Ukraine MinEnergy offers to increase rates for coal-fired power plants
24 February 2017
Ukraine’s Energy Minister Ihor Nasalyk told journalists on Feb. 23 that he will recommend that the power sector regulator amend pricing for electricity produced by anthracitic coal-fired power plants, Interfax-Ukraine reported. Namely, Nasalyk suggests that the price of electricity produced by anthracite-fired plants cover coal costs estimated as a 3-month average trailing coal price in international hubs, plus delivery costs. This price should be revised each quarter. Nasalyk explained the need to upgrade power pricing by the need to import anthracite, which is only mined in Ukraine in the occupied territory. Given the blockade of railway connections with occupied Donbas, Ukrainian power plants are unable to receive coal from there, and need to think about importing it from abroad.
Currently, power plants’ rates cover coal costs calculated based on a 12-month trailing coal price in Rotterdam, plus delivery costs, and are revised annually. This approach does not allow the power plants to cover coal import costs, as today’s price in Rotterdam is USD 82/t (and about USD 100/t, including delivery costs), while the electricity rate covers only USD 64/t coal costs.
Out of 12 thermal power plants operational in Ukraine (outside the occupied territory), six are burning scarce anthracitic coal, and other six are burning hard steam coal (readily available in Ukraine). For hard steam coal, Nasalyk suggests keeping the current pricing methodology (based on last year’s coal price in Rotterdam plus delivery costs) unchanged.
Alexander Paraschiy: The idea considered by Nasalyk is one of the opportunities for DTEK Energy (DTEKUA) that we mentioned in our Feb. 22 note. If implemented, it will be beneficial for DTEK, as power rates for three out of its nine thermal power plants will increase significantly, as compared to the current level. Thus far, the likelihood of approval of this pricing approach is uncertain as the entire idea of linking Ukrainian coal prices to international benchmarks is widely criticized. Nevertheless, this idea looks encouraging for DTEK.
