Ukraine faces electricity shortages amid harsh winter conditions, according to Maxim Timchenko, CEO of Ukraine’s largest energy company DTEK.
Sub-freezing temperatures this winter and cuts in coal production, the green energy crisis, and lack of government support have put Ukraine’s energy sector in a risky situation — Ukrainians may face further electricity brownouts as early as this month and blackouts for the entire year.
Timchenko warned that this situation prohibits further modernization of Ukraine’s energy sector and the greater competition that would come from integration into the European Union energy market. If Ukraine hopes to integrate their energy market with the EU by 2023, it must demonstrate its ability to provide reliable energy supply without importing electricity.
At a press conference on Feb. 10, Timchenko referred to these missteps as the “financial genocide of power generating companies.”
Timchenko believes that in the face of the current situation in the energy sector Ukraine has two choices: closer alignment and integration with the EU’s energy market or increasing reliance on coal imports from Russia and Belarus.
Timchenko seems to be a proponent of the European way. “Ukraine’s integration into the European energy market will increase competition, reduce prices and improve the quality of services provided,” he said.
“The government must choose wisely,” he tweeted later on Feb. 10, after the press conference.
Coal production troubles
DTEK, the company that generates a quarter of Ukraine’s electricity, has cut its coal production and is becoming increasingly dependent on coal imports from Russia and Belarus.
DTEK Energy, DTEK’s daughter responsible for 90% of Ukraine’s steam coal production, cut its coal production by 16% in 2020. This month alone, DTEK plans to triple its coal imports to 450,000 tons to be able to deliver enough coal to thermal power plants.
In addition to importing from Russia, DTEK will import from Poland and Kazakhstan. According to Timchenko, increased reliance on coal from Russia and Belarus produces an imbalance in the markets that result in higher electricity prices for consumers.
While thermal power plants secure about 35% of Ukraine’s electricity, DTEK has been cutting its coal production almost every year since 2015.
Owing industry $1 billion
The green energy crisis makes the situation worse.
The Ukrainian government is required to buy all green electricity from renewable power plants at some of the highest tariffs in Europe, but in 2020 the state didn’t have the money to do that. Even after cutting the green tariff last year, Ukraine is still struggling to pay back its debt of $1 billion to renewable developers, which scares away potential investors.
Foreign investment in Ukraine’s renewables sank to 1.2 billion euros in 2020, according to the State Agency on Energy Efficiency. This is three times less than in 2019, when green developers poured 3.7 billion euros in building renewable power plants in Ukraine.
According to Timchenko, whose DTEK is the largest investor in renewables in Ukraine, the crisis is the result of mismanagement over the last 18 months.
Timchenko is sure Ukraine should create a professional management team to oversee the development of the energy sector and its integration into the European Network of Transmission System Operators for Electricity.
But without paying back the debts, he said, these goals will be very hard to meet.
In the meantime, DTEK plans to restructure its own debt. DTEK Energy plans to swap its $1.7 billion debt for new eurobonds by May, Timchenko said of the company’s bond and bank debt restructuring.
“It will be a public instrument with a yield of 5% this year, and 7% starting next year until the end of 2027,” he said. “It will take three months legally (to complete) this process.”
DTEK plans to launch a pilot project this year for the production of “green” hydrogen power and to build 1-megawatt-energy storage capacity at its Zaporizhia thermal power plant site.
In addition, the company plans to build Europe’s second largest onshore wind plant. DTEK also plans to build three solar plants in Dnipropetrovsk Oblast.
Timchenko said that 2023 is the year when Ukraine has to “start a new life” and live by the European standards of energy.
“And Ukraine must do this without populism, without political statements, and with responsibility taken by the regulators and the market players to create financial balance and liberalized tariffs…” Timchenko said.
