DTEK enjoys 6% power rate hike for themal plants in early November

The average achieved price of electricity sold by Ukrainian thermal power plants (TPPs) reached UAH 1,804/MWh (USD 70/MWh) in the first ten days of November, according to the regular report of Energorynok, an operator of the wholesale electricity market. This is the average power price of 12 TPPs operational in Ukraine (outside the occupied territory of Donbas), of which eight TPPs are controlled by DTEK Energy (DTEKUA). The achieved price is 6.3% better than average for October and 98% better than in November 2015.

At the same time, the average price of all Ukrainian producers for the beginning of November decreased 0.9% from October, due to the increased share of cheap nuclear-produced power on the market and a 12% m/m decrease in average prices for power from hydro-plants.

Alexander Paraschiy: The news is good for DTEK Energy, which should generate enormous earnings in 4Q16 so that its annual 2016 EBITDA could exceed our estimate of USD 450 mln. The decline in the average price of all Ukrainian producers in early November, amid stable m/m prices for consumers (the price is fixed for the entire 4Q16), suggests that there is room for further growth in producers’ price by the month’s end, possibly to the further benefit of thermal power plants.

Thus far, we do not know for how long the coal-fired TPPs will enjoy high prices as there is always a risk of downward price revision based on pressure from power consumers, who suffer from such “generosity” of power sector regulators. But what looks very probable is that prices for thermal power plants (already accounted for in power rates for final consumers) will remain high by the year end. That said, we remain cautiously optimistic about the price performance of DTEKUA bonds in the short term.