Will Ukraine Open an “Energy Helpline” for Moldova?

Christian RUSSU

The government’s hopes that Ukraine will help us cover our electricity deficit if supplies from the Moldovan GRES are cut off may be overly optimistic

Given the campaign launched by the government to prepare for the possible severance of energy ties with Moscow, cooperation with Ukraine is usually referred to as an alternative option to ensure the country’s energy security. The other day, Deputy Prime Minister Andrei Spinu cheerfully reported that Moldova had signed contracts with it for the electricity supply “in an emergency situation” if the supply from the Moldovan GRES suddenly stops. At the same time, he mentioned that the cost of Ukrainian electricity for us would be based on the market price in Ukraine, that is, it would be floating, depending on the Ukrainian stock exchange trading. Import of electric energy from Ukraine was resumed in May this year, which allowed to escape MGRES monopoly. From May 12, the supplier to Moldova was Ukrhydroenergo, which owns the Novodnestrovskaya HPP.  The contract was also signed for June, but after two weeks the company stopped deliveries, not having received our confirmation of the purchase volumes. It turned out that this happened because there was a more favorable offer made by Ukraine’s Enerhoatom. Energocom signed a contract with it for the supply of 85.2 thousand MWh of electricity (about 30% of the total demand). The authorities decided to keep the prices of the contracts as trade secrets. However, Enerhoatom itself stated in a press release that it sells electricity at $77 per 1 MWh. It later became known that Ukrhydroenergo’s price in May was $83.5 per 1 MWh. Regarding the start of its supplies to Moldova, Enerhoatom also noted the political connotation of the contract, saying that it would help reduce dependence on generation at the Russian-owned Transdniestrian power plant. A month later, Maia Sandu expressed her intention to buy even more electricity from the neighboring country, due to the fact that there is no long-term contract with Tiraspol or clarity as to what will happen next. Seeking funds for this purpose was one of Prime Minister Gavrilita’s objectives during her visit to Washington. Nevertheless, the situation has not changed for the time being: in August Moldova is still supplied from Ukraine at 30% of the country’s needs (Enerhoatom and Ukrhydroenergo cover 20% and 10%, respectively, at $77 per 1 MWh). In the meantime, our officials keep speaking optimistically in the media about the prospects for the heating season. In addition, the public and experts were enthusiastic about the news that Ukraine and Moldova together overcame the path of integration with the European ENTSO-E and fully synchronized with continental Europe power grid. Basically, this state of affairs should rule out a scenario in which Moldova might be left without electricity due to a politically motivated supply cutoff. According to the statements of the authorities, Ukrainian electricity exporters compete for the opportunity to supply it to Moldova in the necessary volumes. Under such circumstances, there is theoretically an opportunity to completely refuse electricity imports from the left bank, which, according to the country’s leadership, refuses a long-term contact and is an unreliable supplier. The only indisputable advantage of the MGRES so far is the price of $59.9 per MWh. However, if we consider the situation in the regional context, we can see that the authorities’ optimism about “Ukraine’s energy helpline” is not entirely justified. It is not only Moldova that experiences a shortage of energy resources and a spike in energy prices. They rose sharply in the European Union as well. For example, in August, electricity in the EU market trades at €360-490 per MWh, which is an absolute record. Given the accelerated synchronization of Ukraine’s energy system with the European Union, European regulators, back on June 28, gave it the green light to export electricity to the EU. A few days later, supplies to Romania started, and on July 7 to Slovakia. Initially, it was only 100 MW per day to test the reliability of the energy system at an average price of 96-192 euros per MWh, but already in July Brussels decided to boost supplies. European Commissioner for Energy Kadri Simson said that the EU intends to double imports of Ukrainian electricity in the near future – and this is just the beginning. Since July 30, 250 MWh per day has already been flowing into the EU. Commenting on the situation, Volodymyr Kudrytskyy, head of Ukrenergo, said Ukraine had received a monthly income of over UAH 700mn and voiced plans to further increase monthly exports to the EU. One should keep in mind that the Ukrainian electricity market is liberalized, and suppliers, of course, tend to look for the most profitable sales destinations, ignoring the low-price segment. Bidding at the auctions held by Ukrenergo in July shows further growth in prices and demand for Ukrainian electricity in the EU. During peak hours, the supply price was a record 360-380 euros per MWh. Naturally, in such conditions power generating companies of the neighboring country are not particularly interested in supplies to Moldova. Another factor aggravating the situation in the months to come is the critical drop in the water level of the Dniester River, which prevents Novodnestrovskaya HPP from making any meaningful exports. In July the power generation decreased by 43% as compared with the same period last year. This is the reason why Ukrhydroenergo actually dropped out of the cohort of electricity suppliers to Moldova in July-August. Projections as to further price increases in the European markets in the autumn-winter season and prospects of more supplies of cheap Ukrainian electricity to EU countries will encourage Ukrainian companies to lift the price. Moldova, being synchronized with the pan-European energy system, cannot expect discounts only for political loyalty and public support for Kyiv. As for Moldova’s energy market, the European structures expect to further liberalize it and consider the possibility of commercial electric power supplies between Moldova and Romania in the near future. Given the current situation in the market, the odds are that the electric power from the interested parties may be sent not to Moldova, but in the opposite direction. The responsible officials better be closely monitoring the situation and calculating all the risks and trends in the continental electric power market. For now, we can say that amid the continuing price increase, which will only accelerate by winter, one should not rely on Ukraine alone, or count on maintaining the electricity prices from Transdniestria significantly below the market level, or even more so on concluding long-term contracts, on the model of previous years. The authorities are to demonstrate how they manage to keep a balance between the various “energy players” so as to ensure the best prices for the country.