Ukraine is moving towards the European electricity grids (ENTSO-E). At the present moment, only the Burshtyn TPP Energy Island is fully synchronized with the European market. The cross-border electricity trading in the island is pretty active. The trade direction (export or import) can change almost every hour, a few of European traders are making business on the border.
One of them is Danske Commodities operating 4.7 GW generation, and trading electricity across 39 countries all over the world. In the interview for ExPro agency the Regional Relationship Manager of Cross Border Power Trading of Danske Commodities Branimir Beljan looked into cross-border trading features, pointed out the main European power market trends, and defined the condition for the company’s coming in the internal Ukrainian market.
What is your company interested in the Ukrainian electricity market? When did the company do the first operations in Ukraine?
The Ukrainian Market is one of the biggest in Europe; with more than 50 GW of installed power capacity.
In addition, the country has great renewable potential. Ongoing liberalization and further opening will make sure that the country reaches its full energy potential. We have been cooperating with our partners mostly on the borders of Ukraine for a few years now and we will increase our presence, as the market gets more liberalized.
What factors (such as generation profit, recently launched free-market model) may be attractive in the Ukraine market for the European traders?
The fast rise in renewables coupled with the grid synchronization of the Integrated Power System of Ukraine with ENTSO-E are of the most importance. These factors, combined with easier administration, will bring European traders and investments into the country. The country is well geographically positioned on the crossroads of Europe, and it will keep its direction towards liberalization and synchronization of the market with the EU.
Does your company see prospects for development of the energy market in Ukraine?
Ukraine is surely a very interesting country for European based companies. It has a significant market size, it is well positioned between East and West. It has strong renewable potential. We have also met many local companies with many energy professionals. All this combined ensures a bright future for the energy market in Ukraine.
The frequent cross-border curtailments by TSO creates most problems
As we know, Danske Commodities is presented in the Burshtyn TPP Energy Island. How easy was it to become a market participant in this area?
We are mostly active on the borders, and we had no regulatory problems for this type of business. The issue creating most problems for us is frequent TSO cuts, especially on daily capacities. CBC (cross-border capacities – ed.) have to be firm in order to ensure stable flows and allow for market participants to sign cross-border agreements with fixed profiles. This is a basic precondition for active and open borders. At the end of the day, cuts are reducing income of TSO as well.
What can you say about pricing for electricity in the neighbouring countries? What operations (export or import from/to the Burshtyn TPP Island) are more profitable to carry out nowadays?
Ukraine has a flatter price curve due the regulated prices by the NEURC, therefore the flow of the energy on the borders is mostly dependent on the prices in such countries as Slovakia, Hungary and Romania. Prices in 4M are set by market forces and are dependent on many factors, including consumption, weather conditions, outages, CO2, coal and gas prices, etc. Last year, especially in Q2 2020, prices were very low due the corona situation. Therefore, there were more imports to Ukraine. Nowadays, prices in Hungary are quite high due the bull CO2 market so it is more profitable to export, despite the export fee. But this can change on a daily basis.
We will evaluate coming into the IPS, once the integration into ENTSO-E happens
Do you plan to widen the company's activity into the Integrated Power System of Ukraine?
We look forward to integrating the IPS to the ENTSO E System. We strongly believe this will benefit all market participants including producers and consumers in Ukraine. Once that happens, we will surely evaluate expanding our operation into the IPS.
What advanced services could the company (like renewable energy forecast, experience of trading at European power exchange, risk management solutions) offer Ukrainian partners?
Danske Commodities generates value by connecting producers, suppliers and consumers to wholesale energy markets and creates commercial opportunities by rapidly responding to needs in an ever-changing energy landscape. In our core markets we offer risk management and optimization solutions that enable customers to extract the full value of renewable energy assets, including flexible and competitive Power Purchase Agreements (PPAs).
In addition, we offer production management and trading services for combined heat and power plants and industrial production facilities. Our trading capabilities allow customers to capture profit from spot, intraday and reserve markets, and we dispatch energy to the highest yielding markets across Europe. In the EU we also provide utilities, energy supply companies and large industrial consumers with trading and risk management solutions. We deliver consumption forecasting, procurement of fixed or variable volumes as well as individual hedging strategies that protect customers from adverse price developments in volatile electricity markets.
What steps should Ukraine make towards the developed electricity market?
There are many steps that need to be accomplished before becoming a fully developed market. Considering the size of the market, the volume of cross-border trade is small in Ukraine. Cross-border trading is crucial in making sure that market mechanisms in the country work and that producers and consumer get and pay a fair price for energy. We see that Ukraine is heading in the right direction and that the country is determined to develop its energy markets.
One of the biggest obstacles for this is the export fee. Such fees are not allowed by EU legislation because they skew the market and reduce the flows of energy. As a result, this makes the market less competitive, cross-border curtailments are used less efficiently, trading activity is reduced, and consequentially, income of TSOs is reduced as well.
How big is the influence of CO2 emissions on the exchange electricity price in the Central and Eastern European markets?
The ETS (Emission Trade System – ed.) is a cornerstone of the EU's policy to combat climate change and is a key tool for reducing greenhouse gas emissions cost-effectively. It is the world's first major carbon market and remains the biggest one. As such CO2 prices are one of the main drivers in price for electricity in the EU and contribute largely in determining the price for coal and significantly in gas generated power. We have seen in recent years a steady rise of EUA prices (carbon emissions allowances – ed.) thus keeping electricity prices in the EU high. However, the ETS is only enforced in the EU countries. Non-EU countries in Eastern and Southern Europe are outside of the system and are thus in a way undermining the EU plans for the single market. Issues of Carbon Leakage are discussed on the highest levels in the EU.
Will the introduction of CO2 European emission allowances threaten the competitiveness of the Ukrainian market?
The ETS is not intended to reduce competitiveness of the market. Its intention is to price hidden externalities of CO2 pollution. Therefore, the CO2 allowances mechanism will put a price on top of carbon heavy assets and incentivize green assets. It is up to Ukraine to decide if the market is ready for the introduction of the ETS.
What should Ukraine do for better trading at the European border? What can you advise in the view of your experience?
As we have spoken before, abolition of the export fee is one of the easy answers here. Integration of the IPS in ENTSO-E is another one. This will be coupled with increase of NTCs (Net Transfer Capacities –ed.) on the borders. All this combined will ensure that Ukrainian producers get market price for their energy. It would create income for the TSO and guarantee stability of the power system.
Are you interested in singing power purchase agreements with Ukrainian renewable energy generators?
Danske Commodities specializes in maximizing the value of renewable energy. We pioneered the market for direct marketing and have significant experience with the optimization of renewable energy generation, including standard and non-standard Power Purchase Agreements (PPAs). Currently, we have more than 4700 MW under the management. Once the preconditions, like liquidity of the local markets, transparent balancing system and liberalized cross-border flows are met, we will be ready to offer those services inside Ukraine as well.
Dmytro Sydorov, Vitaliy KornienkoAuthor: ExPro