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INTERVIEW: Ukraine’s biggest private power producer races to recover as winter looms

DTEK is Ukraine's biggest power producer and is scrambling to repair its facilities, 90% of which have been damaged by a relentless Russian barrage of missiles.
DTEK is Ukraine's biggest power producer and is scrambling to repair its facilities, 90% of which have been damaged by a relentless Russian barrage of missiles.

A top DTEK Group executive says companies desperately need access to finance and capital to cope with the devastating destruction Russia has inflicted on Ukraine’s energy infrastructure with repeated missile strikes.

Energy is one of the three Ms – the lack of men, money and materiel – that could force Ukrainian President Volodymyr Zelenskiy into early ceasefire talks. Ukraine is facing its biggest energy challenge of the war and a long dark and freezing cold winter as electricity providers struggle to restore production following after Russia has destroyed almost half the country’s thermal generating capacity and continues to hit it even as repairs get under way. Already the country is struggling to cope with rolling blackouts, with some areas in Kyiv getting only a few hours of electricity each day. And the outlook is even bleaker.

Russian missile strikes on major energy facilities over the past four months have created a production deficit of as much as 30% and this is likely to persist beyond the summer, according to DTEK, Ukraine’s largest private energy company.

Dmytro Sakharuk, executive director of DTEK Group, said at least eight attacks on the firm’s thermal power plants (TPPs) knocked out 90% of its installed capacity of 5 GW and caused damages of between $350-$400mn. DTEK supplies one-quarter of the country’s electricity and runs six of the nine TPPs in Ukraine, though one exposed to front-line combat is not operational.

DTEK executive director Dmytro Sakharuk says that Russian attacks have knocked out 90% of the firm’s generation capacity and it is racing to repair the damage before the heating season starts in November.

DTEK is working to restore 35 of its own power units in the worst attacks it has suffered since a series of strikes between October 2022 and February 2023, when ten DTEK generating units were damaged at cost of $110mn. This time around, the company has been forced to mobilise workers from other group units and “concentrate all available financial resources” to restore the damaged TPPs, Sakharuk told bne IntelliNews in an exclusive interview. The situation has taken a heavy toll on the firm's 50,000-strong workforce.

“Even if we do everything we plan and there is no new damage, we may have a maximum of up to 3 GW of generation capacity by the end of the year”, Sakharuk said in an interview from Kyiv. “That is the best-case scenario.”

During the height of the March to June barrage, half of Ukraine’s pre-attack capacity of 18 GW was lost, according to government estimates, with thermal, hydro and transmission assets damaged. There were no reported hits on the three nuclear power stations under Ukrainian control, but the recent attack wave coincided with planned annual reactor maintenance.

Despite the race to restore production, Sakharuk sees the current shortfalls of between 20% and 30% continuing beyond summer. “More units will go online and in theory the deficit should decline, but at the same time consumption will grow. The curve — the difference between consumption and production — will be more or less aligned.”

Finance challenges for private sector

The wartime targeting of Ukraine’s energy infrastructure has so far failed to dent the sector’s ability to gradually restore power. But the attacks have exposed other vulnerabilities.

Sakharuk says private energy firms like his are struggling to raise the capital needed for repairs as well as to refinance debt. In a double blow for the sector, international financial institutions tend to favour state institutions, while the military targeting of civilian energy facilities has made private lenders — both within and outside the country — more risk-averse.

“The lending rules are not adjusted to this emergency situation… That is why the banking institutions are reluctant to finance because they don’t know what to do if our assets are destroyed”, the DTEK Group executive said. Current war insurance schemes are insufficient, providing “only a few million but the need is millions of dollars, including for the restoration of old equipment and construction of new decentralised sources of energy, such as solar, wind and gas turbines.”

“Ukraine needs to win the competition for investments and for capital”, Sakharuk said. “For this, private capital should be the front-runner because the private sector is much more flexible and results-oriented than the state sector. For that you need to create large-scale war insurance coverage, and the conditions should be the same as the state-owned companies in terms of servicing debt.”

DTEK has entered into talks with the EU-backed Energy Community, which administers a €500mn Ukraine Energy Support Fund. It has also secured $46mn in US development assistance. Still, around 80% of the repair and reconstruction costs are being borne by the company, according to Sakharuk. And some industry officials say that the procurement procedures attached to donor-backed funds are too cumbersome for wartime contingencies.

The war has inflicted damages of more than $16bn on the Ukrainian energy sector, with damage to electricity generation alone at $8.5bn, according to the Kyiv School of Economics (KSE). The figures, released in May, are almost certain to rise as the war wears on. Of the $50.5bn the KSE says is needed to restore the country’s energy sector, $2bn is required “to address the liquidity needs of energy companies caused by war-related revenue losses”.

In the scramble to keep the lights on, the Ukrainian energy ministry is working with power companies to acquire used equipment from EU countries, including fellow former Soviet bloc states that have common parts and supplies. “This is the quickest way of getting the equipment,” said Sakharuk. “For them it may be metal scrap but in our case, we can reuse it. It is not a big part of what we need, maybe 5% to 7%. But it is still something.”

Ukraine’s miraculous synchronisation with the European Network of Transmission System Operators for Electricity (ENTSO-E) that was completed only one day before the Russian invasion, a feat achieved after Ukraine severed ties to Russia’s power grid in March 2022, has also helped in the current crisis. Ukraine can import up to 1.7 GW of electricity from its allies and “right now the Ukrainian government is trying to negotiate the increase from 1.7 GW to at least 2.2 GW,” Sakharuk said. More imported power could ease the current crunch but still not erase the supply-demand gap. It also marks a reversal of fortunes for Ukraine, which until earlier this year was exporting electricity to the west.

Deadly price for power

Since its founding in 2005, DTEK has become one of Ukraine’s leading private energy firms and today provides electricity to 5.5mn households, or more than 12mn users. It produces three-quarters of the country’s thermal power and also has wind and solar installations.

Besides power generation, the DTEK Group is involved in power distribution, coal, oil and gas extraction, renewables and trading. CEO Maxim Timchenko has been a vocal advocate of stronger energy cooperation with the EU and the transition to renewables.

Beyond the damage to DTEK’s physical assets, the company’s more than 50,000-strong workforce has paid a dear price during the war. Currently 5,000 DTEK workers are serving in the military, of whom more than 290 have been killed and nearly 900 wounded, with many others missing or held as prisoners. Four DTEK employees have died on the job and 68 others have been wounded in attacks on company facilities.

“It is not easy to keep morale high,” Sakharuk said. “During the last three months the majority of our plants were attacked three, four, sometimes five times. And after each attack, our employees tried as quickly as possible to bring units back online. They tried to use all their resources and will.” Without their persistence, the energy outlook for the next few months could be even more uncertain than it is today.

 

This article first appeared at Newsbase.com, a global energy publication that covers the major oil, gas, LNG, power and renewables developments from around the world on a daily basis. Contact sales@intellinews.com if you would like a free two-week trial to Newsbase.