When a significant portion of tenders, commercial contracts, and budget procurements rely exclusively on the DAM, the system becomes overly dependent on daily volatility. This leads to:
-
increased risks for suppliers;
-
planning difficulties for budget institutions;
-
constant price fluctuations;
-
conflicts between parties in budget contracts;
-
reduced predictability for consumers.
This issue is particularly acute in public procurement. For a long time, many customers and suppliers used DAM dynamics as the most transparent and understandable market indicator. In fact, the market operated under rules shaped by the state and legislative practice. Consequently, price adjustments within contracts were often made based on DAM fluctuations, following methodological recommendations from the Ministry of Economy of Ukraine.
However, subsequent judicial practice, including decisions from the highest courts, significantly changed the approach to evaluating such actions. Suppliers and consumers found themselves in a situation where yesterday's standard market practice became the subject of audits and legal disputes.
A systemic collision emerged: businesses operated according to existing rules and recommendations but later faced a new legal interpretation established by the Grand Chamber of the Supreme Court after the contracts had already been executed. This highlights the consequence of over-reliance on a short-term indicator. By its nature, the DAM is not intended to be the primary base for long-term tender contracts, especially in the public sector.
Therefore, Ukraine must transition to a model where the foundation of break-even operations in the energy sector is not daily DAM fluctuations, but long-term bilateral agreements and forward instruments. This would allow both businesses and budget consumers to operate in a more stable environment, resulting in fewer conflicts and greater predictability.
Currently, this collision will not disappear on its own. While current judicial practice remains in force and war-related risks are used as an argument against long-term contracting for generation, the market remains stuck between two realities. Suppliers and consumers require a clear answer: what are the rules for moving forward? The state and the regulator must propose a realistic, balanced, and understandable model for operating under wartime conditions.
The Reality of Long-term Contracts
Selling resources for short ten-day periods cannot be considered full-fledged long-term contracting. This format only partially addresses the operational tasks of generation and fails to create stability for suppliers, consumers, or the generation companies themselves.
To be frank, Ukraine still lacks a proper market for long-term electricity trading. There is no full-scale "order book" (exchange) trading as seen in EU countries. Furthermore, the contracts currently offered by generation companies after Auction Committee decisions on the Ukrainian Energy Exchange are structured such that the buyer bears the primary risks. Sellers can reduce volumes, change conditions, or cite force majeure, while suppliers face penalties and strict liability. Simply put, the rights of the parties are unequal.
Because of this, many suppliers find it easier to buy on the DAM rather than entering the exchange, paying a significant guarantee fee, and purchasing ten-day resources at high prices. The market has repeatedly seen cases where the price in ten-day bilateral contract trades was higher than the eventual DAM price. This raises a logical question: what is the economic sense of such a term product for the buyer and the consumer?
The market currently operates not by European logic, but by the principle of "the strong dictates terms to the weak." When the primary goal is to sell resources as dearly as possible while shifting all imbalances onto other participants and blaming low price caps, it is not a European market—it is the selective use of European arguments only where they are profitable.
Moving Toward a European Model
The European model includes not only high price ceilings but also negative prices as an element of market balancing. Its foundation lies in balanced contracts, real competition, liquid term products, fair risk distribution, and equal rules for all.
For distributed generation, the DAM price cap remains the main reference point instead of competition and long-term contracts. While much attention is paid to price caps, they are merely a boundary, not the actual sale price. In the EU, generation revenue is stabilized through a combination of bilateral agreements, exchange products, ancillary services, and the balancing market.
Ukraine's strategic task should be creating a predictable model for all participants. If wartime risks are the main argument, the model must be honestly reviewed. When rules primarily favor generation, the consumer pays for the imbalance.
Key Steps for Reform
-
Full Implementation of REMIT and Transparency:
Market participants must disclose inside information that could affect prices, such as capacity availability and maintenance schedules. Suppliers need access to basic market information regarding generation (excluding sensitive data) to plan purchases and offer competitive prices.
-
Developing a Liquid Bilateral Contract Market:
Ukraine needs full-fledged term exchange products (quarterly, semi-annual, and annual). This allows for resource portfolio planning and stable income for generation. Standard contract terms must be revised to ensure equality and balanced risk-sharing.
-
A Fair Balancing Market:
Following European practice, the balancing market should maintain system equilibrium, not serve as a mechanism for shifting costs onto specific participants. This requires professional coordination between the Regulator, Ukrenergo, generation, and suppliers.
Conclusion: It is time to move beyond declarations of European integration and implement the actual rules of mature markets. While the NEURC has begun implementing legislation for integration into the EU internal energy market and "market coupling," effective integration requires more than just updated regulations. It requires a balance of interests, legal certainty, and a fair distribution of responsibility among all participants.
