Summary of the Ukrainian Energy Week (Sep 5-9)

September 9: Russian War Against Ukraine: Energy Dimension

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Summary of the week (September 5 - 9)

? As of September 8, due to the damage caused by hostilities, about 646,800 consumers remained without electricity supply. About 235,100 consumers were with no gas supply.

? As of September 5, according to KSE Institute, direct losses of the Ukrainian economy due to the war increased to 114.5 billion USD. Direct losses due to the destruction of energy facilities amount to 1.8 billion USD and another 1.3 billion USD losses are caused by the destruction of housing and utilities infrastructure. The total amount of reconstruction needed is 197.8 billion USD, including 3.5 billion USD for the restoration of energy facilities and 2.5 billion USD – housing and utilities facilities. According to the Prime Minister Denys Shmyhal, 326 billion USD have already been verified in Ukraine as direct damage from Russia's aggression. Of this amount, 105 billion USD is the verified amount needed to restore various facilities.

? At the beginning of the week, the Russian occupying forces continued intensive shelling of the territory around the Zaporizhzhia NPP. As a result, power transmission lines ZNPP-Dniprovska (750 kV), ZTTP-Kakhovska (330 kV) and ZTPP-Melitopol (330 kV) were damaged and disconnected. A 750/330 kV transformer at the ZNPP was also damaged, other lines of ZNPP/ZTPP complex were damaged earlier. On September 5, as a result of shelling, a fire broke out, which led to the disconnection of the last line connecting the ZNPP/ZTPP network with the UPS of Ukraine - ZTPP-Ferosplavna (330 kV). As of September 9, the ZNPP operates with a single power unit in the "island" mode, to meet its own needs.

? The IAEA published a report on the results of its mission to the Zaporizhzhia NPP. The Agency's inspectors recorded that Russian military personnel and heavy military equipment are located on the territory of ZNPP, in particular in the turbine halls of power units 1 and 2. It has been confirmed that representatives of Rosatom are present at the station, and this may lead to interference in normal operation. The report states that the presence of Russian representatives has a negative impact on the ZNPP staff, who works under stressful conditions. The IAEA is ready to immediately start consultations on the urgent creation of a nuclear safety zone and a protection zone at the ZNPP.

? On September 5, the occupiers turned off the Khahovka HPP, which caused the blackout of part of the Kherson and Zaporizhzhia regions. Before that, the station worked with three units out of 6, i.e. at 30-40% capacity, and did not participate in balancing the power system. However, on the same day, the station resumed its work and operates with 4 units, providing from 40 to 110 MW of power on a flexible schedule to the Novokhakovska substation.

? Ukraine's power system as a whole worked stably and remained in surplus. Electricity was exported to Moldova, Poland, Romania and Slovakia; imports to Ukraine were not performed. Favorable conditions on the EU markets and significant competition led to relatively high prices for access to cross-border capacity in the directions of Romania and Slovakia, which, however, had a decreasing trend. According to the results of the capacity distribution, two companies prevailed: the private DTEK Zakhidenergo and the state trader EСU. The total revenues of Ukrenergo from the auctions on September 5-9 reached about 347.6 million UAH.

? In the upstream segment of the Ukrainian gas market some changes could take place. The draft law No. 7732, submitted to the Verkhovna Rada, proposes from August 1, 2022, and during the ban on the exports of domestically produced gas, that the actual price of gas (as basis for determining royalties), is equal to the highest of following indicators: the weighted average price of gas sold to Naftogaz by producers on organized commodity markets; the sale price of gas transferred/supplied by producers to other business entities; the price, defined as the arithmetic mean of quotations on the Ukrainian market from ICIS and Argus.

? According to the 2021 annual report of Naftogaz, in January-June 2022 JSC Ukrgazvydobuvannia (the largest gas producer in Ukraine) reduced release of commercial gas by 1.5% year-on-year - up to 6.31 bcm.

? Ukraine will continue to insist on recognizing Russia as a state sponsor of terrorism, as stated by the results of the meeting between the President Volodymyr Zelenskyi and the U.S. Secretary of State Anthony Blinken, as well as the results of the meeting of the International Expert Group on Sanctions against Russia (‘Yermak-McFaul group’). According to the Minister of Foreign Affairs Dmytro Kuleba, the current unreadiness of the partners does not mean that such a decision can never be made.

? Among the sanctions priorities, the introduction of a full energy embargo on Russia remains high. At the meeting with the Vice-President of the European Commission Maro? ?ef?ovi?, the Prime Minister Denys Shmyhal called for an embargo based on the road map proposed by the Yermak-McFaul group.

? As part of preparations for the heating season, the Ministry of Energy created an operational headquarters to monitor the situation and prepare emergency solutions. The government also banned exports of coking coal, as it can be used as part of fuel mixtures for TPPs, CHPs and boiler houses during the heating season, as well as due to attempts to export steam coal under the guise of coking coal. In addition, Ukrenergo paid off 1.25 billion UAH of debts to generating companies in the balancing market, so that producers could finance planned repairs of power units, purchase of equipment, and fossil generation - to purchase additional volumes of coal and gas for the heating season.

? Meanwhile, in preparation for winter, the regions are implementing technical, financial and social solutions at different paces. The Kyiv City Council increased the size of authorized capital for Kyivteploenergo and each district management company of the city; and introduced discounts on utility services. In the city of Mykolaiv, the authorities are working on equipping CHP with means to clean the salt water present in the water supply system as the Dnipro-Mykolaiv water pipeline was damaged by the Russians.

? The Ministry of Environment has announced the construction of two facilities for the processing of waste on the territory of the Boryspil, Brovary and Fastiv communities (Kyiv region) at the expense of loans from European banks. The facilities will process organic (food) waste with subsequent production of biomethane, as well as deep sorting of waste with the selection of valuable materials - scrap metal, glass and plastic.

? The situation on the motor fuels market remains relatively stable. According to the Vice Prime Minister Yulia Svyrydenko, as compared to March, in August the imports of oil products (petroleum, diesel fuel, LPG) increased 12 times - to 709,500 tons, which fully covers the needs of the market, which in September-December 2022 was estimated at 500-550,000 tons per month. In general, Ukraine was able to adjust imports from Western markets, the main suppliers of fuel are Romania, Lithuania, Slovakia, Greece, Bulgaria and Poland.

? According to reports, the voting on draft laws on increasing excise taxes on fuel and directing these funds to road repairs is blocked at least until October, due to a significant number of amendments from the MPs. Naftogaz announced it will launch during September 30 retail stations in Kyiv and the region under the brand U.GO, created on the basis of the arrested assets of Glusco chain. Meanwhile, the National Anticorruption Bureau and the Specialized Anticorruption Prosecutor’s Office informed eight persons of the suspicion of embezzlement from Ukrnafta in the amount of more than 13.3 billion UAH.