Is it necessary to have a state trader for energy export

The main thing is to distribute revenue flows correctly

article by Ihor Maskalevych, ZN.UA correspondent

Once Ukraine started its electricity export, it immediately faced with attempts to share this new income source among different actors. And there is nothing new. The distribution of revenue flows is the favourite activity of a Ukrainian official. And not simple, but the right one.

The prices in European markets are now very tasty, almost three times higher than in Ukraine.

And in our country the electricity consumption fell by about a third because of war. So now we have excess electricity that can be profitably sold. Announced possible currency revenue of up to 2 billion dollars per year is impressive.

Naturally, such a cash flow can’t be left without kind-hearted care and… distribution. «Аre you taking us for an idiots or what?». That’s why as soon as first and very modest deliveries of electricity to Romania, Slovakia and Poland started, the Ministry of Energy instantly launched the creation of a new and a little bit exclusive trader for it. Of course, all this is only for the protection and benefit of the state interests.

At the very beginning of the export such possibility was discussed. And then there was a very straight answer - export should be be possible only in compliance with European rules and with transparent and non-discriminatory auctions for the sale of access to interstate cross sections. And if we don’t follow the rules of the game, we won’t work on the European market either. The conditions were absolutely clear, and the first auctions were quite successful and transparent. But no, it would be too easy to continue playing by the rules.

The Minister of Energy Herman Galushchenko stetted that оn the basis of the half-forgotten JSC «Energy Company of Ukraine» (ECU) a powerful state trader will be created. That's why the ECU was transferred to the Ministry of Economy from the Ministry of Energy, so as «not to violate our European obligations». And to keep the competition environment. Basically, hooray everyone!

But the funny story is that there has already been an attempt to create a centralised state electricity trade. SE «Energoatom» made it. And it was memorised for the continuous scandals around sales with wild discounts to the right companies (primarily DTEK and actors from the Kolomoisky orbit), continuous changes in management etc. However, it wasn't like a good old shooting in the foot again. The trader had good salaries and a staff three times larger than that of competitors. The «right» people received cheap electricity, and aliens were driven away. Total profit! And now we are witnessing the second attempt but this time with access to international level.

The ministry claim that trader «gonna be equal market player as any other» sounds as irony. Because at the same time it is said that the state power generation facilities will be the key supplier of electricity for this trader. That includes «Energoatom» (currently it has direct sales contracts with Moldova), and there will be attempts to take «Ukrhydroenergo» under control as well. Basically, all the best stuff.

The ECU itself did not deal with electricity. In fact, in recent years, there was little left of the company. But it can be fixed! At the late June Vitaliy Butenko was appointed as the head of the company. Previously he was engaged in trading for the Rinat Akhmetov business. And no one doubts his professionalism. He also has experience in trading (basically importing) electricity from Belarus (and he even has own firm for this). Although he had to leave DTEK after the failed gas trade (failed to guess the prospect of prices on the gas market). After that he was going to develop a bookstore business. But his plans have apparently changed…

After the start of the export, there were announcements about plans to increase sales by 8-10 times till the end of the year (up to 800-1000 MW). In the coming weeks sales will increase to 200 MW, and maybe even 300 MW. And let’s note, this result is achieved without a wise state trader. In the future, volumes may be higher than 2,000 MW should  a number of export power transmission lines to be restored. Work is already underway to rebuild the line to Polish Rzeszów from the Khmelnytskyi Nuclear Power plant.

So there is a plenty of work to do. As well as those who want to gripe the source of possible income. There is no doubt about the high professionalism in the field of revenue distribution... But there are nuances. Energy is not about only the management of income flows, but their very existence. Right now it’s summer outside. When winter come, the balance will be slightly different. It’s hard to predict how big this «slightly» is gonna be.

There are different scenarios. Experts expect the power system load to be 16–18 million kW. This is 30-40% less than in recent years. Russian aggression has created a situation where part of the key facilities is located in the occupied territory. First of all, this applies to Zaporizhia Nuclear Power plant (six power units of 1000 MW each) witch is the most powerful in Europe and Zaporizhia Thermal Power plant (with a capacity of 1200 MW). Both of them are under Russian occupation, as well as the Kakhovka hydrostation. The main balance for the winter takes into account three power blocks of Zaporizhia NPP (out of six). However, the Russian occupiers have repeatedly announced plans to remove this facilities from Ukraine's energy system by winter. And some work is already underway to connect the Zaporizhia NPP with Crimea (via the Kakhovsky power hub). Also an optical fibre cable is being laid to the station from Melitopol to transmit data directly to Russian dispatchers. Of course, the Armed Forces of Ukraine can «adjust» these plans and reduce them to zero, but all scenarios must be taken into account.

Close combat has been going on for several days in the area of the Vugleghirska Thermal Power plant. Near Slovyanska TPP cannonade is heard. Facility in Kupyansk in the Kharkiv region has been disconnected from our power system since May.

And «to class up the night» we have a serious technical problems at one of the power units of the Khmelnytsky Nuclear Power plant (a turbine made in St. Petersburg failed, it had been in disrepair for a some time). It will last at reduced power, but no one can guarantee how long. So there is an open question whether we are going to have special surpluses for electricity export in the winter. It’s too early to waste money.

The situation with thermal power plants is even more complicated. It is already clear that there will be no 19 billion cubic meters in underground gas storages before winter (now it’s not even 12 billion cubic meters). At the rate of accumulation of one billion cubic meter per month, by December we will reach 15–15.5 billion. Russians are already openly cutting off supplies of natural gas to Europe in order to make it as difficult as possible to accumulate stocks for the winter. So there is simply no one to buy gas from. At the same time, transit through our territory has been reduced to minimum. It is almost three times smaller than the one fixed in the contract (40 million cubic meters per day instead of 109 million).

According to Galushchenko, plans to accumulate 19 billion cubic meters were made «taking into account the reserve for thermal electric generation.»

«But I really hope it won't be needed. There is no economy. If a gas price is $1,800 for a thousand cubic meters, its use for electricity production is already an extraordinary measure when the national security at stake,» - the minister explains.

It’s all true. But the main cogeneration plants in Kyiv work on gas. As well as those in Kharkiv. The only option then is coal. At least 2.0–2.5 million tons of coal must be ready before winter. And it would be better if it were our own coal. The current option to import up to a million tons of gas coal with empty storages in Pavlograd and clogged warehouses in Dobropilla doesn't look good. It’s not very wise to import coal for $320-350 while domestic price is 3,500 UAH.  And the search for solutions is the very task of both the ministries and the Cabinet. Ministry of Energy struggles to set up cooperation with the «Dobropilvugillia» (which was returned to the state property at the beginning of 2021).

Meanwhile, we are listening to the plans that cogeneration plants (even private ones) are going to use gas group of coal «where possible» instead of anthracite. No one is against it. But before winter, it is impossible almost anywhere, although the work really needs to be done. It had to be done not even yesterday but the day before yesterday. As of mid-July, the Headquarters of the Cabinet of Ministers on preparation for winter assessed the works carried out before the autumn-winter period as one-third completed. Not much, to say the least. And it's war time.

Obviously, the Ministry of Energy has a lot on its plate. And it’s no time for issues such as electricity export or creation of a state trader and attempts to «redivide» the market in your favour. But no, the «distinguished energy workers» will not miss the opportunity to make another scheme, even if sky falls, even if it's a war. They hope that the war will erase everything. But sometimes it happens differently…

Read this article by Ihor Maskalevych in russian and Ukrainian.