Ukraine Power Report Q2 2016
BMI View: The immediate outlook for electricity generation in Ukraine is poor, with an official state of energy emergency still in place in parts of the country. Despite a ceasefire agreement in 2015, reports of fighting in eastern Ukraine continue. That said, we expect power generation to stabilise in 2016 as conditions improve marginally, and see total generation returning to near-2014 levels.
Latest Updates And Structural Trends
Longer term, production and consumption will rise as the economy starts to recover and processes of integration with the EU bring about a partial liberalization of the power sector and investment from abroad. This will create opportunities for investment in Ukraine's power sector. However, multiple barriers stand in the way of developing the sector, including corruption, vested interests and the fractious political environment, that electricity production will fall far short of Ukraine's potential.
Ukraine's natural gas imports approximately halved over the course of January-February 2016 (versus the same period in the previous year), with the entirety of them coming from the European Union rather than Russia. The difficult import outlook for natural gas suggests downside risks to our forecast for gas-fired generation to stabilise in 2016. The short-term outlook for Ukraine's coal-fired power sector is poor due to the ongoing conflict in Ukraine's main coal-producing regions in the east of the country. Around twothirds of Ukraine's mines have ceased activity, forcing Ukraine to import coal to cover its needs.
As a result of the uncertainty surround Ukraine's long-term energy supply, the national energy company Ukrenergo has imposed rolling blackouts and suspended exports to Belarus and Russian-occupied Crimea. Ukraine has also started to import electricity from Russia, but this is vulnerable to political conditions, specifically Russia's demand that Ukraine continues supplying electricity to the rebel-held Donbass region.
In line with an agreement with the IMF, prices increased 40% in March 2015 and will continue rising until 2017. This follows a sharp increase in wholesale prices in 2014 (from UAH730 to UAH830 per MWh) due to problems in domestic generation.
Consumption is falling as swathes of south-eastern Ukraine are left without electricity following damage to power lines and stations. Instability has also compromised the steel industry, the single main consumer of electricity, exacerbating an existing dip in global demand for steel, which has already been lowering production.
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