Cheap Electricity for the Privileged? How the Cabinet of Ministers’ New Rules Could Change the Energy Market
13 July 12:58
On July 13, Ukraine will launch its first electricity auctions under the new rules. Thanks to changes introduced by the Cabinet of Ministers via Resolution No. 499, large consumers and traders will, for the first time, be able to purchase electricity from state-owned producers for an entire quarter, half a year, or even a year in advance.
The government explains that the new mechanism will make the market more predictable and bring it closer to the European model . At the same time, some market participants are already warning of potential risks associated with the concentration of cheap electricity in the hands of major players. "Komersant Ukrainian" examined the issue.
What the resolution changes
Until now, the main platform for electricity trading has been the “day-ahead” market, where prices are set daily based on supply and demand.
Now, however,the state-ownedcompanies Energoatom and Ukrhydroenergo will alsosell a portion of their capacity through long-term bilateral contracts. This means that large enterprises will be able to lock in electricity prices in advance and protect themselves from future market fluctuations.
The government cites this mechanism as one of the steps toward developing a mature, well-regulated electricity market.
Risks of the New Auctions
The launch of long-term contracts coincided with a sharp drop in prices on the “day-ahead” market.
According to publicly available market data, the average price has fallen in recent days to approximately 1,900–2,100 UAH per MWh, whereas just a few months ago it exceeded 7,000 UAH.
Industry analysts attribute this primarily to a seasonal decline in demand and high electricity supply.
However, the launch of long-term contracts could lead to the sale of significant volumes of cheap state-generated electricity to large buyers.
Who stands to gain
To explain the mechanism in simple terms, it works like this.
Suppose a large company like DTEK buys a significant amount of electricity from Energoatom today at a fixed price for half a year in advance.
If the exchange price rises sharply in a few months, this company will already have a cheaper supply than its competitors. Thus, it will be able to use it in its own production or sell it to its customers at the current price, which is likely to be significantly higher than the purchase price.
This is precisely the scenario analysts are discussing, predicting that “electricity will be purchased at low prices during the appropriate period and sold for 2–3 times the price.”
Large vertically integrated energy companies—which operate simultaneously in electricity generation, trading, and supply—stand to gain the greatest potential advantage from the new model. Clearly, DTEK is one of the potential biggest beneficiaries of the introduction of these new contracts.
Will this affect ordinary Ukrainians?
For the general public, the new rules are unlikely to have an immediate effect. Electricity rates for residential consumers will continue to be set by the government.
Businesses, on the other hand, purchase electricity at market prices and may become the first buyers of contracted cheap electricity—though at market prices at the time of purchase.
The results of the first auctions will soon reveal whether the fears of critics of the new model will be realized, or whether long-term contracts will indeed contribute to greater predictability in the Ukrainian energy market.
