DTEK's Production Indicators for Q1 2019

In Q1 2019, the DTEK Group produced 6.5 mln tonnes of coal (+1.3 % YoY) and 408.5 mcm of natural gas (+2.6 %). The Group supplied 8.5 bln kWh of electricity (-16.7 %) to the United Energy Systems of Ukraine (UES) and distributed 10.1 bln kWh of electricity (-15.9 %) to customers. End consumers received 10.6 bln kWh of electricity.

“Ongoing reforms in the Ukrainian energy industry are driving unprecedented levels of innovation, helping modernize the country’s infrastructure and supporting economic growth”, noted DTEK CEO, Maxim Timchenko, while commenting on the company’s performance indicators for Q1 2019. “All market participants have invested a lot of effort in the country’s bid to launch the new electricity market. Its current completion rate is over 90%. The most complex phase, which included the opening of the retail electricity market, has been completed successfully. Since the beginning of the year, consumers have been able to choose their electricity supplier. One of the principal benefits of energy market reform is intensified competition. When companies start competing for consumers, we see marked improvements in customer experience, number of services offered, and production efficiency. At DTEK, we have transferred electricity supply in two key business areas: D.Solutions and D.Trading. The core objective of both – is to establish a consumer experience in line with the European standards. In Q1 2019, they have already supplied 10.6 bln kWh of electricity to customers“.

DTEK Group Key Performance Indicators

*Since September 1, 2016, DTEK Energy has not been consolidating the indicators of Mine Office Obukhovskaya JSC into its statements as the Company’s management has been transferred to DTEK B.V. Strategic Holding Company. This transaction has been carried out as part of the restructuring of DTEK Energy’s loan portfolio aimed at balancing the asset development capacity with the loan servicing capabilities.

**During the first phase of the reform, the companies completed unbundling of their electricity generation, distribution, and supply businesses and established independent companies responsible for relevant areas.

***Including trading operations outside Ukraine.

 DTEK Energy

Coal Production and Preparation

During Q1 2019, DTEK Energy mined 5.8 mln tonnes of steam coal, which was 0.4 % - or 22.8 thousand tonnes - higher than the same period last year. The processing plants processed 3.9 mln tonnes of coal, of which 0.1 mln tonnes were outsourced. 2.4 mln tonnes of concentrate were produced, including 0.05 mln tonnes produced by third‑party CCM.

Main Factors Driving Performance Indicators:

• Coal production by DTEK Pavlogradugol went down by 2 % or 98.9 tonnes, but that was offset by 13.2 % - or 121.7 tonnes - increase in production at DTEK Dobropolyeugol including Bilozerska ALC. Overall, the aggregate indicator shows growth of 0.4 % - or 22.8 thousand tonnes. DTEK Energy’s average productivity increased by 3.6 % up to 98.1 tonnes per person per month.

Key Projects in Q1 2019:

• Equipment upgrade: DTEK Pavlogradugol received a new cutter-loader and retrofitted an electric locomotive to its fleet of mining machinery. DTEK Dobropolyeugol added a tunnel boring machine, two cutter-loaders, and an electric locomotive to its fleet. The new equipment’s better performance ensured stable coal production, despite general downward trends in the mining and geological environment;
• CEP upgrade: DTEK Pavlogradska CEP launched a project to retrofit a coal slurry and screw separation waste unit, which will reduce overall volume of waste by reducing the moisture content within it. The objective of the project is to upgrade a closed water-slurry circuit and reduce our environmental impact by abandoning slurry ponds and making a transition towards an advanced land reclamation programme for depositing waste coal.
• Kurakhovska CEP, meanwhile, has been implementing its first liquid waste processing and dehydration unit in its efforts to transition to a closed water-slurry circuit.
• DTEK Oktyabrskaya CEP continues to upgrade its capacities. The company is transitioning to a concentration of grade 1–13 mm ROM coal in its float-and-sink cyclone separators. Pump assemblies, power equipment, and automatic controls were supplied to the company during the reporting period.
• DTEK Dobropilska CEP completed the second phase of its spoil tip construction, using an innovative green spoil heap technology. Each waste dump lift is enforced with clay, an internal drainage system is installed, and a fire protection layer is built. The project helps reduce environmental impact by minimising ignition sources and reducing contact between coal waste and environment. The resulting water is collected in a pond and then returned to the production cycle. The project will provide a waste dump site that will suffice for keeping coal waste for ten years.

Electricity Generation

During the reporting period, DTEK Energy supplied 8.2 bln kWh to the UES, a reduction of 17.2 % - or 1.7 bln kWh – YoY.

Main Factors Driving Performance Indicators:

• A drop in electricity production in Ukraine by 2 %, or 877 mln kWh, due to reduced consumption in the domestic market;
• The expiry of a CHPP-5 and CHPP-6 operation contract with Kyivenergo. The company’s electricity generation indicators have not been included in DTEK’s reporting since 31 July 2018 (1,107.8 mln kWh of electricity were supplied in Q1 2018).

DTEK Energy has been implementing a comprehensive programme designed to increase the share of Ukrainian G grade coal in the energy mix of its power stations, thereby reducing the use of imported coal. In Q1 2019, 7.1 bln kWh of electricity were produced from domestic coal, reducing the share of electricity generation from anthracite in the total production to 12.1 % (13.2 % in Q1 2018).

Key Projects in Q1 2019:

• DTEK Prydniprovska TPP: power unit no. 10 was converted to generate electricity from domestic grade G coal. This is the fourth power unit to stop using anthracite. An electric precipitator was built on the power unit that helps reduce dust emissions to 50 mg/m3, which falls in line with European standards.

The company’s power units which have been undergoing retrofitting since 2012 have also been upgraded with electrostatic precipitators to comply with dust emission levels required by Directive 2001/80/EC.

DTEK Kryvorizka TPP, DTEK Zaporizka TPP, and DTEK Burshtynska TPP: tests were run to assess conformity with standards established by ENTSO-E. The tests were run as part of a wider project to integrate Ukrainian and European energy systems at power unit no. 3 of the DTEK Kryvorizka TPP, power units no. 1 and 2 of DTEK Zaporizka TPP, and power units no. 5, 7, and 10 of DTEK Burshtynska TPP. The tests confirmed that these power units can be operated within the Ukrainian UES in parallel with the European energy system.

DTEK RENEWABLES: Renewable Energy

227.2 mln kWh of ‘green’ electricity were supplied to the UES by DTEK Renewables in Q1 2019. This is up 10.2 % - or 21.0 mln kWh - YoY.

Main Factors Driving Performance Indicators:

• The Nikopol Solar Power Plant (SPP) was commissioned and has been operating within the Ukrainian UES since the beginning of March. During the reporting period, the SPP generated 23.8 mln of green kWh.
• The Prymorsk WEP also started generating electricity: 7 wind turbines were commissioned during Q1, and the aggregate electricity produced by the wind farm reached 12.3 mln kWh.
• The Trifanovska SPP increased electricity generation by 20 %, or 0.3 mln kWh. The SPP delivered a 99.89% availability factor.
• The Botievo Wind Farm reduced electricity generation by 7.5 % - or 15.4 mln kWh - as a result of reduced wind speed on the site. The availability indicators of wind turbines and infrastructure remain high, conforming to the best global standards of 98.65 % and 99.95 % (vs 99.4 % and 99.97 % in Q1 2018)

Key Projects in Q1 2019:

• The construction of the Nikopol SPP was completed (installed inverter capacity of 200 MW). At peak times, more than 1,500 Ukrainian and Chinese specialists were engaged in the construction project. About 750 thousand solar panels (manufactured by Seraphim Solar System and Trina Solar) and 80 central inverter stations (supplied by Shenzhen KSTAR Science and Technology) were installed at the SPP.Annual green energy supply from Nikopol SPP will reach 290 mln kWh. It will help reduce СО₂ emissions by 300 thousand tonnes per year, which is extremely important for the Dnipropetrovsk region as the largest industrial region of Ukraine.

• The construction of the Prymorsk Wind Park continues (installed capacity of 200 MW). The construction project has been divided into two phases. 26 GE wind turbines with individual capacity of 3.8 MW will be installed during each phase. 25 wind turbines were installed during the reporting period, seven of which have already started supplying electricity to UES. 16 foundations and about 20 km of roads have been laid at the construction site of the project’s second phase. The wind turbines have also been supplied for phase two and construction is expected to be finished in the autumn of 2019.

• The construction of Orlovka Wind Farm (installed capacity of 100 MW) continues. Good progress was made in the construction of high-voltage power lines in Q1 2019, with 33 % of the work now completed. In addition, foundations for 11 wind turbines were completed, and piles for five wind turbines were installed. We’re expecting delivery of the main components of wind turbines supplied by Vestas (Denmark) in Q2. In total, 26 wind turbines with individual capacity of 3.8 MW will be installed.
• The construction of Pokrovskaya PV Farm was launched (installed inverter capacity of 240 MW). The project preparation phase was completed in Q1, following which construction work will be performed by Ukrainian contractors. The solar power plant will comprise 874 thousand panels manufactured by Risen Energy (China) which will be installed on the site of a depleted manganese quarry in the Nikopol District of the Dnipropetrovsk region. Siemens (Germany) was selected as the general contractor and supplier of key equipment for the construction of a 35/150 kV substation.

 DTEK Oil & Gas: Production of Natural Gas and Gas Condensate

In Q1 2019, the company produced 408.5 mcm of natural gas and 15.1 thousand tonnes of gas concentrate, YoY increases of 2.6 % and 17.9 % accordingly.

Main Factors Driving Performance Indicators:

• The completion of drilling on the Semerenkivske field, including well no. 61 at a depth of 5,456 m with horizontal displacement of 380 m, and well no. 43, at a depth of 5,605 m with horizontal displacement of 370 m.
• The overhaul of wells and implementation of measures aimed at intensifying production rates on the existing well stocks.

Key Projects in Q1 2019:

• The drilling of well no. 72 with a design depth of 5,470 m at the Semerenkivske field;
• The drilling of well no. 53 with a design depth of 5,850 m on the Machukhske field;
• Secured license to develop the Svitankovo-Logivske oil and gas site in the Kharkiv region. The company purchased the license on an open electronic auction organized by the State Service for Geology and Mineral Resources of Ukraine. The license covers oil, natural gas, and condensate. It includes geological analysis of the subsoil and subsequent production of oil and gas. The term of the permit is 20 years.

DTEK Grids: Electricity Distribution and Grid Operation

During the reporting period, the distribution system operators distributed 10.1 bln kWh of electricity to their clients, which is 15.9 % – or 1.9 bln kWh – lower YoY.

Main Factors Driving Performance Indicators:

• A drop in gross electricity consumption in Ukraine of 2.2 % – or 945.7 mln kWh. All main consumer groups - industry, households, and the utility sector – reduced electricity consumption due to warmer weather in March;
• DTEK Dnipro Grids and DTEK Power Grid reduced volumes of distributed electricity by 21.6 % – or 1,764.9 mln kWh – because of a reduction in clients following unbundling which was completed during the first stage of the reform.

Key Projects in Q1 2019:

• DTEK Dnipro Grids: Three upgraded Customer Service Centres were opened in Kryvyi Rih, Dnipro, and Pavlograd. The capacity of the call centre also increased, enhancing the company’s availability and improved customer experience.
• DTEK Donetsk Grids: a project to organise a new Central Dispatch Centre is underway. Following the completion of this project, energy infrastructure in the Donetsk Region is set to improve.
• DTEK Power Grid: continues the upgrade of its three largest substations (KHP — 35 kV, GPP — 150 kV, and Novorayskaya — 110 kV) to ensure reliable electricity supply to the Kryvyi Rih, Volnovakha, and Slavyansk Districts of the Donetsk Region.

Ukraine has completed the first stage of energy reforms, aimed at transitioning its electricity market to align with the European model. Companies have unbundled various functions - including electricity generation, distribution and supply - by establishing independent companies responsible for each individual area.

These efforts created the right conditions for the launch of the retail electricity market, and starting from 01 January 2019, consumers have had the choice to receive electricity from unregulated suppliers and universal service providers. A universal service means guaranteed electricity supply to state-financed organisations, residential and small non-residential consumers with an agreed capacity below 150 kW, at a tariff set by the Regulator.

DTEK Group was among the first to implement system changes in its operations by unbundling its electricity distribution and supply functions to two operational holdings. D.Solutions is the new company responsible for the development of retail electricity. In turn, D.Trading will be responsible for wholesale trade of coal, electricity, natural gas and petroleum products on the domestic and international markets.

 D.Solutions: Electricity Supply

In Q1 2019, D. Solutions supplied 5,705.8 mln kWh of electricity.

D.Solutions coordinates the operations of three electricity suppliers: Kyiv Energy Services, Dnipro Energy Services, and Donetsk Energy Services. These suppliers were established following the unbundling of Kyivenergo, Dniprooblenergo, and Donetskoblenergo and act as universal service suppliers.

 D.Trading

Coal Supply

All the export operations are conducted by the Mine Office Obukhovskaya. In Q1 2019, deliveries from export contracts increased by 36.2 % - or 32.2 thousand tonnes - to 121.2 thousand tonnes. 459 thousand tonnes of coal were supplied to the domestic market, which is 38.3 % - or 127 thousand tonnes - higher YoY.

In aggregate, the company imported 708 thousand tonnes of coal to the Ukrainian market to supply thermal power plants and industrial consumers, which is 24.1% - or 224.7 thousand tonnes - lower YoY. This drop was down to a reduction in the amount of anthracite purchased to supply the company’s own thermal power plants, following the conversion of DTEK Prydniprovska TPP to run on domestic grade G coal.

Ukrainian industrial consumers received 401 thousand tonnes of coal from local and imported resources.

Electricity supply

1.6 million kWh of electricity were supplied under cross-border contracts, which is 7.5 % higher than in Q1 2018. The electricity was exported to Hungary, Moldova, and Poland.

The company supplied 4.9 billion kWh to industrial consumers operating mainly in the Ukrainian steelmaking industry. Electricity was supplied at a non-regulated tariff.

Import and Supply of Natural Gas on the Domestic Market

The total sales volume of natural gas in Ukraine’s domestic market has remained the same YoY, amounting to 464.9 mcm.