Power exporters to the EU granted valuable discount

Ukraine’s Cabinet of Ministers has excluded a cross-subsidization mark-up from the price of electricity purchased for export to the EU, according to an order published yesterday. The exclusion effectively cuts the purchase price for exporters by 31% from USD 80/MWh to USD 55/MWh. The same change was made in 2009 for exporters to Belarus.

Alexander Paraschiy: The change will benefit DTEK (DTEKUA), which bought more than 80% of the total export capacities to the EU for 2012. The new regulation alone will enable the holding to earn up to an additional USD 90 mln this year on exports to Hungary, Slovakia, and Romania from the reserved capacities. It also paves the way for the renewal of exports to Poland, which was nearly halted for the last few years due to unfavourable pricing. The new regulation could spur demand for Ukrainian power on the country’s western border, which would raise the capacity load at Zakhidenergo (ZAEN UK), the only local producer of electricity for export to the EU. Consequently, we estimate this could add an estimated 1.4mmt of demand for energy coal over the remaining 9 months of 2012 to the benefit of some state-controlled miners. The list of primary beneficiaries in the near-term ends there, and most other players will only suffer from the new regulation: the cross-subsidization amount will now be re-distributed to a smaller pool of internal (non-residential) power consumers,  effectively raising their electricity bills (1% due to the regulation).