Hans Schweickardt: Electricity from Energy Bridge Will Be Transparently Sold at Rates of EU Power Exchanges

Hans Schweickardt: Electricity from Energy Bridge Will Be Transparently Sold at Rates of EU Power Exchanges

The issue of further Ukrainian integration into European electricity market is raised nowadays in increasing frequency. Also, the biggest domestic generator NNEGC Energoatom is implementing its project called Energy Bridge Ukraine-EU. The project includes shifting over nuclear unit №2 of Khmelnytska NPP to ENTSO-E and arrangement CO2-free electricity export from Ukraine. Energoatom plans to collateralize the future export income to raise funds for new nuclear units’ construction, which has been put off for decades. The project is highly important on the back of the permanent financial deficit of Energoatom and huge public services obligations in new market for nuclear power in Ukraine.

Meanwhile, there are a lot of questions for Energy Bridge Project, e. g. its impact of one nuclear unit shifting over on Ukrainian energy system stability, ENTSO-E integration process and prices in the domestic market. Recently some players have raised the questions of price formation of power produced by nuclear unit and other terms discussing with the Ministry of Energy and Environmental Protection of Ukraine.

All above-mentioned questions we interviewed the top manager of Energoatom’s partner, which is responsible for energy infrastructure arrangement within the project, the Member of the Supervisory Board of Polish energy holding Polenergia S. A. Hans Schweickardt.

For what reasons Polenergia, Westinghouse and EDF decided to launch the project or maybe it was an initiative of Energoatom? What market conditions triggered you and your partners to start working on the project?

It was the Ukrainian government who launched the project by Regulation of the Cabinet of Ministers of Ukraine No. 671-r dated 15 July 2015. The government insisted that a feasibility study on the project should be prepared which we did together with EDF and Westinghouse. The study was compiled by Deloitte in Kyiv and they received expert inputs from Mott McDonald in England and Fortum in Finland, as well as from us and Baker McKenzie Kyiv. The study was accepted by the Ministry of Energy in August 2017 and shared with the Deputy Prime Minister and the Ministry of Economy amongst other. It was based on the newly designed Public Private Partnership Law. After assessment of the study, the Ministry of Energy made a formal decision to confirm the feasibility study of the project and start its preparation in November 2017.

When did you and your partners decide to set up the consortium and Ukraine Power Bridge Company Limited to take part in the Ministry of Energy and Environmental Protection (the late title – the Ministry of Energy and Coal Industry) tender?

Polenergia International is in the lead, together with Westinghouse in Sweden and EDF Trading in London, having started since the beginning of the preparation of the feasibility study. However, being mindful of European and Ukrainian antitrust regulations, we did not form any consortiums. Depending on the final arrangements with respect to the contracts with the public side, we may need to do this before the start of the project-related operations. We formed Ukraine Power Bridge Company Limited later to specifically participate in the tender and - in case of success - in the project.

How does the project relate with the integration of Ukrainian Integrated Power System into ENTSO-E?

The project is in the context as a possible first step of synchronizing Ukraine with the transmission system of the ENTSO-E. Since it can be executed at fairly short notice it offers the possibility to Ukraine to receive foreign exchange revenues that can be used for its power infrastructure.

Will be the sufficient demand for Ukrainian nuclear electricity in Poland and Hungary over coming years? Did your find possible partners' interest in these countries to buy Energoatom electricity?

In the region, including Poland and Hungary, there is a remarkable power shortage and therefore this project with power, free of CO2, will significantly increase the security of supply in the region and also back up the synchronisation of the Baltic States which is the top priority in the European Union. Therefore the project has an important geopolitical dimension.

The CO2-free project will significantly increase the security of supply in the region

According to your assessment, will not Ukrainian electricity supplies face some resistance in the EU countries on the back of the antinuclear trends in leading European countries?

As long as this power is free of CO2 and in the light of plans in quite a number of countries the project makes sense. Remember antinuclear trends exist practically only in German speaking countries but in the rest of the world quite a number of projects are ongoing.

What overall and yearly income do the consortium and Energoatom expect to receive from the export transactions?

This depends on the contract finally to be agreed upon. In any case Energoatom will be the owner of the contract and our role is to organize for Energoatom market access, predominantly to the power exchanges, in its neighbouring countries. Having said that the neighbouring power exchanges are involved, the pricing of the contract is at market, fully transparent and variable in function of development of the prices at the exchanges. Nothing is fixed. It is compliant with the rules of the European Union (Energy package).

What can you say about the technical condition of electric transmission infrastructure (cross-border transmission lines from Khmelnytska NPP nuclear unit №2 to Rzeszow substation and the OHL from nuclear unit to Zahidnoukrainska substation and further to Albertirsa substation)? How much funds is the consortium about to invest in updating the infrastructure?

When the feasibility study was done the OHL were dealt with by Mott McDonald, specialized in this field. Ukrenergo gave its inputs and maintained that the line to Poland was in good condition according to their technical audit and was kept under control voltage which is the standard practise for cases like this. The line to Hungary has been and still is working since across that line exports are being concluded towards Hungary. Our estimate is that in a period of some 12 to 18 months both lines will be in good working condition as per the new requirements of the project, i.e. the radial connection of KhNPP unit 2 to the already synchronized Burstyn Island area. To start with we will first undertake a technical audit of the lines.

Telling about generation, one more significant question have been raised recently. How much time does the consortium or Westinghouse need for increasing the capacity of other Ukrainian NPP nuclear units to replace the lost capacity of nuclear unit №2 of Khmelnytska NPP? In other words, will Ukraine Power Bridge Company Limited and Energoatom manage to grow up the overall capacity of Ukrainian nuclear generation to 1000 MW before switching over the unit №2 of Khmelnytska NPP to export direction?

This has been laid down in the tender specification and confirmed by Westinghouse at the time of submission by Ukraine Power Bridge Company Limited of its Tender Offer. The Efficiency Improvement Program on up to 13 nuclear units and the Power Uprate Program on up to 6 units will be finished within 28 quarters from their start, i.e. the replacement power will be available step by step during this period. This has the advantage that transmission system stability and security in Ukraine is enhanced since the additional power is available right across the country and not only in one point. This will help Ukrenergo's day to day dispatch and balancing task.

Efficiency Improvement and Power Uprate Programs are suggested to cover 13 and 6 nuclear power units respectively

On August 19 the Ukrainian TSO Ukrenergo published its position concerning the project. According to the operator, safe operation in terms of self-supply and dynamic stability as well as safe separation of unit №2 were not proven? Did the consortium and Energoatom look into this problem and what technical decisions did the partners find?

Yes we looked into this and the fact is well recorded in the feasibility study. The point you raise is being studied by EKC in Belgrade and the results of the ongoing studies will lead to a catalogue of measures determined by ENTSO-E, measures that must be taken and completed by the concerned parties before ENTSO-E will give its consent to any changes to the transmission system configuration having impact on the TSOs of ENTSO-E. Stable and safe operation of KhNPP 2 is a part of the study and it is obvious that nuclear safety standards are to be maintained. The project has the necessary means allocated to this work in the early investment schedule.

EKC already studied the full synchronisation problematic of Ukraine and there is a 600 page report on this. Additional studies initiated by ENTSO-E are under way. Therefore EKC is most familiar with the project.

What will happen in the situation of sudden the unit №2 shutdown as there will be no reserve capacity?

In case KhNPP 2 is in an emergency shut-down scenario, a procedure that is standard for any large power plant, the power must be replaced instantaneously. Since the unit is included in the synchronous ENTSO-E area such reserve can be drawn from that area according to the standard procedure being in place for such event through what is called immediate reserve in a matter of seconds, subsequently minute reserve and finally a permanent solution until KhNPP 2 is back up again. The first two steps are being taken care of by generation plants connected to the system and generator control response. Then power will be provided by reserve plants and through sources bought at the power exchange. Therefore in our market access function we have EDF Trading in the team. EDF Trading has a good overview of the market and its availability in such situations.

Also Ukrenergo underlined the non-transparent pricing for Energoatom electricity and stated the prices will have to be set in advance for the entire duration of the contract. What can you say about principles and terms of pricing? Will be it based on some exchanges' benchmarks and change depending on European market situation?

There will be a power purchase agreement (known as PPA) between us and Energoatom and our role is only to provide market access. The owner remains Energoatom until the power is sold at the neighbouring power exchanges at exchange prices which means there is full transparency. In fact the PPA is fully in line with standard practices in Europe for such contracts, is based on and respects the rules for such contracts determined by EFET, the European Federation of Electricity Traders. I would call this open, fair, transparent, compliant and respecting good trading rules. You can compare this to trading shares at a stock exchange. There also the price is not fixed but depends on offer and demand. The same here, so there is nothing fixed and nothing private. How Ukrenergo came to their conclusion I do not know, you have to ask them and their substantiated explanation, then we will see.

The PPA is fully in line with standard practices in Europe for such contracts

What can you say about the duration of the contract, why is it so long (over 20 years)? Is it common practice in Europe to conclude such contracts?

In deed there are contracts of this nature and design in Europe, having worked with Atel and EOS, two major power companies in Switzerland, I may tell you that similar contracts existed/exist between Italy and Switzerland, Italy and France, France and Switzerland just to mention a few. There is usually a good reason why such contracts are concluded, for example sustained power shortages. These can last for quite some time in case for example if a country intends to build a nuclear plant which can take a remarkable time. In the case of this project we understand the intention of Ukraine and Energoatom which is to use the power purchase agreement long term as a vehicle to secure financing the completion of KhNPP unit 3 and possibly 4. This will take quite some time and therefore the 20 year period has been chosen.

According to Ukrenergo the project wasn't cleared with ENTSO-E and Polish TSO PSE. Did you hold the talks with ENTSO-E and PSE representatives about the project? What their conclusion on the project did you receive?

There is a standard procedure in ENTSO-E for such projects. Ukrenergo knows these procedures very well, particularly also since an agreement for the interconnection of Ukraine and Moldova has been concluded between Ukrenergo and ENTSO-E. In this agreement the first step to the interconnection is the extension of the already synchronized area of Burstyn. The agreement is in force since July 2017. Before entering into force the general assembly of ENTSO-E had to accept, including PSE of Poland. There is a project group (PG) of ENTSO-E responsible to accompany the synchronisation and the extension and nothing happens without the green light from this group. Members are Transelektrika (in the lead) of Romania, PSE of Poland, Mavir of Hungary and SEPS of Slovakia as well as Ukrenergo. There are regular meetings. This PG also evaluates the studies by EKC mentioned above.

What agreements should Ukraine Power Bridge Company Limited signed with the Ministry of Energy and Environmental Protection and with Energoatom respectively? When do you expect to sign these documents?

We are in the negotiation phase of a Public Private Partnership Agreement with the Ministry. Once everything has been agreed upon in line with the Tender Offer and the Tender Specifications the PPPA will be signed with the public partner and UPBC as private partner. For the sake of fair and transparent negotiations fully in line with the European oriented main stream of Ukraine we recommended to the Ministry in the opening session to invite observers to the negotiations from important European organizations, such as the European Commission, ENTSO-E and EBRD. The recommendation was accepted.

ExPro's Reference, the project Ukraine-EU Energy Bridge includes the arrangement of electricity export from unit №2 of Khmelnytskaya NPP to the EU and its disconnection out of Ukrainian Integrated Power System. This purpose shall be accomplished by means of: a) expansion of the Burshtyn Island; b) the long-term export of electricity to the EU states; c) increase of the load factor and maximum power uprating of nuclear power units, including those at South Ukraine NPP and Zaporizhzhya NPP; d) creating conditions and instruments required for attracting funds of Energoatom to finance energy infrastructure development.

Recently the Ministry of Energy and Environmental Protection of Ukraine have chosen the private partner of Energoatom for the project carrying out. Ukraine Power Bridge Company Limited representing the interests of a few international energy companies (EdF, Westinghouse and Polenergia) is to conclude a deal with Energoatom. The terms of a deal are discussed with the Ministry. According to earlier announced plans, electricity export from KhNPP unit №2 is planned to start in 2020-2021.

Dmytro Sydorov