What situation is experience the Ukrainian energy sector, who should be saved in it and how should it be, how can everyone help the energy sector, as well as, can Ukraine, in a crisis, hope for energy independence? All this was told in an interview by Vice President of Energy Club, Honorary Power Engineer, Leading Consultant of Energopartner Consulting, Ivan Hryhoruk for Kosatka.Media.
- Ivan, how difficult is the situation now in the electric power industry of Ukraine now?
- Over the past month, electricity consumption dipped by about 7.7%, compared to the same period last year. In particular, electricity consumption in mechanical engineering fell by 18.3%, in the metallurgical industry - by 8.2%, by electric transport - by 4.5%, and by household consumers - by 7.7%.
Although everyone is more at home due to quarantine, household electricity consumption has also fallen by 3.2%, as measured by payments.
Accordingly, the generation of electricity also decreased. We have the foundation in its structure - atomic energy, and they are going through hard times. They also subsidize renewable energy sources by selling electricity to Guaranteed Buyer at a minimum fixed rate, which does not even cover costs. But even Guaranteed Buyer doesn’t pay them off. Nuclear workers have to take loans from banks in order to finance the company's operations and salaries.
In addition, nuclear power plants sell 6% less than their output compared to last year. Today, 11 out of 15 units of Ukrainian nuclear power plants are in operation. Given the dispatch schedules for electricity generation and balance sheet constraints, even over the past day, Ukraine’s nuclear power plants have under-generated 15.72 million kWh of electricity.
And TPPs and CHPs operate at a loss of about UAH 1 billion per month. The current state of the country's energy sector is extremely difficult, with a negative value due to large amounts of cross-subsidies and other related problems.
Therefore, Guaranteed Buyer is also not in the best position. It is being pushed to a state of insolvency. And this jeopardizes the supply of electricity to consumers during the quarantine period, because Guaranteed Buyer sells electricity to suppliers, and they, in turn, are already sold to end consumers.
Now everyone is going through hard times, and here the total generation of all “green” capacities in March exceeded the total capacity of thermal power plants and thermal power plants, which play the main role in balancing, and this is also a big threat.
For example, on March 15, our sun and wind gave a peak power of 2978 MWh. At the same time, the power of the TPP at that moment was 2294 MWh. And it was for several days in a row.
- How long can our power system withstand in this mode? Will there be a collapse, which experts have already talked about?
- Thanks to the professional work of the dispatcher, NPC Ukrenergo is engaged in primary, secondary and tertiary regulation, collapse does not occur.
In some cases, the dispatcher issues up to 360-380 commands per day. But this is, in fact, manual control. People, instead of controlling automation, took the brunt of regulating the operation of the IPS. This is an abnormal situation. In Germany, the dispatcher issues 10-15 commands. And we have more than 300. Imagine how much more difficult it is to maintain our power system. The only thing that pleases is the professionalism of the dispatchers who managed to ensure the operation of the system in such a difficult time.
- What component of the power system suffers the most in this situation?
- Generation suffers. We have a balancing issue – these are thermal stations, mainly PSPPs. Sometimes they work in pumping mode almost around the clock. Of course, there is almost no additional load on the equipment of the PSPP, but the economy of the enterprise’s work suffers due to the consumption of electricity “for pumping” at high prices.
Thermal stations, and so on, almost all in single-block mode, they are unloading the unit to zero, and then they must raise the unit by command and reach full power.And imagine what kind of coal we are consuming. In addition to depreciation of equipment, harmful emissions into the atmosphere also increase significantly. And TPPs and CHPs in our country are mainly in the city.
-Returning to the problems of Energoatom and Guaranteed Buyer. The problem of Ukrenergo's debt to Garpok is also matters. Can this tangle of problems be resolved somehow?
- This is a question for the Ministry of Finance, the Ministry of Economy and partly for the Ministry of Energy and Environmental Protection. There are effective solutions. But someone will suffer from them, therefore they are unpopular. And someone should take on the issue of compensation to the injured party. And, whatever you say, this is a state. But at whose expense it could do this, I do not even know. Therefore, the problem is not solved.
Recently, the Cabinet of Ministry announced that they have attracted 160 million of foreign investment, this is an achievement for them. But remember, what sums of debts already exist in Energorynok and Guaranteed Buyer, who should be responsible? The state. And the economy didn’t stand such an option in the best of times. Therefore, everything hangs in the air.
- How do you feel about the idea of the government to eliminate Guaranteed Buyer and transfer its functions to Energoatom?
- It is impossible to eliminate it; it has debts and counter obligations. This is the same as with Energorynok – it has not yet been liquidated, because there are debts and obligations to it, and it to other market participants. It can only be in a state of liquidation, and transfer functions to someone.
There is already a situation with Energorynok, when accounts receivable are more than accounts payable, as part of the reform, they took the function from the enterprise, leaving it face to face with its problems, and transferred the authority to Guaranteed Buyer, which also cannot handle it. Then they brought the profitable enterprise Ukrinterenergo almost to bankruptcy, because they threw him all those who can’t pay, and now they want to do the same with Energoatom...
There will be no plus, there will be a guaranteed minus. Therefore, I think this is not a good idea. First you need to develop an effective mechanism to resolve the issue of past and present debts.
- Could energy storages solve some problems in the current conditions and which ones?
- Energy storages could solve several issues.
First, this year we expect about 10 GWh of total renewable capacity. The tariff is subsidized by atomic and hydropower; with an increase in renewable energy capacity, output at hydroelectric and nuclear power plants decreases. The question arises - why subsidize FIT? We are losing the mechanism on the basis of which everything is built. It turns out that Guaranteed Buyer will not pay not only renewables, but also to everyone else who subsidizes them.
In fact, if you do not introduce energy storage, then such an increase in renewable energy will destroy the entire scheme due to which they developed. That is - they are sawing the branch on which they are sitting. Considering that 10+ GW is planned in 2020, it turns out that in the generation structure the share of TPPs and CHPs will fall by 24-25%, HPPs somewhere by 22%, PSPs somewhere by 6-7%, and nuclear stations will fall somewhere else by 3%. RES will take away their production volumes. And then the financial and economic consequences come.
Firstly, there will be no money to pay for renewable energy. Secondly, the depreciation of TPPs, CHPs, HPPs and PSPs is much higher than in renewable energy sources – they have a decrease in efficiency of about 1% per year. And all the rest are not new, to say the least. Since independence, we have not built a single thermal power station or thermal power station. Namely, they play a key role in balancing, they have the most load, hence the significant depreciation. Due to what they will carry out their planned or unplanned work to maintain the reliability of their stations?
- What energy storage is most effective for Ukraine?
- It is necessary to expand existing and build new PSPs. Based on local need. This is most effective in terms of balancing.
In addition, we have changed the requirements for the network. At TPPs and CHPPs, from zero to full charge in the hot reserve, 15-18 minutes are obtained. But it is necessary faster, given the current structure of production and consumption. Therefore, lithium-zinc and lithium-ion energy storage systems are also quite effective for parallel operation with renewable energy sources within the power system.
In addition, all this will help align production and consumption schedules, and the same renewable energy sources will be less restrictive in power output. They will be able to maximize their power during peak hours of consumption when there is not enough sun or wind. And they lose nothing in their economic model.
All large stations were built for the funds raised, based on the assumption that renewable energy sources quickly pay off. If you do not create energy storage systems that work in parallel with renewable energy sources, it’s just lithium-ion and lithium-zinc systems, then the payback period of the stations will change dramatically. Their owners can become bankrupt: if they raised funds for 5 years, and the payback period with restrictions lasts for 6-7 years, then they will not be able to repay the loan to the lender on time. It is necessary to go for restructuring incomprehensible to the lender - there is no forecast, it is unclear for how long to increase the preliminary conditions of lending.
And if there is an accumulation system, the forecast is clear, and the tariff is clear, and the output is clear from the very beginning. Then everything falls into place - and the station itself, solar or wind, becomes clear to the lender - and how much to restructure it, and there will be no questions about the construction of energy storage systems - it is necessary to ensure the return on the project as a whole.
- In order for the energy storage systems to begin to help out the energy system, is it necessary, first of all, to change the legislation?
- Yes and no. If renewables and energy storage work in parallel, then new legislation is not necessary. If the legal entity-owner of the power plant will undertake the construction of those drives, will issue a license, then there are practically no questions either on the tariff or on the rules of work.
Changes are needed only if it is a separate independent station that will provide electricity storage services. Our market for related services has not yet worked, the rules have not been worked out to provide a service for balancing generation. Therefore, yes, there is still work to be done. But there are bills, this work is ongoing, supported by the European Union and our partners from the United States.
- So, not “everything was lost” in this direction?
- “Everything was lost” would be if we did not do anything. We just came to this a little late.
Earlier, about 5 years ago, the Ministry of Economy made forecasts of electricity consumption and in general all energy carriers. Ukrenergo and NEURC worked on annual production forecasts. Now the Ministry of Energy and Energy has removed itself from these functions, and Ukrenergo still predicts production, including for dispatching. And no one else does it.
Politicians have taken the situation to extremes. We have extra-large production capacities, and consumption is falling every day. No one is working on the formation of an effective generation structure - the consumption of electricity in accordance with the plans for the development of the country's economy, which, in principle, we do not have. You see, even under quarantine, consumption, even by population, has fallen anyway.
As for legislative changes, they can be expected somewhere within a year. Depending on how we all deal with coronavirus. But specialists work remotely, both on standards, by-laws, and on rules and requirements for various accumulation systems. Foreign partners share their experiences. Work is underway, although not as fast as we would like.
- Let's move on to a less optimistic question. What consequences of non-payment of the population can be expected due to the government’s ban on shutting down energy supplies to debtors during the quarantine period?
- The government banned shutdown not only to citizens, but also to enterprises in the housing sector, for the period of quarantine plus 30 days from the date of its cancellation. The problem is that the mirror norm was not applied to the generation itself. They must work for some money in order to provide a service for the consumer. The same applies to distribution networks, the system operator, etc.
It turned out to be a collapse - some were banned from delivering the service, others were allowed to not pay for this period without any consequences, not only outages, but also fines and other related charges. However, it is not clear how and at whose expense the energy service providers should do their job. No one asked if they had the means to do so.
As far as I know, our electricity suppliers and generation have already asked the president to limit the application of penalties for them for failure to fulfill their financial obligations to counterparties: Market Operator, Guaranteed Buyer, Ukrenergo and others. Because they are trapped. And something needs to be done with this, otherwise all generation and suppliers will go bankrupt according to the rules. And then no one can work. It is necessary either to somehow change this order of the Cabinet of Ministers, or financially protect both generation and electricity suppliers.
- Can business somehow minimize its losses during the quarantine period?
- Always someone has to pay for it. Now the state must create some kind of compensatory mechanism, some tax benefits. Thus, the business could adjust its financial plan and not go into negative indicators.
You need to look at the problem comprehensively: if you allow someone not to pay, then you need to think about how to help those who need to provide this service at a difficult time for everyone, due to which they should ensure normal work within the financial year without going bankrupt.
-Cannot they to refuse to do their job, just shut down?
- No. They have no right to. This entails administrative and criminal consequences. Otherwise, they would have done so - they would have simply switched to the minimum possible work of enterprises, and that’s all.
- How will life in other spheres of the energy sector, in particular, gas and oil, change? Will gas become cheaper, what are its prospects?
- Gas has already begun to get cheaper. On European hubs, its selling price averages $ 100. This is the result of a general economic crisis. In fact, Europe has responded to Asian markets. There, the price fell to a historic low - $106 per thousand cubic meters.
Therefore, gas will become even cheaper, although a slight increase in prices is possible from May - June, depending on the situation.
Sooner or later, the world will pass this crisis, but the economic consequences will be impressive. Industry will sink, consumption will sink, because the purchasing power of the population will fall.
We now have 15.9 billion cubic meters of gas in storage. We do not need to buy much, and the purchase for the next autumn-winter maximum has already begun, while the price is much lower than usual.
- What about oil, what are the realities and prospects?
- As a result of the price war between Saudi Arabia and Russia, oil fell significantly, Brent is trading at $ 32 - 33 per barrel. Consumption fell - and the struggle for dumping began at a price, which greatly frightened investors in this market.
Obviously, the other side would have lost, and at the end of last week it was possible to politically resolve the confrontation and sign the OPEC+ deal, where participants agreed to reduce oil production by 9.7 million barrels per day, starting in May. As a result, oil futures in London rose by about 4%.
-Does cheap global oil mean cheap gasoline, given the exchange rate of the dollar to the hryvnia?
- In Ukraine, oil refined products are mainly foreign, therefore - should be cheaper. We do not have processing capacities, the volumes of which could affect the total price in the country. The European price will break down. Moreover, we still have Belarusian, Baltic, Azerbaijani oil products. And they always set the trend for oil products prices in Ukraine.
And this fall can affect the economy. We have transport connections - delivery of goods, services - carried out by rail and oil products, mainly. If the fuel component decreases, prices should fall as a whole. And the Antimonopoly Committee should not give the opportunity to raise the price of fuel again, as this will affect the cost of all products and services.
-There is a lot of talk about the need to increase our own gas production and the capacity of the oil refining industry. Given the quarantine and the crisis will we succeed?
- Yes, it is necessary to increase production. The main thing is to provide clear rules of work and protect the investor. Well development takes a long time, in addition, there is no guaranteed confirmation of the volumes that can be obtained from there. Only in the process of well development we understand a certain guaranteed debit. And the cost is about $5 million, it is optimistic to develop it and enter commercial production.
Only transparent conditions for the investor and guarantees of work within the agreed time period are necessary, provided that he complies with all the rules, norms and investment obligations.
Ukraine is rich in gas fields. And this is a highly liquid business. The only thing is the presence of transparent rules and appropriate guarantees for the investor not to buy a pig in a poke.
Tags: gas, oil, NNEGC "Energoatom", legislation, electricity, Ukrenergo, feed-in tariff, electricity market, Guaranteed buyer, renewables, energy storage, price, power system balance, energy storage, electricity transmission
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