The paradox is that in Europe, thermal coal prices have fallen by a quarter, but this has put the Ukrainian energy system on the brink of collapse, writes DS.
In Ukraine, the threat of rolling blackouts has arisen due to electricity consumption significantly exceeding production. This type of danger typically arises in winter, during periods of sudden cold snaps, when electricity producers are unable to meet the demand of consumers, who turn on their heaters en masse. Now, the situation is repeating itself, but with the only difference being that people have turned on their air conditioners at full blast due to the heat.
Ukrenergo warned consumers of the risk of power outages. "Over the past two weeks, record temperatures have been recorded in Ukraine, with peak power consumption reaching 17,935 MW," Ukrenergo reported on its website.
When temperatures rise, flexible capacity, particularly thermal power plant (TPP) units, is needed to balance the power grid during peak demand. However, instead of increasing reserves due to the heat, they actually began to decline. Specifically, while seven units with a total capacity of 2125 MW were undergoing emergency repairs from June 15 to 19, by June 20, eight units with a total capacity of 2320 MW were. Furthermore, while units with a total capacity of 2139-2439 MW were off reserve from June 15 to 19 due to a lack of coal, by June 20, the figure had already reached 2857 MW. Furthermore, coal reserves at TPP warehouses decreased by almost 10% over the 10 days of heat.
Ukrenergo notes that for the reliable operation of the power system, the standard reserve capacity must be 2000 MW, but as of June 24, there were no reserves. "This means that Ukrenergo has only the existing reserve capacity of hydroelectric and pumped storage power plants to cover peak consumption," the company reported.
However, as Olga Kosharnaya, media director of the Ukrainian Nuclear Forum, told DS, hydroelectric power plant reserves are also small: "Spring, when there was good snow cover and heavy flooding, was one thing; now, when it's been hot for weeks and there isn't enough water, is quite another."
If temperatures continue to rise, TPP units continue to be taken out of service for repairs, and the coal supply situation does not improve, an emergency could arise in the power system, and Ukrenergo will have no choice but to perform a planned shutdown of some consumers.
Ukrenergo Director Vsevolod Kovalchuk reported on his Facebook page that units at the Kryvyi Rih Thermal Power Plant (KTPP) are currently being activated to cover the power shortage, but its coal storage facilities only have enough coal for five days. "When the Kryvyi Rih TPP shuts down, the power shortage could reach 1000 MW. This would necessitate shutdowns or consumption restrictions for 6% of all consumers in the country," Kovalchuk warned.
According to him, to resolve the problem, it is necessary to expedite the shutdown of units at Centrenergo's Trypilska and Zmievska Thermal Power Plants (TPPs) and Donbasenergo's Slavyanska TPPs (TPPs) or to restart the gas-oil-fired units at the TPPs. Furthermore, it is necessary to ensure a stable supply of coal to DTEK Energy's Kryvyi Rih and Luhanska TPPs. "Ukrenergo has already contacted the National Security and Defense Council of Ukraine regarding this matter. "The operational security of Ukraine's energy system will now depend on the speed of decision-making and its implementation," the Ukrenergo director warned.
What is the cause of the crisis? Kovalchuk cites unofficial information from thermal power generation representatives, who justify the low coal reserves at thermal power plants by claiming that critically low customer payments have eroded working capital. Coal reserves at each thermal power plant can be found here. At some plants, the coal shortfall is 25% or even 50% of the planned amount.
Representatives of heating companies also cite another reason for the coal shortage: a reduction in the tariff at which thermal power plants sell electricity to the state. Specifically, according to the state-owned enterprise Energorynok, the price of electricity from thermal power plants was UAH 2,02 per kWh from March 1-10, UAH 1,75 from May 1-10, and UAH 1,42 per kWh from June 1-10. The electricity tariff for thermal power plants was reduced because it includes the mandatory price of coal on the Rotterdam exchange and the cost of its 8,000 km sea delivery. As DS previously reported, coal prices on global exchanges have fallen by 25-30% over the past month. In other words, thermal power plant owners could previously factor a much higher coal price into their electricity tariffs, effectively purchasing it at a significantly lower price through illegal schemes, and pocketing the difference. Now, with the decline in global coal prices, thermal power tariffs have fallen, and thermal power companies are complaining that they are operating at a loss. "People quickly get used to high formula-based, rather than competitively determined, revenues—that's a fact," noted Vsevolod Kovalchuk.
The head of Ukrenergo also recalled that over the past three years, critically low coal stockpiles at thermal power plants have occurred each time before decisions were made to raise coal prices and, consequently, the wholesale market price (WMP) for electricity. "It's just a coincidence, just like the simultaneous breakdowns of the units," he noted diplomatically.
However, Olga Kosharnaya, media director of the Ukrainian Nuclear Forum, directly described the current situation at the thermal power plants as blackmail by the thermal power industry. "They're deliberately keeping coal reserves low to blackmail the government and the National Commission for State Regulation of Energy and Public Utilities."
The reason is simple: the electricity market is scheduled to launch on July 1st. Initially, it was assumed that in the new market, the largest producer, Energoatom, would commit 60% of its electricity to fulfilling public special obligations (i.e., to provide affordable electricity to the population), and would be able to sell the remaining 40% under direct contracts with consumers. However, Energoatom's special obligations were subsequently increased to 90%, and the share of sales at open prices was reduced to 10%. Thus, by eliminating Energoatom and its cheap electricity from the market, the heating companies had a chance to profit. But the government thwarted their plans: the Cabinet of Ministers, wishing to prevent the possibility of rising electricity prices for consumers, decided at its meeting on June 5th to introduce caps on electricity prices.
Moreover, on the eve of the launch of the new market model, numerous decisions are being made in government offices that will directly impact the depth, intensity, and location of financial flows. In other words, a war is underway for the future market's funds. And in war, as the saying goes, all means are fair. Even blackmail.
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