Attacks on energy facilities
- The enemy is regularly bombing critical infrastructure — more than 60 times in recent weeks. In September–October, the Russians used almost 800 Shahed UAVs against energy infrastructure facilities and other targets.
- Russia is stockpiling missiles and UAVs to deliver new powerful strikes on Ukraine's energy infrastructure. A total of about 800 missiles have been accumulated. According to Ukrainian intelligence, it is capable of producing up to 100 missiles per month.
- The tactics of the invaders can be different: strikes using missiles only, or combined strikes using both missiles and UAVs.
- This winter, however, we should expect more concentrated drone strikes, as they are cheaper than missiles and their numbers make them very dangerous.
- According to military intelligence, these attacks will definitely be more complex, compared to the previous year.
- After the previous attacks, our energy facilities have better physical protection, but a smaller safety margin. And there is no reason to suggest that the enemy will not be willing to take advantage of this.
- At the same time, it should be taken into account that in Russia, the struggle for power between various groups of influence intensified. Therefore, missile/drone attacks on the Ukrainian energy infrastructure may be not so massive this year, but we should still prepare for the worst scenario.
Debts in the energy sector
- The main financial problem that stands in the way of a stable heating season is posed by mutual debts between the main actors of the energy market.
- State-owned Energoatom, a core element of this process, began repaying billion-dollar debts in September 2023, but at the end of 2023, it will still owe UAH 17 billion. This creates a cascade of debts in the energy sector.
- Ukrenergo accrued UAH 50 billion of debts due to other market participants. Debts to Ukrenergo amount to about UAH 60 billion
- Ukrenergo readily cooperates with the EBRD to repay debts in the energy sector. The company plans to raise a loan of 150 million euros and promises to use a third of these funds to pay off the debts due to RES.
- The current debt of Ukrenergo to SE "Guaranteed Buyer" for green generation amounts to UAH 32.2 billion.
- RES debts arise due to the low Ukrenergo electricity transmission tariff, from which the system operator finances green generation. Therefore, it is necessary to set a deficit-free transmission tariff.
- Also, as of the end of September, the debt of the "Guaranteed Buyer" to universal service providers amounted to UAH 20.9 billion.
- In addition, there is a problem of debts of state-owned mines to electricity suppliers.
- These debts amount to hundreds of millions of hryvnias and prevent normal operation of suppliers, especially in the frontline regions.
- To solve this problem, the Ministry of Energy should allocate funds to these mines for debt repayment under the budget item of state support for the coal mining industry.
Market operation and doing away with the deficit
- According to a preliminary estimate, the deficit in the power system in winter will be close to 2 GW, and to cover it, imports of electricity will be required.
- Meanwhile, the set price caps do not encourage imports due to the much higher prices in the neighbouring countries.
- As a result, during peak load hours, Ukraine cannot cover deficits with imports, and Ukrenergo will have to use emergency aid, which is more expensive than imports.
- Emergency aid is an unpredictable and unstable tool. If the neighbouring countries do not have idle capacities, Ukrenergo my have to impose restrictions on consumers.
- The regulator suggested its calculation of the increased price caps on the electricity market:
- From 00:00 to 07:00 and from 23:00 to 24:00 — UAH 3,000/MWh;
- From 07:00 to 08:00, from 11:00 to 17:00 and from 22:00 to 23:00 — 5,600 UAH/MWh;
- From 8:00 a.m. to 11:00 a.m. — UAH 6,900/MWh;
- From 17:00 to 22:00 — 7,500 UAH/MWh;
- minimum marginal price — UAH 10/MWh.
- These price caps will not be sufficient to ensure stable electricity imports during the hours of shortage in winter, when it is necessary to import electricity freely.
- The level of price caps should be like in Europe, to prevent price shocks and not distort the market.
- Ukrenergo's supply and dispatch tariff for 2024 should cover the reasonable costs of the company, taking into account the solvent demand of industry, especially the defence industry.
Energy reforms
The Energy Cooperative Secretariat Director A. Lorkovskyi cited three key aspects for Ukraine’s energy sector:
- Implementation of the REMIT system, which significantly expands the powers of the Regulator;
- A Regulator independent of political influences, if we want to integrate in the EU. Since the concentration of state companies in the energy market is too high, a "Chinese wall" is needed between the Government and the Regulator;
- For accession to the EU, it is necessary to carry out market coupling, which means the abolition of marginal prices. There is one and only answer against price shocks — introduction of REMIT.
Ukraine’s President V. Zelenskyy approved the NSDC decision to support the energy sector in winter, with specific tasks for the Cabinet of Ministers, the Ministry of Energy and the NEURC. In particular:
- to find a solution for repayment of debts for the consumed electricity accrued by state and/or municipal enterprises of critical infrastructure and budgetary institutions;
- to introduce state incentives for construction of distributed generation facilities in territorial communities;
- to take measures to reduce mutual indebtedness in all segments of the electricity market and to increase export capacities in order to ensure cross-border trade in electricity;
- to study the issue of financial recovery of the electricity market actors with special duties by improving the relevant financial mechanism;
- to bring the marginal prices on the day-ahead, intraday and balancing market segments in compliance with the values of marginal prices set in accordance with the Commission's Methodology of September 27, 2022 No.1221;
- to study the issue of providing attractive business conditions for electricity imports during the Autumn–Winter period of 2023–2024.
