All participants in the energy market need predictable electricity prices

Understanding the price of electricity for a quarter, half-year, or year will allow end consumers to better forecast their own production. Similarly, without understanding prices more than a month in advance, generating companies cannot plan repairs or production activities.

GMK Center presents the main points of the speech by Roman Bekuzarov, Deputy Commercial Director of D.TRADING, at the round table “Ukraine’s electricity market: challenges for industry and the iron and steel complex.”

The price factor as a reflection of the energy balance

The price of electricity is a sore subject for all market participants: for end consumers, it is always too high; for generators, it is too low; and for suppliers and traders, it is difficult to predict.

However, price is not just a number, but a combination of factors and a real reflection of our country’s energy balance. This is primarily the availability and types of generation, especially the share of distributed generation, in particular solar, which creates a surplus during the daytime. At the same time, restrictions on maneuverable generation lead to a deficit in the morning and evening hours.

An important factor is the level of consumption, which is 30% lower than in the pre-war period. It is important to emphasize not only the level of consumption, but also its profile. There are various restrictions on the market: technical (restrictions on the export and import potential of electricity) and economic (price caps, inability to contract for long-term export and import crossings). All this has a significant impact on the price.

The Ukrainian price differs from the European one, but there are objective factors for this. First, European countries have different prices, which corresponds to the differences in their energy balances. Second, there is the possibility of market coupling, which the Ukrainian market and energy system are moving towards.

Thanks to market coupling and the minimization of restrictions on crossings, European countries have fairly predictable prices within a certain range. For example, the cost of electricity in Hungary cannot differ several times from the price in Romania.

Market development prospects

It is very important for the Ukrainian market and all its participants to implement European instruments, first and foremost, the possibility of obtaining a clear, predictable, fixed price for a long period. If the end consumer receives a clear and transparent price for electricity for a period of more than a month — for example, for a quarter, half a year, or a year — this will become a clear tool for forecasting their own production process.

In addition, this will be an important signal for Ukraine’s domestic generation, as working with only a month’s advance planning is not sustainable for either the electricity market or the energy system as a whole. It is impossible to plan repairs or production activities without understanding the price for more than a month.

To implement such tools, two important things need to be done:

1. Expand and increase the technical capacity of export-import crossings.
2. Introduce long-term auctions for access to interstate crossings, as it is not only the wholesale price that determines the final price for the consumer.

The main goal of these measures is to increase predictability and reduce volatility in the market. The current situation, where generation in the domestic market sells electricity not for a month, but for a decade or two, is unacceptable for any market participant — generation, end consumers, suppliers, and traders. Reducing volatility could potentially lead to more attractive prices for end consumers, as they will be able to form their sales portfolios based on an understanding of the cost price, rather than working exclusively on the spot market.