Interfax News Agency's exclusive interview with Ildar Saleev, DTEK Energy's CEO
Source: https://interfax.com.ua/news/interview/742196.html
- Quite a difficult heating season is over. Surely your company has drawn some lessons. What will you do to prevent the situation from happening again in the future?
For us - the energy workers and other professionals - this heating season became a kind of an acid test. It brought up and exacerbated all the problems that had been long plaguing the industry. I want to believe that in the wake of this season, there will be some learning curve for those who should have learnt these lessons a long time ago, and the systemic problems faced by the industry will be addressed as a result. First of all, I mean the discoordination of actions among different market players. Let's take nuclear generation. They have their own maintenance programme. Repairs began late, and they finished late, too. And that leads to the forecast energy mix being changed in an emergency mode. At first the coal-fired generation was not planned to operate in the required mode, but at the end of November it was clear to everyone that there is simply no other way to support the power grid under increased energy demand. So all the load is put on the TPPs. And, unfortunately, the old problems that had begun to arise in 2019 got only worse in late 2020 - early 2021.
There were a lot of different accusations, specifically that the coal-fired generators turned out to be ill prepared for this winter period. We have talked about this a lot: about coal stocks at the stock yards as well as about equipment failures. The key thing that I will say is that it was NOT the coal-fired generators that were not prepared for the winter season, it was the whole power grid that was unprepared. And that it was the coal-fired generators, DTEK Energy in particular, who really managed to lend a helping hand. But instead of the regulator and the ministry drawing systemic lessons, the whole thing turned into a blame game. And it is still unclear if there is any learning curve to make sure that the energy sector as a whole becomes stronger and better prepared for the 2021/2022 season. At the moment, unfortunately, we do not see any systemic steps and actions being taken.
- Don't you think that there should be larger coal stocks?
- If we are talking about the coal stocks that we had at the beginning of this winter season, we felt ourselves absolutely comfortable and confident in terms of coal. Ahead of the winter season, our TPPs had over 2 million 100 thousand tonnes of coal at their stock yards. This is more than enough to meet our objectives specified in the forecast energy mix. And that was record high stock levels over the last three years. This is 1 million tonnes of coal more than we had at our stock yards in the last and last but one winter seasons. With that level of stocks, we had nothing to fear in terms of meeting our objectives under the forecast energy mix and our commercial electricity sales plans. Our stock yards were full up to the top. On the contrary, our engineers worried that it was dangerous in terms of coal self-combustion and that the stocks were on the verge.
When did the alarm bells start ringing? In November, when we were forced to carry an increased load because the nuclear units had not come online after repairs at that time. Ukrenergo began to instruct us more often to start our units to meet additional demand. We began to see our scheduled maintenance cut back because the grid needed our units. In late November, the situation began to deteriorate when in the middle of the season the ministry changed the already approved energy mix and increased the planned output and load for the coal-fired generators.
December. That was when we generated and sold 50% more electricity than envisaged in the Ministry of Energy's original forecast energy mix. And that was when we saw that unfortunately, DTEK Energy's power plants alone will probably not be able to meet all the energy demand. So we began to actively supply coal to the state-owned Centerenergo, among other things. Overall, we supplied 450 thousand tonnes of coal to Centerenergo between November and February. But based on the coal mining plans of our mines and our forecasts of energy output, we saw that we did not have enough in-house coal to meet the demand, so we began to take extraordinary measures and look into coal import options.
- How much coal did you import overall?
- It is still underway. Some part is still in transit. As of April, we received about 110,000 tonnes of Kazakh coal and 45,000 tonnes of Polish coal. In October, about 0.5 million tonnes of high-volatile steam coal and about 0.8 million tonnes of anthracite coal arrived from our Obukhovskoye Mine Group. In December 2020, we already started importing more than in November - 50 thousand tonnes up from the November level. In January, this figure was already more than 100 thousand tonnes. We stepped up imports and imported grade G coal from Kazakhstan and Poland. As quickly as possible.
There is another myth that allegedly, DTEK could have imported much more. But only absolute theoreticians can say that. We started importing coal in late November when we saw the problem and began to ramp up imports in December. The first Kazakh coal started to arrive in January, and its supplies sped up in February. So did the Polish coal.
Why is it impossible get it faster even if you have the money? All adequate coal miners have contracts concluded and sales channels defined already in June-July long ahead of the winter season. They have their own vision of their supply structure. And then we pop up and say: give us coal now. But coal is not that sort of thing you can get whenever you want. It all takes time. Time to negotiate, time to make contracts. With Kazakh coal, for example, logistic processes alone will take three weeks. And that is of course if we are in a fast-track mode when nobody is putting wrenches in the works. Hence, it will take 1.5-2 months for imports to start coming.
And in Europe, that would raise everyone's eyebrow if you turn up and start talking about a force majeure. However, we managed to find some options. We started buying up coal here and there and supplying it, sometimes even without making any real profit, as with the Polish coal, e.g., which as far as I can remember, nobody has supplied for quite a while. Although this is also not a straightforward task. Notably, it requires transshipment because of the difference in rail gauges between our railway tracks, which also requires time and money. But we did it.
As for our own production, the accusations against us that we deliberately slowed down operation of our companies during the winter season is either a gross recklessness or an outright lie. It is absolutely easy to check this information and see that our companies began to step up production. Yes, they could not kind of skyrocket their output because the coal industry is inert. If you want to see a real boost to coal production, it will take years. To this end, new reserves have to be prepared and new longwalls equipped. But during the winter season, all our mines were working at top speed. From October to April, our miners extracted more than 9 million tonnes of coal.
- Do you buy Russian coal only for yourself?
- We buy only Russian anthracite because some of our units, specifically at Luganska TPP, run on anthracite. There is nowhere else to take it. Either from overseas or from Russia. We take anthracite from our Obukhovskoye Mine Group. Anthracite supplies have been quite stable. In fact, we even ramped up Mine Group's output. Obukhovskoye scrapped all external sales in order to increase supplies to Luganska TPP, which in the midst of the winter season kept three units online, which is absolutely unique because Luganska TPP has not operated more than two units at the same time for a long time. But I should say that this is not only our achievement - credit must also go to Ukrenergo NPC, which responded and together with us found a solution on how to get this capacity through the grid. This is an example of good coordination where both private business and state-owned organisation are focused on the result rather than on just finger pointing.
- How attractive is the economics of burning imported coal?
- At that point it was not about economics. It was important to produce the required amount of power. From the economics perspective, it is worse than burning Ukrainian coal. Polish coal is priced well over UAH 2,000, while the price of Ukrainian coal is currently UAH 1,650 on the market. It is a clear overpayment. UAH 2,100 - 2,500 per ton is the price of imported coal. No tariff can withstand that. But, once again, it was not about economics. Some of our power plants operated at a zero or even negative economics, even at their variable costs. I'm not talking about the full generation cost. We have already forgotten when it was covered by the tariffs. And when they say that we somehow thought about our economics and curtailed our production, it is completely untrue.
- It will probably affect your financial performance for the first quarter?
- You cannot judge generators and the energy sector by looking at just one quarter. Yes, we worked hard during the first quarter. But let's see what will happen in the second and third quarters. Already today our units are running at the minimum generation level, and we need to implement our maintenance plans and get ready for the next winter season. This is normal when generators are earning at peak times. But when there is a surplus in the system, the earnings from these peaks are used to cover the required costs so that in the future the generators could ensure stable operation and output.
- But you still did not want to run on gas?
- To be honest, it is not economically attractive for us to run on gas. With the current price cap in place, when UAH 2.60-2.70 / kW is the cost of running on gas, what kind of economics can we talk about? But I will respond to the accusations that we deliberately did not run on gas. We minimized gas combustion whenever we could. We worked on a just-in-time basis. We were receiving coal and immediately burning it. Our work was organised in a 24/7 format. Logisticians worked miracles to make sure that the coal is delivered, loaded and unloaded as fast as possible. Miners extracted as much coal as they could, all available equipment was in operation. We used up all our coal stocks, even those required to support our processes. That is why our minimised gas-fired operation is, first of all, the result of well-coordinated and intensive effort of all elements in the process chain, all DTEK Energy employees. Next. We were ready to operate on gas and, moreover, partially operated on it. We set certain limits for all our power plants. Yes, we did not burn gas alone. We used it as a supporting fuel if necessary. When we were running out of coal or its quality was too low, we used more gas. I will put it this way - we used gas much more often than it is normally required for stable operation of our power plants. Why do you think LuTPP operated three units? This is one example of how we found workarounds.
As for equipment failures, it is a consequence of indifference and unwillingness to listen to and understand the problems plaguing the industry. To avoid failures, the units must be repaired and prepared for the winter season. But, unfortunately, this story with electricity imports that started in 2019, when domestic generators were squeezed out, all these price caps and manual tariff adjustments led to the fact that in 2020 the whole power industry was on the verge of survival. We have significantly cut our spendings on maintenance of our units - by about 50%. This is not because we decided to do some cost optimisation exercise. This is because we really had no financial capacity to do maintenance. We were saying, even shouting, let's support our generators so that they could earn some money as we were unable to operate during the winter season due to imports. But in the end the questions remained unanswered. And this could not but affect the condition of the units.
- The accident at Zaporizka TPP drew attention of the Security Service of Ukraine. You have probably seen the letter about it?
- This matter was looked into by a committee. Based on its findings, a report on the inquiry into the accident at Zaporizka TPP and its tripping was prepared. Our representatives, the Ministry, the State Energy Supervision Agency, and Zaporizhzhyaoblenerho all were part of that committee. I mean it was an interdepartmental committee. The report clearly describes the timeline of the events and points out that from the very beginning the root cause of the accident was a short circuit at the Luch Substation, which belongs to Zaporozhyeoblenergo. Yes, of course, there were complicating factors that made the situation worse, such as the fact that one unit transformer at Zaporizka TPP was under repair, and the plant was running on the backup one. But this is a consequence. And the fact that the transformer was undergoing repair - it happens.
- And yet, what are your plans regarding maintenance campaign? If nothing changes in the market--and we are yet to see any progress in that direction, then it seems you will not be able to significantly increase your spendings on repairs?
- We had plans to boost our maintenance programme. This year's spending plan for our generators is about UAH 2.4 billion, and this is a substantial increase vis-a-vis last year. This is the optimum level. We already need to be preparing our equipment for the next winter season to avoid accidents. We started our maintenance programme as soon as there was less demand for the units on the grid. Our generators have already spent about UAH 400 million. Yes, major repairs will now begin. We are getting ready for both major overhauls and mid-term maintenance. But I'm not sure that all our plans will come true. Because we build them based on our income and costs. And today there are factors suggesting that these plans are at risk of failing. One of them is Ukrenergo's debt for our services provided in the balancing market. It amounts to UAH 2.4 billion. It is really commensurate to our maintenance campaign. The UAH 2.4 billion debt was accumulated during October 2020 - February 2021, and its largest portion - almost UAH 1 billion - arose in January when we were very actively instructed to ramp up. As a result, we produced about 500 million kWh more than it was envisaged in our commercial schedule this month, for which we had to--among other things--burn scarce coal. We were supporting the power grid during the heating season when there was a capacity shortage, and now we have this debt, and we are not sure if it is going to be repaid to us.
- Have there been any arrangements reached to repay the debt?
- So far we have not reached any arrangements. Ukrenergo NPC is the only entity that at least says something, explains that the system is unbalanced, that we need to be looking for money to pay off the debts. But there has been no response from the Ministry of Energy and the National Electricity and Utilities Regulatory Committee, the ones that could influence this situation. That is why on 23 April, we filed a lawsuit with the Kyiv Commercial Court to recover this UAH 2.4 billion debt from Ukrenergo NPC. All other options to resolve this matter have been exhausted.
- Ukrenergo's chief said that one of the options to resolve the issue could be to borrow from UAH 3 to 4 billion and that they were ready to start consultations with all the stakeholders. For your part, are you ready to discuss, for example, issuance of bonds - internal or external - to repay the debts?
- Ukrenergo understands the problem and tries to find a way out of it, but this is a problem not only of Ukrenergo, but of the whole system. And we need to get both the Ministry of Energy and the regulator on board. The court hearing is scheduled for the end of May.
Bonds as a redemption option can be discussed. The key factor here is that we need fast, working debt repayment mechanisms. Because long-term mechanisms, unfortunately, will no longer work. The whole system may simply not survive until these long-term mechanisms are implemented. We have already gone through this with the debts of the old market. Then it was planned that there would be some debt offsetting against taxes and that there would be appropriate compensations. But it also did not go anywhere. We need to look for a way to deal with these debts.
- Is Ukrenergo's debt the biggest debt to your company?
- Yes, Ukrenergo is our biggest debtor. This has never happened before. On the other hand, the balancing market began to work quite recently. And, unfortunately, it did not work long. The first serious winter season showed how unbalanced the system is.
- Litigations also take time, and maintenance needs to be done now. What is the way out of this situation? Maybe you are making some adjustments and optimisations in your maintenance programme?
- It is great to do more for less money, but we have quite serious processes in place, including for procurement, and capital construction plans. And it is not true that we have extra fat to trim when it comes to our costs. The repairs that we have set out to do are what is critically needed. We are very scrupulous about our maintenance programme, and we know it is impossible to do the same scope with less money. The most desperate step would be to scrap all repairs altogether. Of course, here I mean major repairs. Minor and mid-term repairs as well as routine maintenance, which we are unable to carry out as scheduled in any case, will have to be done during forced outages.
- What are your plans for coal mining? What are your priorities?
- Given the need to get ready for the next winter season, we understand that the only sourcing option for our stock yards in times when we are tight for cash is our in-house coal. And from a fundamental point of view, it is the right thing to do to use Ukraine-produced coal rather than support other countries.
We are committed not to reduce production. This year we expect about 16 million tonnes from Pavlogradugol, and another 1 million tonnes should be extracted by the Bilozerska Mine. This is what we plan so far.
But in 2020 we had some downtime, which is why last year does not really tell the tale. Besides, last year we had Dobropolyeugol.
- So you are still factoring in some production cuts?
- No. If you look year over year, Pavlogradugol will be approximately at the same level. But it must also be said that two of its mines are finishing to extract their reserves this year - Blagodatna and Stashkova Mines. Pavlogradugol will operate 8 mines. And they will produce as much as 10 mines produced last year. The investment programme for our mines is about UAH 4 billion. And that is what we are shooting for.
We have always said and will say that we must keep our chain and system in balance. And we must create as many jobs within our country as we can. This is the right thing to do both strategically and economically. If you calculate the long-term economics, not the immediate gain, then the in-house production is better.
- How was the issue resolved with the workers of the mines where the mining ends?
- People are all distributed. Many have already started working in our other mine groups.
- How much did you lose during this winter season? For example, Andriy Gerus, Chairman of the Verkhovna Rada's Energy Committee, wrote that shutting down your power plants cost you UAH 1 billion.
- We appreciate his concern for us. But I would very much like him to help solve the issues that are faced not only by us but also by the entire energy industry, including coal-fired generation sector.
As for the loss of profit and economics ... Even if we had had more coal, we would not have produced more electricity. It is all theoretical calculations, which can be done on paper, but which have nothing to do with reality.
The allegations that we had cash balances at the end of the year on our accounts, which we could use to buy coal, are incompetent. As I have already said, it is in principle quite difficult to bring coal as quickly as possible. We imported as much as we could.
Secondly, these funds were accumulated in recent months when our generators did produce more. Nobody says that we did not have the money during the previous 8-9 months in 2020 to ensure stable operation. But this is a situational thing. Look at the debts that we own to our coal suppliers today. And that is because we had no other way. Yes, we had some cash balance on our accounts at the end of the year. But all of this money goes to repay the debts, and all that remains is used to cover the maintenance costs. Nobody will supply us with coal for free anyway.
- Price caps on the electricity market. Is it possible to scrap them and what will be the consequences?
- The fact that there are price caps suggests that you cannot have one foot there and the other here. We said that our market was working. But at the same time, we want to manage this market manually, guided by our socialist traditions. The older people saw all those attempts to control prices manually in the late '80s and early '90s. And what was the outcome? Nothing but a total deficit.
But again, nobody has cancelled the supply and demand curve. When there is a real shortage in the system, the generators can earn more. When there is a surplus, prices fall and the generators operate at or below the cost. What they earned during the peak goes to cover their fixed costs.
And this fear of lifting the price caps ... I do not know how to explain it. Probably, this is still about having to get used to look at the situation in the long run. We look at it the here and now perspective and take some populist actions. This is the only way to explain these price caps.
What else needs to be done besides lifting the price caps?
- The most important thing is to stabilise the situation so that it becomes predictable and manageable. The new head of the Ministry of Energy has the opportunity to take control of the situation in the industry. If there are scheduled maintenance programmes and electricity supply plans, then all market players must comply with them. Everyone should act more or less in sync and not follow the circular firing squad principle.
First of all, it is necessary to deal with the debts accumulated by the system. Ukrenergo owes not only to us, but also to other--not only coal-fired--generators, e.g., Energoatom, renewable power producers. This debt-driven financial collapse needs to be addressed. I want to emphasize that no generator is in a position or has capacity to continue to accumulate debts and at the same time operate stably. The coal-fired generation sector is completely out of balance. Centerenergo also talks about this. Without resolving the debt issue, it will be very difficult for all of us to move forward, and it will be very difficult to talk about this synchronisation and integration into the European Energy Community. This is all under great threat and very much in doubt.
- As a market person, how important do you think the forecast energy mix is?
- It still gives a certain reference point. If we look at it from a pure market mechanism perspective, then the energy mix per se may not be of particular interest. But then market together with the elements incorporated in it should do the job. Then you need to understand that there are certain risks and opportunities. For example, if someone failed to gauge market movements and did not bring enough coal, then they get these extra supplies passed onto them, they start up running on backup fuel (gas), produce this electricity, get paid for it at a fair tariff rate and, in principle, work fine. But when all market mechanisms do not work, there must be some kind of coordination tool anyway. Today, only the energy mix can used as such a tool. We will not get into Energoatom's maintenance programme. We cannot see it and we should not see it. But we need to have some guidance as to how it is going to operate so that we could make some plans as well.
- Compared to last year, there is a large share of electricity supplies assigned in the energy mix to coal-fired generators.
- Yes, compared to last year, a little bit more. But it is assumed that the economy will get a little better, there are plans for GDP growth. If all these plans are implemented, the overall electricity supplies in the system will improve. This is an issue relevant to all thermal power generators.
- What was the maintenance campaign optimisation about, the one which was recently announced by the Ministry of Energy?
- We were not particularly affected. The timeframes were slightly adjusted to be more synchronised, but in principle, neither the number of repairs nor the units that needed to be repaired have been affected. It is more relevant for Energoatom.
- How will the creation of a vertically integrated company (VIC) based on Centerenergo affect you?
- I don't think it will. Centerenergo is a separate company and a separate market player. But in terms of the power grid and coal production stability as well as cost-effectiveness, creating such a VIC is a healthy decision and the right call made in a win-win paradigm that everyone is now promoting. This is a plus for Centerenergo's generators because they will get stable and predictable coal supplies, with better economics compared to the import alternative, if this VIC really includes the best mines. For coal miners, this is a well-understood sales market, it is a vision of some prospects. If everyone there needs this coal, then our fellow miners should better start planning mine take layouts already now. And if Dobropillyavuhilya mines are integrated in the VIC, it will be a big economic plus for Centerenergo. We returned efficient mines to the government, today they are the best among the state-owned mines in every respect: in terms of cost, which is 3-10 times lower, and in terms of productivity and coal output per face.
- It will be a strong competitor, which may be able to take some of your market share.
- We are not afraid of competition - we do not have and have not had a monopoly. We support normal market mechanisms making sure that all participants operate according to the same rules. That is why if Centerenergo starts operating stably, it will be a plus for the whole market.
- Have you already paid the Dobropolyeugol lease?
- Yes, the issue is closed.
- And has the government paid you for the equipment?
- That's correct, too. They bought the property of Dobropilliavuhillia-mining, which was privately owned. We returned the state property in full. Now we have only commercial operations with Dobropillyavuhillia-mining; specifically, we buy coal from them and have already made an advance payment of about UAH 90 million for it. They partially buy coal processing services from us, although not only from us.
- Ukraine has ambitious plans concerning the second nationally determined contribution (NDC2). Its draft version was recently presented by the Environment Minister Roman Abramovsky. Ukraine's goal is to cut greenhouse gas emissions by 65% by 2030 compared to 1990. How do you feel about that?
- The NDC topic does not work. First you need to look at the situation with the NERP (National Emission Reduction Plan to reduce emissions from large combustion plants), draw the right lessons, and then decide on our NDC.
As for the NERP, this plan does not work today as well. Unfortunately, after its adoption in 2017, some of necessary actions were not taken, and most importantly - no mechanism was developed to finance the greening of these companies. Ukraine made quite high commitments. All large combustion plants -- thermal power plants, combined heat and power plants and a number of boiler houses -- had to implement these environmental measures in a very short time. In record time, compared to the time it had taken for the European countries to go through this. Probably, it was technically possible, but only if there had been a funding mechanism.
Europe had been coming to this point for decades. In some cases through investment components included in the tariff, in some other cases through special aid. Unfortunately, we still do not have a funding mechanism. That is why the implementation of the National Plan under the current tariff setting scheme is absolutely impossible. Implementation of Ukraine's NERP requires a total of over EUR 4 billion for both public and private generators. No power producer has such money.
Thus, first of all you still need to find a funding mechanism. In addition, we need to take a sober look at the National Plan without populism and bring it down to realistic figures that we as a country will be able to achieve.
Because the plan was adopted in 2017, and its development began before 2014 during which a lot of things happened. There are a number of units in the National Plan that are in the uncontrolled territory, and they should be excluded. On the other hand, after the anthracite mines had been lost, some units, and not only ours, were converted to run on high-volatile steam coal and retrofitted, and the National Plan classified them as facilities that had to be decommissioned. Generally speaking, the NERP is a good example of aspirations that failed as they had not been supported by opportunities.
- But during these 4 years you still invested something?
- We had been implementing our environmental programmes and major refurbishment projects even before that. For example, as far as dust is concerned, we built electrostatic precipitators. One of the last projects was the retrofit of the existing electrostatic precipitators at Prydniprovska TPP and at Ladyzhynska TPP. Building electrostatic precipitators to collect dust is simpler and cheaper, but the National Plan includes such a global and extremely expensive thing as SOx and NOx treatment systems. This is hundreds of millions of euros.
Centerenergo was the first to build a desulphurisation system for one unit. It took them 5-7 years and they invested almost UAH 570 million, partly using funds from the investment component, which was earlier in the tariff. And now this desulfurisation system does not fully work, and there are no solutions what to do with the waste it produces.
- Now, the economy. The NBU expects a GDP growth of + 8.7% in the current quarter although in the first quarter it was still minus 1.5%. Have you already estimated how this may affect you?
- We are already in a warm season and see that all of our units are operating at the minimum generation level, with only one unit or one furnace running. Therefore, maybe the economy will get some plus, but coal-fired generators will not feel it to any significant extent. I would like to see this plus helping us to get our debts repaid.
- And what did you perform in the first quarter operation-wise?
- Operational performance figures will be higher. Electricity output will be higher. The audited reports will show the economics. Coal production will also be higher than in the first quarter of 2020. We ended last year with a loss of UAH 19.3 billion.
- As for the debt restructuring, the meeting in London is scheduled for the May holidays. What will this restructuring decision mean to you?
- You need to look at it not from the credit market perspective, but from the perspective that we and our lenders managed to understand and listen to each other. Again, we are unable to meet our debt burden not because we failed to plan something properly or took some excessive loans or some other reason. We also did not anticipate such a situation, such rapid and global changes in the energy industry. But when they happened, we had to negotiate a deal with the lenders. They looked at all our models, double checked our calculations, and confirmed that they also see that this is the real picture. That is why now their expectations and our capabilities are built on the same assumptions. And our debt service capabilities are balanced. The key thing for us is that the restructuring will show to all of us that we and our lenders are on the same side. We have the same vision of the future, of the long-term outlook and the same understanding of how we are going to service and repay our loans.
- Now the electricity market. Who operates in which segment here? How much does it affect your economics? Probably, D. Trading is more engaged in trading activities, but you have a share of direct contracts anyway. What is your assessment of this market's performance?
- We have quite a differentiated structure, built to meet the demand in the relevant segments of the existing market. Whenever there is a need to make direct contracts, we make direct contracts. In the segments where some buyers operate in the day-ahead market, we also go to the day-ahead market. Of course, we mainly sell large amounts. If we talk about the energy market as a whole, I would not talk about its different segments - they can change, and as the market becomes more civilized, it will increasingly shift towards direct contracts, and there will be less and less remaining on the day-ahead market, let alone the intraday market. And then you will not see those distortions that exist today. Direct contracts are usually long-term contracts, which provides more stability to and is cheaper for the buyer. Electricity purchased from the spot market, which is the intraday market, should be the most expensive.
But that's not the case in Ukraine. We have a lot of manipulations. That is why, for example, the intraday market sometimes sells cheaper than the day-ahead market.
A more important issue for DTEK Energy is what role we play in the electricity market. It is our current understanding that we will provide balancing capacity and operate as peaker and intermediate power plants. It means that sometimes we will have to balance out daily peaks and sometimes, seasonal ones. Yes, we understand our role, but the market itself has not fully adapted to this role - it is not creating the necessary tools to enable flexible generators to work efficiently. The balancing market is one such example. Where it is required to maintain reserves, which is and will be the job of, among others, the coal-fired generators, there is a so-called capacity or strategic reserve fee. We do not have this on our market yet. Although it does work for our closest neighbours, the Poles, and they hold long capacity fee auctions.
So the market is not yet ready for the role that we are already playing.
- One way or another, we understand that the coal-fired generation will be gradually phased out. But the sites with all the engineering networks and infrastructure in place will remain. What utilisation options do you see for the large sites currently occupied by the mines?
- We are thinking about it now. We ourselves are interested in making sure that our infrastructure does not stand idle and is being used. Moreover, we see that there is a demand for certain generation technologies. And it's not just our opinion.
If you look at Ukrenergo's annual generation adequacy report, they also anticipate a demand for flexible generation capacities. For coal-fired capacities, for highly flexible capacities, which is gas turbines, and for utility-scale energy storage systems. We have everything we need in terms of infrastructure to develop these technologies on our sites. But if we talk about highly flexible generation capacities and energy storage systems, our market and system are not ready for them yet.
We are now advocating that the energy storage systems (ESSs) should be seen as a separate element of the power system. So that ESSs could therefore operate and earn in those segments where they are supposed to operate. This is not a generation capacity.
The same goes for gas turbine plants. They will primarily operate in the balancing market and the ancillary service market. If the balancing market does not work, then no one will build such capacities.
Renewable energy producers are also looking into energy storage systems, though not as a separate type of service but rather an opportunity to reduce imbalances as they will now have to start paying for them.
- If we talk about the new structure of the entire DTEK holding, have you already got a clear understanding of the scope of your powers or is it still a living (emerging) organism?
- I think we clearly understood everything from the very beginning. But there is nothing eternal under the moon. If the situation changes, DTEK will always be ready to flexibly respond to changes.