Electricity prices at Ukrainian thermal power plants rise 34% in October

The average achieved price of electricity sold by Ukrainian thermal power plants (TPPs) reached UAH 1695/MWh (USD 66/MWh) in October, according to the regular report of Energorynok, an operator on 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). October’s average price implies a significant increase on a month-on-month (+34%) and year-on-year basis (+75%).

Alexander Paraschiy: The news is clearly positive for DTEK Energy, the key gainer of such a price increase, and its bondholders, who will receive some increased cash coupon for October. The spectacular growth most likely stems from higher coal costs which are covered by the electricity rates. Recall, the power sector regulator introduced in April a new methodology of pricing of electricity produced by TPPs, which cover coal costs calculated based on the API2 Index (CIF coal price in Western European ports) plus delivery costs to Ukraine.

With such prices, DTEK’s fundamentals will be exceptionally good in 4Q16, so the market is very likely to welcome such a development. On the other hand, we warn that such abrupt improvements in DTEK fundamentals might have some negative mid-term consequences for the holding.

October’s increase in TPP prices was possible due to a 10% m/m increase in the final electricity prices for commercial consumers. The increased electricity burden on business might lead to intensified pressure on the power sector regulator to force it to restrain its “generosity” at the expense of commercial consumers. Yesterday, we wrote on interim success of such pressure (a local court cancelled the final electricity rate increase for May-July) and that’s only beginning of an unfolding story.