Ukrenergo auctions off 275 MW of electricity export capacity

Ukrenergo, national electricity transmission operator, auctioned off a total of 275 MW of electricity export capacity yesterday for UAH 141.3 mln. The power is due to be generated by the Burstyn power station, part of Zakhidenergo (ZAEN) over 2010: 100 MW was purchased by Zakhidenergo, 150 MW by DTEK’s Vostokenergo and 25 MW by Ukrinterenergo. Yegor Samusenko: Being the only listed electricity producer connected to the EU transmission system, Zakhidenergo benefits from this auction through two channels: an expected increase in asset utilization and participation in the high-margin electricity export business. Before the auction, the generating capacities of the Burstyn island were not fully utilized due to the lack of desire by monopoly customer Ukrinterenergo to increase electricity sales. We expect that will change after this auction where bidders paid lump sums for access to capacities and are motivated to utilize them to the maximum. We forecast Zakhidenergo will be able to increase its output by 1.8 TWh yoy (12% of 2010E output) as a result of the auction. Moreover, Zakhidenergo itself will trade 1/5 of electricity exported to Europe – the company’s 100 MW of capacity won at the auction positively surprised us. Given the futures prices for base load electricity in Hungary at 38-49 EUR per MWh (6%-37% higher than paid at the border with Ukraine), the company should be able to add an additional EUR 8-10 mln to its bottom line in 2010. We expect a positive stock market reaction to the news.