Ukraine raises 2017 wholesale electricity price forecast by 5.3%

Ukraine’s power sector regulator, the NERC, approved on March 23 an increase of the average wholesale electricity price forecast to UAH 1,354/MWh, according to NERC working documents. This is 5.34% more compared to what it forecasted in December, and 0.17% more compared to what the NERC drafted on March 21. The wholesale price forecast is used to calculate retail prices for industrial consumers. It incorporates forecasts of power prices for all electricity sources in Ukraine.

The need to raise the wholesale price forecast is prompted by higher expected fuel costs, including costs of coal, due to the trade blockade of occupied Donbas, which raises the need to import steam coal, the regulator explained. NERC provided no details on the planned increase of realized prices for electricity produced by thermal power plants.

Alexander Paraschiy: The increase of wholesale price assumptions will be beneficial for thermal power plants, including those controlled by DTEK Energy (DTEKUA), even though the exact increase of their realized prices was not officially disclosed. The regulator’s plans to significantly raise rates for thermal power plants is already visible: for March 1-20, their average rate was UAH 2,007/MWh, far higher than the average for 2M17 of UAH 1,434/MWh.

That said, we believe the recent increase of the forecasted price is not the last for this year. All this allows us to remain neutral on DTEK Eurobonds, with a little more optimism than we had a couple of weeks ago.