monetization methods, and interaction with creditors or donors.

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Share Deal vs. Asset Deal

One of the key decisions when structuring an M&A deal in the energy sector is choosing between acquiring the company's corporate rights (share deal) or its individual assets (asset deal). Both options carry legal and tax implications that must be evaluated, taking into account permits, licenses, operational history, and financial liabilities.

Acquiring corporate rights allows for the preservation of licenses, permits, and counterparty agreements without the need for re-approval from regulators. At the same time, the buyer assumes all of the company's historical legal and tax risks.

In the case of an asset acquisition, the risk of "inheriting" liabilities is significantly lower; however, new permits, the renegotiation of contracts, or approvals from government authorities may be required.

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Recommendations from Fedotov & Partners:

1. choose the deal structure based on the validity of regulatory documentation: if permits are non-transferable or expire upon transfer, a share deal is more appropriate;
2. in the event of significant debt obligations, ongoing litigation, or tax disputes, an asset deal reduces the buyer's legal liability;
3. analyze the legal significance of existing contracts with counterparties: if they cannot be renegotiated, preference should be given to purchasing the company as a single entity.

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Our Case Study: FEDOTOV & PARTNERS LEGAL TEAM PROTECTS THE RIGHTS OF AN ENERGY COMPANY DIRECTOR

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Multi-Structured Deals

M&A deal structures in the energy sector typically involve multiple legal entities, including a foreign holding company, a special purpose vehicle (SPV), and a resident operating company in Ukraine. This approach allows for compliance with the tax and currency requirements of different jurisdictions, ensures transparency of financial flows, and adapts the structure to the expectations of international lenders or investment funds.

Furthermore, a multi-level structure facilitates future fundraising, the separation of operational and investment risks, and provides greater flexibility for exiting the project or transferring participation rights.

Define your ultimate goal: future resale, joint financing, or dividend repatriation. All these objectives require different levels of structuring. Always evaluate the impact of the structure on control and accountability.

Phased Project Entry

If a facility is not fully ready or is still under construction, a phased entry model is common, where the investor acquires a stake or asset in several stages, depending on the fulfillment of technical or legal conditions.

Define clear conditions in the contract for moving to each subsequent stage: commissioning, obtaining licenses, or grid connection. Establish liability limits for non-performance.

Variable price components

In many cases, a fixed purchase price does not reflect the project's risks or potential. Instead, parties agree on earn-out mechanisms, which depend on generation, profitability, or the fulfillment of obligations.

 Define metrics that can be objectively verified, such as meter data, profit, or EBITDA. The formula should be simple to avoid potential disputes. Be sure to specify the accounting period and the source of information.

Integration with financing terms

In many energy sector transactions, the execution of a sale and purchase agreement for assets or corporate rights is directly linked to securing debt or donor financing. This requires precise alignment of the main agreement (SPA) with loan documentation, collateral agreements, guarantees, and other encumbrances that require approval from banks or financial donors.

Based on the experience of Fedotov & Partners, a significant portion of legal risks in such deals arises not at the signing stage, but due to formal or substantive discrepancies between financing terms and the deal structure.

Furthermore, when planning a deal, parties often focus exclusively on commercial terms (price, facility capacity, timelines) without giving due attention to the legal analysis of permits, land documentation, technical records, or the consequences of a change in control.

Legal support from the early structuring stage helps avoid legal pitfalls, reduces the risk of the transaction being blocked at the final stage, and ensures compliance with the requirements of regulators and financial institutions.

Steps to take before entering an M&A deal:

Fedotov & Partners recommends approaching deal structuring in the energy sector through a consistent legal assessment of key factors:

1. Assess the asset structure: determine exactly what is being purchased—corporate rights, licensed activities, capacity, land plots, or grid connection rights.
2. Analyze regulatory restrictions: check whether the deal requires approval from the Antimonopoly Committee of Ukraine (AMCU) or the National Energy and Utilities Regulatory Commission (NEURC), and whether the power purchase agreement under the "feed-in" tariff is valid in accordance with the Law of Ukraine "On Alternative Energy Sources."
3. Identify critical risks: the legal status of the land plot, the validity of technical connection specifications, the availability of all necessary permits, the history of financial obligations, and the existence of any litigation.
4. Determine the appropriate deal format: share deal or asset deal; single-stage or phased execution; payment model—fixed or variable price, including adjustment mechanisms.
5. Formulate a preliminary legal strategy: consider the feasibility of creating a special purpose vehicle (SPV), financing models (including the use of escrow accounts), and an exit strategy.

Why should a legal advisor be involved from the very beginning?

A legal advisor with experience in energy sector transactions provides more than just formal documentation structuring; they offer strategic legal support throughout every stage of a project:

1. Develops the legal structure of a deal before negotiations begin, accounting for tax, regulatory, technical, and currency factors that may impact the transaction lifecycle.
2. Minimizes risks before preliminary agreements are reached, including Letters of Intent (LOI) or Non-Disclosure Agreements (NDA), preventing premature commitments and the loss of negotiating leverage.
3. Organizes and coordinates the due diligence process, including collaboration with financial consultants, technical advisors, and banks, as well as verifying documents for regulatory compliance.
4. Ensures legal protection of a party's interests in a complex environment characterized by wartime risks, changes in currency, environmental, or energy regulations, and increasing ESG reporting requirements.

What sets us apart:

Fedotov & Partners specializes exclusively in energy, infrastructure, and investment projects. We provide comprehensive, full-cycle legal support—from deal structuring to post-transaction maintenance.

Our experience covers all key market segments: renewable energy (RES), conventional generation, trading, electricity supply, participation in the balancing market, import-export operations, and legal support for projects involving guarantees of origin for electricity.

We have a deep understanding of the requirements of international financial institutions, banks, funds, and donor organizations. This allows us to effectively structure transactions in accordance with international standards and investment practices.

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Planning to buy or sell an energy asset?

Contact the Fedotov & Partners team for an initial legal consultation. We provide comprehensive legal support at all stages of a transaction: from initial asset assessment and deal structuring to negotiation support and final closing. Our expertise in the energy and infrastructure sectors allows us to effectively address regulatory, tax, land, and currency aspects, even in challenging market conditions.

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