UA Energy Sector Highlights of the Week

October 7: Russian War Against Ukraine: Energy Dimension

ENG: https://bit.ly/3SZGt1q UA: https://bit.ly/3yoyVxw

Summary of the week (October 3-7)

? Russia continues to deliberately destroy critical infrastructure facilities. On September 29-30, two substations of Ukrenergo in southern Ukraine were completely disabled by missile strikes. After the attack, the main equipment of substations and other facilities of the high-voltage grid was damaged. In addition, in the village of Maryanske (Kryvyi Rih district), a solar power plant was destroyed after the shelling.

? As of October 6, 1,299 settlements (about 725,800 consumers) did not have electricity supply due to damage caused by hostilities. About 622,000 consumers had no gas supply. As of October 4, 976 de-occupied settlements were provided with electricity - almost 64% of the total number of liberated cities and towns.

? Damage to the environment caused by the Russian invasion is estimated at 36 billion EUR: about 25 billion EUR is damage from air pollution, another 11.4 billion EUR are needed to eliminate the consequences of soil pollution. A fifth of the protected areas in Ukraine atre under threat of destruction.

? Enemy continues attacking the information space - since the beginning of the war, the Security Service of Ukraine neutralized almost 3,500 cyber attacks on the e-systems of the central government authorities and critical infrastructure facilities. 47% of cyber threats were detected in "real time" mode. Most of the Russian attacks were aimed at either destroying digital services or destabilizing the operation of strategic enterprises in energy and transport.

? Russia has taken steps to escalate the situation around the Zaporizhzhia NPP, which significantly increases threats to global nuclear safety. Ukraine condemned the attempt to take over the ZNPP, declared the corresponding decree of the Russian president null and void, and called on the international community to introduce sanctions on Rosatom, its affiliated companies and institutions, as well as to avoid steps that could legitimize the illegal presence of Russian military or civilian personnel at the ZNPP. In turn, Energoatom transferred the station's administration to Kyiv; all technical issues of operation of power units will, as before, be resolved by the technical staff of the ZNPP in agreement with the central office.

? The IAEA Director General Rafael Grossi emphasized that the Agency considers the ZNNP to be a Ukrainian nuclear facility. Grossi noted that the occupiers were demanding that the ZNPP personnel sign new contracts with Rosatom to keep their jobs, called this a particularly dangerous moment for maintaining the facility's nuclear safety and called to immediately stop the pressure on the ZNPP personnel. Due to the ongoing hostilities and the threat to the station's safety, the IAEA decided to increase the number of mission inspectors at the ZNPP from two to four.

? In general, Ukraine's power system worked stably and remained in surplus. Currently, a slight seasonal increase in electricity consumption to 11.1-11.4 GW on average is observed in the UPS of Ukraine. Electricity was exported to Moldova, Poland, Romania and Slovakia in the range of about 650-705 MW; imports were performed only from Moldova at a minimum level of 1-8 MW.

? Due to changes in supply and demand on the day-ahead and intraday electricity markets, prices during the day were close to or at the level of the price cap for day and night hours (4,000 and 2,000 UAH/MWh, respectively). At the same time, declining prices on the markets of Eastern European countries led to a decrease in the cost of access to cross-border capacity in the directions of Romania and Slovakia. According to the results of capacity distribution, two companies prevailed: the state-owned trader ECU and the private DTEK Zakhidenergo. The total revenues of Ukrenergo from the auctions during October 3-7 reached over 213 million UAH.

? The NEURC published for discussion the draft decision on setting new price caps on short-term electricity markets. In particular, the following price caps are offered for DAM and IDM: for minimum load hours – 2,476 UAH/MWh; for maximum load hours – 4,952 UAH/MWh. The lower price cap is proposed at 10 UAH/MWh for DAM and balancing market, and 102% of the DAM price for IDM. The upper price cap for the balancing market is proposed at 125% of the DAM price.

? The Cabinet of Ministers and Naftogaz do not rule out the complete suspension of gas transit. For such a case, a plan has been prepared for the most efficient use of gas. Naftogaz, in turn, is preparing to include a possible suspension of transit in the arbitration claim against Gazprom. The amount of Gazprom’s underpayment for gas transit through Ukraine is estimated at about 200 million USD.

? The rate of growth in gas reserves remains low, mostly due to the lack of working capital. According to the media, Naftogaz has preliminary agreements on gas supply through the recently opened Baltic Pipe, yet the company has a lack of funds for the purchase. A special fund for gas imports, created with the participation of international donors, is still not filled. Meanwhile, the company managed to purchase about 200 mcm of gas from private producers. 

? As the CEO of Naftogaz Yurii Vitrenko said, capital investments in gas production will increase by 15% in 2023 after the government approves the company's financial plan. Taking into account the realities of war, in upstream, its priority would be developing projects in the west of Ukraine and restoring destroyed or damaged facilities in the east. Depending on the situation at the front, Naftogaz plans to increase production next year.

? The Energy Community Secretariat called on the government to speed up the corporate reform of Gas Transmission System Operator of Ukraine LLC in accordance with the agreed road map. The immediate measures in this regard are the transfer of GTSOU shares to the Ministry of Energy, the adoption of the new statute, the start of the selection procedure for members of the Supervisory Board; election and appointment of GTSOU Board by the new Supervisory Board. The organization also emphasized that speeding up the reform is a prerequisite for avoiding repeated certification of the TSO.

? At the same time, on October 7, the Verkhovna Rada registered an alternative draft law on the corporate reform of GTSOU, which reflects the proposals of the Energy Community Secretariat. It envisages the transfer of 100% in the authorized capital of GTSOU from the current owner (Mahistralni Gazoprovody Ukrainy JSC) to the Ministry of Energy. After that, competition for members of the GTSOU Supervisory Board should be held within two months. The new Supervisory Board should form the executive body of the TSO through competitive procedures.

? The readiness of residential buildings and heating utilities before the beginning of the heating season is about 90%. The government has developed algorithms for evacuating the residents of each region in case of massive Russian attacks. In the de-occupied regions, the restoration of district heating facilities continues, most actively - in Okhtyrka, Kremenchuk, Chernihiv, and Kharkiv.

? Residents of those communities, where it would not be possible to provide district heating, are advised to evacuate. In particular, the Prime Minister Denys Shmyhal reported on the development of algorithms for the evacuation of residents of each region in case of massive attacks on district heating infrastructure, activated in case of critical damage.

? Naftogaz outlined as its priority the transfer of district heating facilities from gas to biomass: it is more feasible for the company to help launch such projects now than to import gas even for the upcoming heating season. First projects include construction of biomass CHPs in Zhytomyr and Lviv. In general, the company plans to build at least 9 bioCHPs and boilers in 8 regions of Ukraine with a total capacity of 250 MW thermal and 52 MW electrical.

? The government considers firewood as a reserve source of heating for the frontline regions. The Ministry for Reintegration announced the transfer of 6,000 cubic meters of firewood and 6,000 potbelly stoves to residents of the de-occupied territories of the Kherson region (for free). The Ministry of Environmental Protection and Natural Resources is also working on increasing firewood stocks for the heating season 1.5 times year-on-year, to 5.5 million cubic meters.

? With the participation of territorial commissions, the government plans to compensate district heating companies (DHCs) for the difference in tariffs (14 billion UAH is provided in the state budget). The Minister of Communities and Territories Development Oleksii Chernyshov noted that the existing debts of DHCs to Naftogaz are not a reason to refuse concluding contracts for gas supply.