n Ukraine, the Day-Ahead Market (DAM) is effectively used as the primary benchmark for electricity prices across almost all consumer categories, including public institutions. However, it should be acknowledged that this approach does not reflect the full European model of electricity market organisation.
In the European Union, the spot market is an important component of the electricity market, but it does not replace long-term trading mechanisms. Market stability is primarily ensured through:
- bilateral contracts (OTC);
- forward contracts;
- futures instruments;
- price risk hedging mechanisms.
For this reason, Ukraine should gradually move away from using the Day-Ahead Market as the principal pricing benchmark for public-sector and other consumers, while simultaneously developing a genuinely liquid market for long-term electricity contracts.
If the objective is to provide consumers with fair and predictable electricity prices, the market must be equipped with instruments that enable price fixation through bilateral contracts rather than relying almost exclusively on daily fluctuations in the spot market.
Colleagues, the bilateral contracts market should function not as an attractive slogan or a formal element of market reform, but as a genuine mechanism for electricity trading.
Today, market participants observe a shortage of long-term electricity products offered by generators, while the majority of trading volumes remain concentrated in short-term market segments. As a result, the Day-Ahead Market has an excessive influence on overall price formation.
A properly functioning market model should instead be based on generation planning through bilateral contracts concluded for one month, one quarter, six months, or one year ahead.
The active development of long-term bilateral contracts would allow the market to achieve a more balanced average price, provide greater price predictability for consumers, and restore the Day-Ahead Market to its intended role—as a short-term balancing and price discovery mechanism rather than the primary determinant of electricity prices.
Typical market structure in the European Union
- Bilateral contracts (OTC): 70–85% of total market volume.
- Day-Ahead Market (DAM): 10–30%, depending on the country.
- Intraday Market (IDM): 2–15%, depending on market design.
Ukraine continues to operate under wartime conditions. Martial law undoubtedly creates additional risks; however, it cannot serve as a universal explanation for the limited development of forward market instruments. On the contrary, periods of heightened uncertainty make contractual mechanisms for risk allocation even more important.
When unforeseen circumstances arise, market participants have established professional tools for fulfilling their contractual obligations, including:
- purchasing electricity on the balancing market;
- sourcing electricity from other generators;
- importing electricity;
- active portfolio management.
These are standard practices in mature electricity markets.
The Ukrainian electricity market requires a modern and balanced market model—one that extends beyond trading electricity for next-day delivery and includes the full-scale development of bilateral contracts covering quarterly, semi-annual, and annual delivery periods.
Short-term contracts covering ten-day periods may serve as a complementary market instrument, but they cannot replace a properly functioning market for long-term bilateral agreements, which is a defining feature of mature European electricity markets.
It is precisely the availability of long-term contracts that provides price predictability, effective procurement planning, reduced price volatility, and greater market stability for both consumers and market participants.
Sincerely,
Public Association “Energy Union”