A Business Opportunity: The Ukrainian Energy Exchange Is Preparing to Launch New Electricity Contracts
19 June 19:04
ANALYSIS FROM 
Ukrainian businesses have been promised a fixed price for electricity. But not all of them—only those who, based on the results of the auctions, will be able to sign long-term contracts with electricity producers. What does this government initiative mean for non-residential electricity consumers?
In winter, electricity prices rise due to high demand, while in the spring and summer months they fall—this is precisely the price volatility experienced by Ukrainian electricity consumers who depend on the short-term “day-ahead” market. And now they have a chance to stabilize the pricing situation.
A Step Toward Stability
For the core sectors of the Ukrainian economy—the mining, metallurgical, and chemical industries, as well as resource-extracting companies that consume large amounts of electricity—price volatility and the constant rise in electricity costs are currently perhaps the biggest problem. In a comment to the publication "Komersant Ukrainian", Oleksandr Kalenkov, president of the “Metallurgprom” Association of Enterprises, described the situation as follows:
“For many enterprises in our economy, this is a huge component of production costs. For full-cycle metallurgical enterprises that mine ore and produce steel from it, the share of electricity in production costs at normal prices was around 7 percent, give or take. Last year, it rose to more than 20 percent of production costs. Now I think it’s even higher. And this is causing the industry to lose its competitive edge.”
Other companies are also feeling similar price pressure. Serhiy Sergeyev, founder of AgroMashInvest, explains . The company manufactures Farmer tractors.
“Electricity prices are rising at a very rapid pace here, and the monopolists are behind this. And we, in turn, cannot plan production properly today. We don’t know what the cost of that same electricity will be in three months or when we’ll have to switch to generators,” the manufacturer notes.
Long-term contracts should bring more predictability to operations. The Ukrainian Employers’ Federation welcomed the launch of this mechanism and noted that it had previously approached the authorities with a similar initiative.
“This will allow businesses to plan their production activities, expenses, and investments more effectively, as well as minimize the risks associated with price fluctuations in the ‘day-ahead’ market,” according to the Ukrainian Employers’ Federation.
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Increasing the predictability of the energy market and ensuring more stable operating conditions for businesses—these are the expected outcomes of the government’s initiative. Prime Minister Yulia Svyrydenko also spoke about this when presenting the initiative:
“The new mechanism makes it possible to lock in prices and supply volumes in advance, and to plan expenses, investments, and production. For electricity producers, this also means predictable revenues, clear operating conditions, and protection against price drops during months of surplus.”
New Opportunities and Familiar Risks
The first transparent, competitive auctions are set to take place in the near future. These auctions will be held on the Ukrainian Energy Exchange. Daria Orlova, an electricity market analyst at ExPro, explains:
“In fact, the auction mechanism will not change; the changes will only concern the delivery period. Currently, trading on the Ukrainian Energy Exchange takes place only for ten-day products. For example, Energoatom recently sold volumes for the third ten-day period of June. Under the new rules, auctions for quarterly, semi-annual, and annual periods will also be introduced.”
For the pilot launch, 4% of the generation volumes from state-owned power producers—Energoatom and Ukrhydroenergo—will be offered: 2% through quarterly contracts, 1% through semi-annual contracts, and another 1% through annual contracts. Will these volumes be enough to meet business needs? Daria Orlova shares her perspective.
“For now, this 4% is insufficient, but we need to assess buyer demand. After all, the Ukrainian Energy Exchange has already held multiple auctions for long-term contracts. So far, demand has been insignificant, as the market remains unpredictable and the risks of shortages are still significant. However, in my opinion, the move toward long-term contracts is the right one, as it increases market predictability and provides additional price indicators,” the expert emphasizes.
The Ukrainian Energy Exchange has already announced an online Q&A session regarding the launch of long-term contracts on the electricity market. They have promised to provide detailed information on how special sessions for the sale of lot packages of standard products under bilateral contracts will be conducted, as well as on the terms of participation and key features of the new mechanism.
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