DTEK power rates may grow 18% in 2018 if NERC has quorum

Ukraine’s power sector regulator, the NERC, published
on Nov. 21 its calculations for a draft resolution to set a forecasted
wholesale electricity price for 2018, which will define the price for themal
power plants (TPPs). Based on the published papers, the regulator estimates
that coal costs to be covered by TPPs’ electricity rates in 2018 will amount to
UAH 2,685/t, or 20.2% higher than those covered in 2017.

The meeting of NERC commissioners to approve the
forecasted prices for 2018 is scheduled for Nov. 23.

Out of 12 TPPs operational in Ukraine, eight are
controlled by the holding DTEK Energy (DTEKUA), which stands to benefit most
from the adjustment. The approach of covering coal costs in electricity rates
based on import parity principle (as if all the coal is imported from the port
of Rotterdam) was adopted in March 2016. Such an approach has led to an
increase of the average achieved electricity price for TPPs by 48% yoy to UAH
1,588/MWh in 9M17.

Alexander Paraschiy: Higher
assumed coal costs will increase the average electricity rate of thermal power
plants next year by about 18% yoy, we estimate based on the announced
parameters. That should more than cover cost inflation for DTEK Energy next
year (DTEKUA).

The key risk now is that the NERC won’t be able to
approve this draft regulation by the end of this year. The regulator has only
four valid commissioners out of seven seats (and four needed for a quorum to
adopt any regulation). This week and last, there was no quorum at NERC sessions
as one of the commissioners was absent due to illness. And there is no clarity
on whether he will be able to come back soon.

The  censor.net.ua news site reported on Nov. 21
the absent commissioner is refusing to work distantly, which suggests he may sabotaging
the work of the NERC. The tenure of two commissioners expires by the end of
this week, meaning that starting next week only two valid commissioners will
remain (unless the president prolongs their tenures for several weeks). The
appointment of new commissioners will take a lot of time as the entire
nomination and appointment procedure takes 75 days. But the process has yet to
start.