The electricity market has been operating in the new model for 10 days. Kosatka.Media took a comment from MP Viktoria Voytsitska , known for her “pro-energy-atomic” position, due to changes in the market – which are already felt, what to expect in the future, and which do not exist at all. Who and how will receive the greatest benefits and who can bear the biggest losses.
We publish an estimation of the new model of the market “in flagrante delicto”.
Launch of the market: first impression
It is early to make conclusions. It's been only a few days. For complex analysis, you need at least a monthly, but better, annual period. Only one could be said exactly: the fact that every hour software complexes for electricity trade got stuck is abnormal, and we talked about this risk. The fact that Energoatom receives revenue by a quarter less than is stated in its financial plan is also abnormal.
Also, with considerable delay, regulations were ready. But the question is not only that something was not approved on time, but that this “inoperability” now looks like a deliberate special operation implemented to cover up “tricky” decisions with arguments like “there is no time to explain – these decisions must be taken as tomorrow is July 1st”.
The first losses and the victims of the electricity prices increase
Losses will affect non-residential consumers more and faster, because for them the price of electricity will rise immediately and significantly. Secondly, all those who buy goods and services of non-residential consumers will suffer, so, the population to which the additional costs of producers will be transferred as part of the prices of goods and services.
Energoatom will be another victim which, with the opening of the wholesale market, planned certain economic conditions, but in fact remained with a shortfall in income. The scale of the financial disaster for our leading energy producer is still difficult to calculate accurately, but you can estimate the order of numbers by comparing, for example, the prices at which NNEGC Energoatom realizes 90% of its electricity on PSO (56.7 kopecks/kWh) with day ahead market prices where NNEGC realizes the rest of its electricity. This price differs by more than one hryvnia. According to PSO, Energoatom will sell at least 60 – 70 billion kWh per year. It is not difficult to calculate the revenue that was not received by the state company.
“Today it could be said that there are prerequisites for gaining super-profits of DTEK”
Most of the benefits come to universal service providers and “green” (DTEK)
Who will get the most benefits?
Perhaps private universal service providers who buy Energoatom's cheap electricity from the Guaranteed Buyer, and then sell it at subsidized prices (only for the population? Or not only for it?). It is possible that the “greens”, which were golden with the exorbitant prices of their generation, guaranteed in euros, and the lack of responsibility for imbalances, remain the same. Probably, thermal generation, which, as we see, actually plays the first fiddle in the largest liberalized market segments. It could be said for sure in a few months by analyzing the flows and calculations. Now we just note that the main (although not the only, unconditionally) player among the categories of market participants we mentioned is DTEK. I think this is a common coincidence.
On the specific amounts of income we will discuss after the results of the tax period for income tax. But today we can say that there are prerequisites for obtaining super-profits by DTEK. With high market share in most liberalized market segments, as well as in terms of the price of DTEK generation.
Ukrainian “greens”, among which DTEK is the number one player, are guaranteed to receive the world's highest “green” tariff in stable currency. Thermal generation, up to 80% of which belongs to DTEK, did not reduce its tariff in proportion to the decrease in world coal prices by 2 times, which we have been seeing recently. Super-profit of TPPs, respectively, have not gone away. In addition, DTEK controls up to half of the distribution of electricity, which is why formally independent universal service providers can also become an additional powerful source of income for DTEK due to the same redistribution of Energoatom funds under the PSO scheme.
According to Rotterdam +, it is formally a thing of the past, but, as we see, it can be fully compensated by other advantages for the same beneficiary at the expense of consumers and other market participants. What kind of advantages and how the new schemes will look like, we'll see. In a few weeks everything will be more or less clear. It was not possible to escape from the risks we warned about at the stage of preparing the infrastructure of the electricity market. Therefore, now we have to deal with the problem instead of avoiding it. As you know, it is always longer and more expensive.
The growth of the tariff for Energoatom is an open question
Thus, according to the results of the first day of the electricity market, the tariff of NNEGC Energoatom grew by 35% (up to 75 kopecks/kWh). But the financial gap in which NNEGC is located is not covered by a 35% increase in the tariff.
Those who have ever been to any of the Ukrainian NPPs will immediately realize that it was necessary to invest billions of dollars in the modernization of the stations. Those who know Ukrainian atomic lobbyists do not stop wondering how it is possible to perform the same super-responsible work for an order of magnitude lower wages than European colleagues. (Therefore, the labor remuneration at Energoatom needs to be increased 2.5 – 3 times immediately, in the coming years). And those who are aware that for years the energy market did not pay billions to Energoatom for the generated electricity, they will agree that it is also necessary to close the existing gaps in the balance sheet of NNEGC, and there’s no way to go away.
“Now Energoatom reminds a wounded faithful dog, which, after many years of mockery, the amoral, stupid owner threw out into the cold towards the pack of hungry wolves”
So it would be correct to talk of the need to increase Energoatom's revenue by times, not by percentages. All other options lead to the collapse of the nuclear power industry, which will be an irreparable blow to our entire economy, given the importance of nuclear power for it.
And in particular, 35%, I can say that the growth in revenue of NNEGC even at this rate for the year is not yet guaranteed. Nobody knows what we can expect in the near future – delays in settlements from the universal service providers, devaluation of the hryvnia, volatility in the new electricity market, the position of our unpredictable government agencies or something else? All this can negatively affect the financial condition of Energoatom. And then "+ 35%" can turn into "-". So, we will be able to talk about the reality of further growth in the revenue of NNEGC based on the results of not several days, but at least several months.
The problems of Energoatom are, to put it mildly, not resolved. And if earlier we could talk at least about the appearance of stability, a kind of stagnation regarding the prospects of NNEGC in the conditions of manual regulation of the Company's economic indicators by the state, now Energoatom looks more like a wounded faithful dog, which, after many years of mockery, the amoral, stupid owner threw out into the cold towards the pack of hungry wolves. Without adequate support for the main character of such a story, it’s very difficult to hope for a happy ending.
In general, it is difficult to say for sure why government power behaves so short-sighted with respect to a state-owned company, although I have certain guesses. What I can say with confidence is that the Company, from whose stable development stability in the country as a whole depends, must be protected, creating for it and the team something like a warm bath, and not a permanent cold shower, as it happens so far.
“Poor Ukrainians, buying goods and services, the cost of which includes expensive electricity for non-residential consumers, actually subsidize wealthy Ukrainians”
PSO, discrimination and social injustice
I believe that the current PSO scheme demotivates Energoatom, depriving it of incentives for development and normal functioning. Therefore, the PSO system in the energy sector must change. Starting from the fact that we have to shift the burden of PSO from the shoulders of exclusively state-owned nuclear and hydro-generation to the shoulders of all generating companies, abolishing the humiliating discrimination introduced by the current Cabinet of Ministers. And to end up with the fact that it is necessary to rectify the situation when poor Ukrainians, buying goods and services the cost of which includes expensive electricity for non-residential consumers, actually subsidize wealthy Ukrainians, who often spend much more electricity than their poor compatriots with the same discount rate of 1.68 UAH including VAT.
Imports to Burshtyn Energy Island – the impact on the economy is too small
Imports did take place. ERU has imported. DTEK also announced about import. But Burshtyn Island is only 4% of the country's electricity market volume. For Ukraine as a whole, imports to the Island are important, but rather from the point of view of working out the mechanism, than from the point of view of decisively influencing the economy as a whole.
Synchronization of the power system of Ukraine with the power system of continental Europe can and should drastically improve the existing situation with the monopolization of entire market segments by one player and obtaining substantial benefits from this monopolization. The agreement in the framework of the Association with the EU is scheduled to start synchronization until 2023. After that, we expect that the monopolies in the Ukrainian energy sector will not be able to abuse their position, prices will go down, consumers will be protected from technical and price instability in the power system.
Energy sector today is a solid front
It would be ideal if you could really limit yourself to fighting only on two fronts of the Ukrainian energy sector – for nuclear generation and against Rotterdam +. But we have fronts, such an impression, everywhere. The structures of Firtash monopolized the distribution of gas and abused their status, which they received thanks to free of charge state gas networks for them. Naftogaz cannot begin to increase gas production and conduct unbundling of Ukrtransgaz. Instead, with regard to gas imports, everything is stable with NJSC, although it is not transparent. At least, they didn’t provide information about their intermediary to my deputy requests.
I consider wild the silence surrounding the problem of the criminal loss of control over Ukrnafta and its gigantic tax debt.
Again, something with the “greens” have to be done – for a long time the entire country is not be able to sponsor the super-profits of several large players.
So there are enough questions for work. I am sure that the energy will be also enough for everything.
Victoria Voytsitska for Kosatka.Media
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