A risky sce­nario:

Why the cur­rent scheme of elec­tric­ity ex­ports does more harm than good to Ukraine’s en­ergy se­cu­rity and is more costly for do­mes­tic con­sumers

The Ukrainian Week - - CONTENTS - Olek­sandr Kra­mar

The chal­lenge of mo­nop­oly on the elec­tric­ity mar­ket and so­lu­tions to it

Ukraine has been in­creas­ing ex­ports of elec­tric­ity for three years now. It sold 3.4bn kWh abroad in 2015, over 4bn in 2016 and 5.1bn in 2017. In 2018, Ukraine plans to ex­port at least 5.9bn kWh. Ac­cord­ing to the lat­est es­ti­mates of the State Fis­cal Ser­vice, elec­tric­ity ex­ports yielded US $235.2mn in 2017. All this is pre­sented as great suc­cess by Ri­nat Akhme­tov’s DTEK which holds a mo­nop­o­list po­si­tion both in elec­tric­ity gen­er­a­tion and in pol­i­tics.

A closer look shows that the cur­rent scheme of elec­tric­ity ex­ports hurts the coun­try. It yields fi­nan­cial ben­e­fits to Akhme­tov’s com­pany alone, while do­mes­tic con­sumers in Ukraine are los­ing bil­lions, the coun­try’s en­ergy se­cu­rity is weak­ened and de­pen­dence on the im­port of an­thracite coal from the ter­ri­tory Kyiv does not con­trol grows.

Ukraine sold 3.4bn kWh abroad in 2015, over 4bn in 2016 and 5.1bn in 2017. In 2018, Ukraine plans to ex­port at least 5.9bn kWh

A lion’s share of ex­ported elec­tric­ity is now pro­duced at two ZakhigEn­ergo DTEK-owned ther­mal power plants: Bur­shtyn TPP in Ivano-Frankivsk Oblast and Do­brotvir TPP in Lviv Oblast. In 2017, they gen­er­ated 4.1bn kWh, i.e. over 80% of the elec­tric­ity ex­ported that year.

The elec­tric­ity went di­rectly into the grid to later be ex­ported. On pa­per, how­ever, DTEK ZakhidEn­ergo sold it to the Whole­sale Elec­tric­ity Mar­ket of Ukraine (WEM). Then, DTEK Trad­ing, an­other unit of Akhme­tov’s mo­nop­oly, bought from it from that grid. The price at which elec­tric­ity was sold into the grid was higher than the price at which it was bought for fur­ther ex­ports. In De­cem­ber 2017, the gap was UAH 0.4 per kWh (see A sim­ple scheme). This was al­most the price of a kWh of elec­tric­ity from En­er­goA­tom (UAH 0.47 in De­cem­ber).

Since DTEK was buy­ing ev­ery kWh of its own elec­tric­ity from WEM at UAH 0.4 be­low the price at which it nom­i­nally sold elec­tric­ity into the grid, some­body had to cover that dif­fer­ence. Do­mes­tic con­sumers did: their sup­pli­ers were forced to buy the amount of elec­tric­ity left at WEM at the price high enough to com­pen­sate for the dif­fer­ence earned by DTEK. This no longer looks like some­thing that ben­e­fits Ukraine, es­pe­cially its do­mes­tic con­sumers.

The two DTEK TPPs in Western Ukraine are the only that can ex­port elec­tric­ity to the EU right now. As that ex­port grows, so does the sup­ply of more ex­pen­sive elec­tric­ity from them at Ukraine’s whole­sale grid. Mean­while, the share of cheaper elec­tric­ity gen­er­ated by nu­clear and hy­dro power plants shrinks. In De­cem­ber 2017, TPPs sold elec­tric­ity into WEM at UAH 1.78 per kWh, while the rate from nu­clear power plants was UAH 0.47.

This in­creases the me­dian price at which elec­tric­ity is sold to con­sumers from WEM. The Na­tional Com­mis­sion for Reg­u­la­tion of En­ergy and Util­ity Ser­vices ad­mits that the “neg­a­tive im­pact of change in the struc­ture of gen­er­a­tion in the given year caused by ex­pected de­cline in the gen­er­a­tion by nu­clear power plants and in­crease of gen­er­a­tion by ther­mal and steam-elec­tric power plants” is one of the key fac­tors be­hind the in­crease of whole­sale price of elec­tric­ity in 2018. Vir­tu­ally all of the in­crease in the pro­duc­tion of elec­tric­ity in 2018 (by 3.8bn kWh) is planned through TPPs (3.7bn kWh). By con­trast, nu­clear power plants are ex­pected to cut gen­er­a­tion by 1.2bn kWh com­pared to 2017.

Ap­par­ently, the Min­istry of En­ergy re­al­izes that im­pact. In­creas­ing the share of ther­mal-gen­er­ated elec­tric­ity and its ex­ports serves the in­ter­est of DTEK and hurts other con­sumers in Ukraine. It is hard to come up with ex­pla­na­tions for this, other than cor­rup­tion.

In ad­di­tion, the abo­li­tion of “sub­sidy” cer­tifi­cates for elec­tric­ity ex­ports has been ac­tively lob­bied lately. They pro­vide for a com­pen­sa­tion for sub­si­dized house­hold elec­tric­ity prices through higher prices for com­mer­cial con­sumers. Lately, that ex­tra charge has been at 25% of the price com­mer­cial con­sumers would pay with­out sub­sidy cer­tifi­cates. If the cer­tifi­cates are abol­ished, DTEK Trad­ing will buy its own elec­tric­ity at half the price at which its sub­sidiary, DTEK ZakhidEn­ergo, sells it to the whole­sale grid. As a re­sult, do­mes­tic con­sumers will have to pay dou­ble for ev­ery kWh ex­ported. For now, this does not reach the house­holds di­rectly: the reg­u­la­tor sets the rates for this seg­ment at a level far be­low the mar­ket one. The im­pact is in­di­rect, reach­ing house­hold con­sumers through the grow­ing prices of what’s pro­duced in the coun­try. When the sub­si­diz­ing of house­holds stops, they will buy elec­tric­ity from the mar­ket at the same price as other con­sumers do. As a re­sult, the bur­den of pay­ing ex­tra for ev­ery kWh of elec­tric­ity ex­ported by DTEK will end up on the shoul­ders of mil­lions of Ukrainian fam­i­lies.


Higher elec­tric­ity prices for do­mes­tic con­sumers is just one con­se­quence of the cur­rent scheme. An equally detri­men­tal one is the im­port of much an­thracite coal which is dis­guised as an effort to keep fuel prices down. This im­port comes pri­mar­ily from Rus­sia.

The deficit of gas coal in Ukraine is linked to the fact that it is burned at DTEK’s TPPs in Western Ukraine to pro­duce the sub­si­dized ex­port-ori­ented elec­tric­ity. The need to im­port both an­thracite and gas coal is used as an ar­gu­ment in fa­vor of a steep in­crease of rates for coal-driven TPPs. These are largely owned by Akhme­tov’s DTEL and Don­basEn­ergo whose cur­rent real own­ers or co-own­ers are un­known.

In 2017, DTEK and the Min­istry of En­ergy com­plained that switch­ing all an­thracite-driven ther­mal power plant blocks to do­mes­tic coal is dif­fi­cult be­cause Ukraine does not pro­duce enough coal. Yet, it will take nearly 2mn t of gas coal to pro­duce the in­tended 4.8bn kWh of ex­port-ori­ented elec­tric­ity at Bur­shtyn and Do­brotvir TPPs in 2018. The deficit of an­thracite coal at Ukrainian TPPs will hit 4.2mn t in 2018. This will have to be im­ported.

If an­thracite blocks of TPPs switch to gas coal and plants in Western Ukraine stop ex­port­ing elec­tric­ity, the im­port of an­thracite coal could be cut in half. This would min­i­mize or abol­ish im­ports of that coal from Rus­sia. In 2017, DTEK had to im­port gas coal from the US and Poland as a re­sult of the deficit. This was used to jus­tify the in­crease of elec­tric­ity prices un­der the in­fa­mous Rot­ter­dam+ for­mula. If DTEK ZakhidEn­ergo’s TPPs stopped ex­port­ing elec­tric­ity, this would make the im­ports of coal un­nec­es­sary, elim­i­nat­ing the role of Rot­ter­dam+.

Lately, the rhetoric of the En­ergy Min­is­ter and DTEK lead­er­ship has changed. Since early 2018, they have been talk­ing about the ex­cess of gas coal which they seemed to have lacked badly some months ago. Also, they have been switch­ing an­thracite blocks at TPPs to gas coal, a nec­es­sary com­po­nent of Ukraine’s en­ergy se­cu­rity. This led to a con­flict: after the state-owned Tsen­trEn­ergo mines re­fused to buy gas coal from DTEK, Akhme­tov’s com­pa­nies stopped buy­ing coal from state-owned mines in Lviv and Volyn Oblasts. Mykhailo Volynets, head of the In­de­pen­dent Trade Union of Min­ers in Ukraine known for a syn­chro­nized po­si­tion with DTEK in the past years, laments that “Tsen­trEn­ergo de­manded that DTEK in­creases the ex­trac­tion of coal to 250,000 t per month, or 3mn t over 2016.” Ac­cord­ing to DTEK, it has set up new min­ing sec­tions for that and now has nowhere to sell the sur­plus coal. So, it will sup­ply more of it to Bur­shtyn and Do­brotvir TPPs while quit­ting coal from Lviv and Volyn mines.

It is im­por­tant to note that the sub­si­diz­ing of elec­tric­ity from Bur­shtyn and Do­brotvir TPPs by do­mes­tic con­sumers is of­ten pre­sented as a way to sup­port Western Ukrainian mines. This has lit­tle to do with reality. In­stead, it’s yet an­other myth that ben­e­fits DTEK. Ac­cord­ing to the Min­istry of En­ergy’s fore­cast on the con­sump­tion of fuel at ther­mal and steam-elec­tric power plants in 2018, Bur­shtyn TPP is ex­pected to burn 4.6mn t of gas coal, and Do­brotvir TPP – an­other 1.14mn t. This is al­most four times higher than the amount of coal to be ex­tracted at all mines in Lviv and Volyn oblasts in 2018 – they pro­duced 1.65mn t in 2017. Even if all ex­port-ori­ented elec­tric­ity pro­duc­tion stops, mines in Western Ukraine will be un­able to sup­ply enough coal for the two DTEK TPPs. They will need to buy more fuel from Dnipro Oblast.

The sur­plus of gas coal that Ukraine seems to have is in fact a re­sult of man­ual pump­ing of Rus­sian an­thracite coal into the coun­try. Part of it may be com­ing from the oc­cu­pied parts of Donetsk and Luhansk oblasts. Ukraine has failed to ban the im­port of en­ergy coal from Rus­sia in 2017. This has led to a de­pen­dence on that fuel that’s dan­ger­ous for na­tional se­cu­rity. Plus, the coal has been im­ported at dump­ing prices, en­cour­ag­ing TPPs to use an­thracite coal.

Even the state-owned Tsen­trEn­ergo has post­poned the launch of a re­con­structed block of Tryp­il­lia TPP sched­uled for De­cem­ber 2017. Al­legedly, it will now open in the spring of 2018. It will work on gas coal, while now the plant is burn­ing im­ported an­thracite. The op­por­tu­nity to bring in un­lim­ited amounts of an­thracite coal from Rus­sia (or ORDiLO) has dis­cour­aged Slo­viansk TPP of Don­basEn­ergy and Kryvyi Rih TPP of DTEK to switch to gas coal. As soon as this dan­ger­ous ap­proach is abol­ished and all TPP op­er­at­ing blocks switch from an­thracite to gas coal, the deficit of the for­mer fuel will be vis­i­ble again while elec­tric­ity ex­port from ZakhidEn­ergo TPPs will hurt elec­tric­ity sup­ply for do­mes­tic use.

Even­tu­ally, the more elec­tric­ity TPPs in Western Ukraine ex­port, the more DTEK is en­cour­aged to sab­o­tage their turn to­wards the do­mes­tic grid. This ham­pers the growth of gen­er­a­tion at nu­clear power plants. On Au­gust 5, 2015, Arseniy Yat­se­niuk’s Cabi­net in­structed the Min­istry of En­ergy and the state-owned UkrEn­ergo to “take mea­sures to switch three ad­di­tional blocks of Bur­shtyn TPP to the uni­fied grid of Ukraine” by Oc­to­ber 15, 2015. DTEK as the owner has been sab­o­tag­ing that.


It will take pro­found changes to go from the cur­rent elec­tric­ity ex­port model that ben­e­fits Akhme­tov’s DTEK to the one that will ben­e­fit Ukraine. The coun­try should stop the ex­ports of elec­tric­ity sub­si­dized by Ukrainian con­sumers in fa­vor of DTEK. Or it should stop sub­si­diz­ing it through WEM: DTEK ZakhidEn­ergo can start sell­ing its elec­tric­ity di­rectly abroad if any­one in Europe will buy it at the rate at which it’s sold to Ukraine’s whole­sale grid. The best way out, how­ever, is the fol­low­ing one. Elec­tric­ity sup­ply from DTEK’s TPPs in Western Ukraine should first of all be redi­rected to bal­ance out the deficit of elec­tric­ity in Ukraine’s grid at peak hours. This will en­able a ra­tio­nal use of nu­clear power plants and in­crease their pro­duc­tion by 10-15bn kWh. Reg­u­lar re­pairs should take place when reg­u­la­tory re­stric­tions halve En­er­goA­tom’s gen­er­a­tion ca­pac­ity. Un­til re­cently, the po­ten­tial of nu­clear power plants was not used to its full ex­tent be­cause sched­uled re­pairs were done at one part of the year, and reg­u­la­tory re­stric­tions were in ef­fect in an­other.

As nu­clear power plants start pro­duc­ing more elec­tric­ity, it could be ex­ported in larger amounts com­pared to the cur­rent ones. In or­der to do this, Ukraine would have to com­plete the con­struc­tions of trans­mis­sion lines to wire elec­tric­ity from Kh­melmyt­sky and Rivne NPPs to EU coun­tries. If ex­ported, that elec­tric­ity could ac­tu­ally ben­e­fit Ukraine through higher price and better en­ergy se­cu­rity. With more nu­clear-gen­er­ated elec­tric­ity Ukraine will need lit­tle to none im­ported coal from Rus­sia or any other coun­try.

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