According to Vedomosti, the Ministry for the Economy has decided to support the generation companies in their dispute with MinEnergo over amendments to the existing DPM methodology. In particular, MinEnergo was asked to revise the (as yet unapproved) draft methodology which is to access the profits that could be generated by DPM units from selling electricity on the wholesale market. The stumbling block between the generators and MinEnergo is the spot price forecasts. In its initial proposal, the ministry suggested linking the dynamics in spot prices to indexation in gas tariffs. Given the real lower dynamics in spot prices, that might worth up to RUB 30-40bn p.a or decrease DPM prices 15-20%. According to the newswires, the revised amendments have to be approved by the end of the year.
With no details over the potential amendments to the methodology, it is difficult to judge how profitable (or, more likely, less destructive) it could be. However, the fact that after a long time the ministry has decided to change its attitude to the sector’s needs is likely to be positive for sentiment on the sector and to be welcomed by investors as DPM agreements together with the achieved liberalisation of the wholesale market secure the bulk of the gencos’ fundamental value. We expect more visibility over the state’s overall strategy towards the sector (including the potential involvement of RNG) in September/October when the President’s Energy Commission to discuss the issue, while there is likely to be clarity over DPM profitability by the year-end.
Mikhail Rasstrigin, Alexander Seleznev
VTB Capital analyst
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