Ukraine’s Energy Sector Developments

Monthly Energy Digest – September

By Andrian Prokip

• The power system was recovering after the most massive Russian air attacks. System operators almost did not apply cutoff steering after September 10. Regional Russian attacks cause power supply interruptions.
• The first auction for allocating green energy support quotas was announced.
• Naftogaz continues increasing gas production and plans for Ukraine to pass the winter using domestically produced gas only.
• Exporting biomethane is unlocked now — all necessary regulations have been adopted.
• The European Commission has developed a plan to support the Ukrainian energy industry in the winter period.
• Ukrenergo’s chair of the board and CEO was dismissed.

The Electricity Market

The general situation in the power system

The power system has been recovering from the Russian attack on August 26 during the first week of September. Customers have been experiencing schedules and emergency cutoffs. Besides, higher than normal in September, temperatures defined a higher electricity demand. Starting from September 10, cutoffs were almost not applied across the country. By the end of the month, two nuclear power units remained in maintenance.

Russia continued attacking power system facilities in different regions despite no wide-scale attacks. These are expected to start at the end of October when the winter heating season starts.

Exports and Imports

Ukraine did not export electricity in September, and the power system has been recovering from the massive Russian attack in late August. However, the volume of imports decreased.

Electricity export (- minus) and import (+ plus) during the month

In September, Ukraine reduced electricity imports by 7.5%.

In September 2024, Ukraine reduced electricity imports by 7.5% compared to August 2024 – to 438,000 MWh.

Deliveries decreased in all directions except for Poland. 86.1 thousand MWh were supplied from Poland in September, 78% more than in August. Hungary remained the largest supplier (35%), followed by Slovakia (24.5%). 16.5 thousand MWh were imported from Moldova, and part of these volumes were reimported from Romania.

Electricity import, per month, 2023-2024, MWh (data collected by ExPro agency)

In September, electricity imports grew more than 18 times compared to September 2023.

Floating power plants are allowed in Ukraine

On September 13, the Cabinet of Ministers, by Resolution No. 1069, approved measures to organize the installation of gas piston and/or gas turbine units on vessels of the technical fleet. They are marked for official use. Turkey owns such a fleet and proposes that these vessels be used in Ukraine. These may be used to power the cities of Odesa, Mykolaiv, and Izmail.

Debts and non-payments

Indebtedness to the system operator Ukrenergo on the balancing market exceeded UAH 34.3 billion. In 9 months of 2024, debts increased by 11.4%. At the same time, in 9 months of this year, Ukrenergo’s debt to market participants decreased by 12% – to UAH 16.2 billion. 

Ukrenergo’s debt on the balancing market amounts to more than UAH 16 billion, and the indebtedness of companies participating in this market to Ukrenergo exceeds UAH 34 billion.

The company intends to repay part of the debts with the funds received from trading access to interstate cross-border capacities for import-export operations under the recently adopted law.

As of September 1, Ukrenergo’s indebtedness to the Guaranteed Buyer to support RES increased by 9.5%, compared to August 1, reaching 28,44 billion. In 2024, the level of payment under the feed-in tariff is 63.4%, 90.5% in 2023, 61.2% for 2022, and 99.7% for 2021 supplies.

Prices

The average electricity price in the day-ahead market decreased by 1.3% in September.

The weighted average electricity price on the day-ahead market in September 2024 decreased by 1.3%, compared to August 2024 – to UAH 5,664/MWh.

In September, hourly prices reached the upper price caps in 29% of settlement periods (206 out of 720 hours). The price was limited mainly by price caps within 7-10 pm hours.

Renewable Power Sector

The first auction for allocating green energy support quotas was announced.

Guaranteed Buyer has announced the first auction for the allocation of an additional annual support quota for electric power facilities or phases of construction (start-up complexes) of electric power facilities that produce electricity from the energy of solar radiation. Bids to be accepted from energy facilities located on the left bank of the Dnipro River.

The purchase amount is 11,000 kilowatts of solar energy. The starting price of the lot is 9 euro cents. The auction will be held on October 31, 2024, at the Ukrainian Energy Exchange platform.

The Gas Market

Gas balance

In September, gas consumption was 10% higher than one year ago. This was mainly due to higher gas usage for electricity production.

According to an independent assessment by the ExPro agency, natural gas reserves in Ukrainian underground gas storage facilities reached 12.39 as of the end of September. Due to this, Ukrainian companies will reach the target of stinging the gas before winter using domestically produced gas only. The average pumping volume into underground storage facilities amounted to 24 million cubic meters per day, compared to 27 in August.

Naftogaz plans for Ukraine to pass the winter using domestically produced gas only.

Naftogaz intends to use domestically produced gas only during the winter of 2024-2025. The gas was purchased in Europe using the EBRD’s loan of 200 million EU, was bought just to be on the safe side.

Gas transit status and updates

In September, gas transit volumes to Moldova and the EU remained the same on average as in August.

Ukraine and Moldova plan to increase the guaranteed capacity to 7 million cubic meters daily.

The Ukrainian GTS Operator LLC (OGTSU) and the Moldovan GTS operator VestMoldTransGaz (VMTG) are working on increasing the guaranteed capacities for transporting gas along the Trans-Balkan route toward Ukraine to at least 7 million cubic meters per day. The short-term goal is to achieve 7 million cubic meters of guaranteed capacity at one of the interstate points by April 2025. Both GTS operators must reconstruct several facilities along the route to do this.

Both companies had already implemented the first stage—1 million cubic meters of guaranteed daily capacity in the direction toward Ukraine was created. This stage did not require significant investments from OGTSU or VestMoldTransGaz, and from September 1, 2024, these capacities have already been used to transport gas to Ukraine.

Renewable Gases

Exporting biomethane is unlocked now.

The Ministry of Finance published an order defining the procedure for customs clearance of biomethane transported by pipeline. It allows the export of biomethane to begin. Besides, for the first time ever, a biomethane producer injected gas into Ukraine’s gas transmissionsystem.

The Oil Sector

Oil transit status and updates

The transit of Russian oil increased by 37% to 1.06 million tons in September.

The transit of Russian oil through the Ukrainian part of the Druzhba pipeline increased by 37% to 1.06 million tons in September 2024. Excluding the record July, the volume of oil transit in September is the highest since January 2024.

Most of the oil was transported to Slovakia in September – almost 0.5 million tons, approximately the same as in August. Oil supply to Hungary increased 2.1 times to 0.37 million tons. In addition, more than 0.19 million tons of oil was transported to the Czech Republic, almost twice as much as in August.

In general, in the nine months of 2024, Ukraine transported about 8.05 million tons of Russian oil: to Hungary—3.39 million tons (42% of the total transit), Slovakia—2.912 million tons (36%), and the Czech Republic—1.75 million tons (22%).

MOL agreed on the oil supply from Russia after Ukrainian sanctioned Lukoil.

Hungarian energy company Mol announced that it had reached an agreement to ensure continued supplies of Russian crude oil through a pipeline passing through Ukraine. MOL did not specify the details, but it is most likely about buying the oil at the border between Belarus and Ukraine, where the pipeline enters Ukraine.

Fuel imports

Ukraine has agreed on the creation of diesel fuel reserves in the EU.

Ukraine agreed on the creation of additional diesel fuel reserves in the EU to cover the current heating season. These stocks will be stored in the EU, not in Ukraine so that they do not become the target of Russian attacks.

Other News and Developments

Preparations to winter

187 contracts on the connection of distributed generation to power grids for 1.2 GW have already been issued

According to NEURC, as of September 15, 2024, 187 contracts on the connection of distributed generation to electric grids under a simplified procedure for a total capacity of 1,204 MW have already been issued. 414 contracts and technical conditions were issued for connecting distributed generation to gas distribution grids for a total electric capacity of 1,410 MW.

Further simplification of small power plant procurement and installation

On September 13, the Cabinet of Ministers, by Resolution No. 1069 amended some other its resolutions. According to these changes, the purchase of gas pistons, gas turbine cogeneration plants, gas turbine plants, and block-modular boiler houses (their components), their rental, as well as the purchase of services related to it can be made by concluding a contract without using open tenders. The government also exempted the installers of such mini-thermal power stations from the need to obtain town planning conditions, allocation of land plots and from some other bureaucratic procedures.

International aid

The European Commission has developed a plan to support the Ukrainian energy industry in the winter period.

The European Union is providing additional 160 million euros to help Ukraine prepare for another winter in the face of Russian strikes. The EU will provide an additional 160 million euros for this winter, including 60 million euros of humanitarian aid—for example, for installing heating points and heaters—and about 100 million euros to repair damaged equipment and install renewable power plants. And this amount – 100 million – is provided from the income received from Russian assets frozen in Europe.

The total capacity shortage may amount to 4-6 GW in winter. The repairs as expected, should add 2.5 GW of power-generating capacities to Ukraine’s power system in winter. And partly the deficit will be covered by imports. The existing allowed import capacity of 1.7 GW may be increased by 500 MW this year.

Others

CEO of Ukrenergo Volodymyr Kudrytskyi fired.

On September 2, the supervisory board of the power transmission system operator voted to dismiss Volodymyr Kudrytskyi, the CEO. Kudrytskyi called the board meeting on his initiative after the meeting of the Staff of the Supreme Commander-in-Chief, headed by the President, decided to fire him. Two independent members of Ukrenergo’s supervisory board did not agree with the dismissal, calling it politically motivated, and resigned from the board. Before the dismissal, international donors expressed concerns and called to postpone the decision until the supervisory board obtained one more member it lacked.

Board member Oleksiy Brekht, who is responsible for operating, restoring, and developing the company’s high-voltage infrastructure, has been appointed acting head of Ukrenergo.

The selection of candidates for Ukrenergo’s supervisory board has been announced.

The Ministry of Energy has announced a competitive selection of candidates for three positions of independent Supervisory Board of Ukrenergo members, considering the expiration of the term of office. Simultaneously, the Ministry of Energy will determine and select candidates for the state representative position on the Supervisory Board.

Earlier, ambassadors of the Group of Seven (G7) countries emphasized the importance of re-electing independent members of the company’s Supervisory Board.

Naftogaz Group received UAH 24.4 billion in net profit in the first half of 2024..

The Naftogaz Group’s net consolidated profit in the first half of 2024 is UAH 24.4 billion. Compared to the same period last year, this profit increased 3.7 times—from UAH 6.6 billion in the first half of 2023 to UAH 24.4 billion in the first half of 2024. The independent international auditing company PricewaterhouseCoopers (PwC) reviewed the Naftogaz Group’s financial statements for the six months of 2024.

The key companies that showed a profit in the first half of 2024 are Naftogaz of Ukraine, JSC UkrGazVydobuvannia, JSC UkrTransGaz, PJSC Ukrnafta, LLC Gas Supply Company Naftogaz Ukraine, JSC UkrTransNafta. In addition, during January-June 2024, the Group’s enterprises paid taxes totaling UAH 44 billion to the state budget. This is 7.5% of all payments controlled by the State Tax Service of Ukraine.

The Decarbonization Fund financed the first energy efficiency project.

The decarbonization fund provided UAH 18 million for the energy service of the street lighting network in Voznesensk, Mykolaiv region. The first loan has already been issued, and the project has been financed: UAH 18 million will go to the energy service of the city’s street lighting network.

The fund plans to provide enterprises and municipalities with loans in the amount of UAH 859 million by the end of 2024 to implement energy-efficient projects. It is currently considering additional applications.

The number of households receiving subsidies will be reduced.

The number of recipients of housing subsidies will decrease by 400,000 people in 2025 (by 12.5%). According to the explanatory note to the draft law on the State Budget of Ukraine for the next year, planned expenditures for these payments will be reduced by 7.6 billion hryvnias.

The State Budget project provides 42.321 billion hryvnias for the financing of housing subsidies, benefits for housing and communal services, as well as for the purchase of fuel and liquefied gas in 2025. These funds are expected to support 2.8 million households.

In the state budget for 2024, the Cabinet of Ministers provided UAH 50 billion for payment utilities subsidies, which was about 25% more than was planned for 2023.

Housing and utilities prices increased by 18.5% during the last 12 months.

According to the State Statistics Service of Ukraine, from August 2023 to August 2024, housing and communal services tariffs increased by 18.5%. Electricity rose in price the most—by 63.6%. In addition, apartment building management services rose in price by 9 %, household waste cleaning by 5.4%, and housing maintenance and repair by 3.8%.

The IAEA has started work on high-voltage electrical substations of the transmission system of Ukraine.

On September 12, the International Atomic Energy Agency’s monitoring mission visited one of Ukrenergo’s substations, which was included in the list of key ones for guaranteeing the safe operation of nuclear power plants.  The presence of the IAEA monitoring mission at critical power substations should become an additional deterrent to Russia from strikes on transmission system facilities. The European Commission will partly finance this work.