Russian War Against Ukraine: Energy Dimension (daily updating DiXi Group alert)
March 13 – 17
Summary of the week
— Russia continues to deliberately destroy critical infrastructure. Over the past week, enemy artillery shelling damaged networks and infrastructure in Kharkiv, Donetsk, and Kherson regions. In 6 months (September 2022 – March 2023), Ukraine’s air defense forces shot down about 700 missiles and more than 650 kamikaze drones that Russia launched at energy infrastructure facilities.
— Enemy’s attacks continue in the information space: since the first days of the war, attempts to attack Ukrenergo’s IT systems have increased tenfold, with cyber defence specialists facing hundreds of cyberattack attempts every day.
— During the week, the power system operated without a deficit. Grid restrictions due to the consequences of Russian attacks were in effect in Zhytomyr, Kharkiv, Poltava, Sumy, Kyiv regions and the city of Kyiv, which led to electricity cuts to avoid equipment overload and accidents. The situation remains difficult in the regions along the frontline, where the enemy is constantly damaging distribution networks with shelling. The connection of all household consumers left without electricity resulting from the hostilities was completed in Mykolaiv region.
— Unauthorized changes to the operation of nuclear facilities continue at the occupied ZNPP. According to the Acting Head of the State Nuclear Regulatory Inspectorate Oleh Korikov, interference with the operation of heat and power supply systems has been recorded, and unknown structures are being built near the backup power plant of Unit 6. The internal crisis center at the ZNPP site has been dismantled and has no connection with the external crisis center in Zaporizhzhia. Meanwhile, the IAEA Director General Rafael Grossi said there is a viable solution for the safe operation of the ZNPP, and it requires international support. No details of the possible agreement were disclosed.
— Ukrenergo is implementing a record-breaking equipment replacement program in the company’s history – so the CEO Volodymyr Kudrytskyi. In addition, the TSO is developing options for protecting facilities from missile attacks, including the latest technologies to make main substations compact and protect them by placing them underground or using shelters.
— On the first anniversary since the IPS of Ukraine was synchronized with ENTSO-E, some results have been reported. E.g., in the period of regular Russia’s massive missile attacks, the volume of technological cross-border flows from the EU countries reached a maximum of 2 GW, and imports – 560 MW. Capacity fees and payments under public service obligations assigned to exporters yield Ukraine an additional 8.7 billion UAH.
— The Cabinet of Ministers plans to start restoring the energy sector by the fall: rebuilding new facilities and protecting existing ones. The government approved the 2023 Priority Action Plan, with energy security among its 6 crucial areas. Namely, key tasks identified are: restoration and protection of energy facilities (generation and distribution), preparation for the 2023-2024 heating season, full integration of the electricity markets of Ukraine and EU, increasing the cross-border capacity for exchanges of electricity, renewable energy, Green Deal, improving safety of nuclear power plants, thermal modernization of residential and public buildings.
— The State Agency for Reconstruction and Infrastructure Development is concentrating resources for initiatives and projects. The government allocated 5 million UAH from the State Budget (reserve fund) on a pilot project for the construction and repair of energy infrastructure. The funds are received by the State Agency for Reconstruction, which will work in coordination with the Ministry of Energy, the State Emergency Service, the General Staff of the Armed Forces and critical infrastructure operators. The State Agency for Reconstruction also announced the launch of a training course on March 16 for Ukrainian communities. Meanwhile, the former Head of the State Agency for Energy Efficiency Valerii Bezus was appointed Advisor to the Vice Prime Minister for Reconstruction. He will work on including the use of energy-efficient tools, RES and alternative fuels in the process of recovery.
— The authorities are strengthening project-based cooperation with international partners. The government and the Energy Community Secretariat signed a memorandum on support for priority projects in the construction and reconstruction of energy infrastructure, as well as the restoration of RES facilities. Oleksandr Haidu, the Chairman of the Verkhovna Rada Committee on Agrarian and Land Policy, announced that, in two years, Ukraine plans to build 10 biomethane production facilities. He also announced the EIB plans to allocate 50 million EUR to support agro-processing, including the production of biomethane and bioethanol.
— Poland and Ukraine are expanding bilateral cooperation. The Polish PM Mateusz Morawiecki said cooperation could include gas exploration in the western part of Ukraine, launch of Khmelnytskyi NPP – Rzeszow interconnector, and Rivne NPP – Chełm interconnection project. The media reported on the plans of Polish operators of electricity, gas, and oil transmission networks to sign an agreement with the Ukrainian side to deepen cooperation. So far, the memorandum has been signed by GTSOU and Gaz-System, and the parties will work on long-term firm capacities at interconnectors; removing barriers to cross-border gas trade; and analyzing the possibility of transporting LNG with the possible use of Ukrainian storages. The companies will also promote available supply routes to Ukraine, such as the Baltic Pipe, interconnectors with Lithuania and Slovakia. A research platform for the transmission of renewable gases, such as biomethane and hydrogen, will be created.
— Ukraine plans to complete licensing and launch commercial production of shanks (liners) for Westinghouse nuclear fuel in 2023. According to the Minister Herman Halushchenko, production of top nozzles for fuel assemblies is to begin in 2024. The components will be used for the production of nuclear fuel for Energoatom’s needs at the Westinghouse facility in Sweden. The President of Energoatom Petro Kotin added the company plans to develop its own nuclear fuel production line in three years. Meanwhile, as part of the High Level International Advisory Council, the first meeting of the working group to supervise the corporatization of Energoatom has convened.
— The NEURC postponed consideration of decisions on the increase of electricity distribution tariffs, yet plans to consider raising tariffs for centralized water supply and sewerage in March. Meanwhile, Ukrainians have already received 12 million LED light bulbs under the EU-supported exchange program for old incandescent bulbs.
— The Asset Recovery and Management Agency (ARMA) may be liquidated. The Chair of the Verkhovna Rada Committee on Finance, Taxation and Customs Policy Danylo Hetmantsev confirmed that the parliament is going to liquidate the ARMA. The main complaint against the agency is the non-transparent sale of property.
— Naftogaz submitted a new proposal (revised working scenario) to restructure payments on its 2022 and 2026 Eurobonds. In a presentation for creditors, it also outlined main sources of gas supply during the 2022/2023 heating season (13.9 bcm): 1 bcm is covered by imports, 5.3 bcm – taken from storage, and 7.6 bcm – production of Ukrgazvydobuvannia. On the consumption side, the estimated volume for households is 6.6 bcm, for district heating companies – 5.1 bcm, for electricity producers – 0.8 bcm, and for others – 1.4 bcm. Naftogaz noted that 3 bcm are still needed for the rest of the heating season (March-April).
— Last year, Naftogaz imported almost 1 bcm of gas. The purchases were financed by the EBRD (225 million EUR loan), Canada (323 million EUR aid), and Norway (189 million EUR grant). From October 2022 to February 2023, the company managed to purchase 923 mcm of gas on foreign markets for 737 million EUR.
— The business community considers the creation of an integrated gas distribution systems operator by Naftogaz as a risk of reforms rollback. The European Business Association addressed a letter to the EU Delegation to Ukraine, the Energy Community Secretariat, the IMF, and the European Commission regarding non-compliance with market principles and reforms achieved in the gas sector. “The introduction of a single gas distribution systems operator (within the state-owned energy company), which will provide gas distribution services in most of the territory of Ukraine, into the structure of a vertically integrated enterprise, which is already present in the production, trade, supply and distribution of gas, is not fully compliant with the acquis and obligations of Ukraine as the EU candidate country in the energy sector”, the letter says. To remind, Naftogaz provided information on its own share in the gas market – 81% (however, it is unclear which market segment this figure refers to).
— The number of court proceedings in the interests of the state is growing. The National Anti-Corruption Bureau and the Specialized Anti-Corruption Prosecutor’s Office filed to a court the first episode of the so-called Rotterdam+ case on charges of six persons of causing electricity consumers losses of over 19 billion UAH in 2016-2017. The prosecutor’s office, on behalf of the state, filed a lawsuit to terminate the concession agreement for Kharkiv’s Eskhar CHP-2 with the company of businessman Pavel Fuks, who is under sanctions. The High Anti-Corruption Court upheld the preventive measure for Andrii Kobolyev, former CEO of Naftogaz (a bail of 229 million UAH), and obliged him to wear an electronic bracelet.
