17.08.2026
The Ukrainian electricity market is increasingly in need of tools that allow businesses not only to react to price fluctuations, but also to forecast their financial results for months and years ahead. The volatility of prices on the “day-ahead” market, changes in the structure of generation and consumption, the development of distributed generation and energy storage systems make the issue of price risk management no longer a theoretical discussion, but a practical market need. The NEURC data also indicate significant attention to the volatility of prices on the DAM and IDR and the need for its systematic analysis.
Energy Club has appealed to the National Bank of Ukraine regarding the development of price risk hedging instruments on the electricity market. In particular, this concerns the creation of opportunities for launching a settled futures contract on the DAM index and ensuring its clearing service by a central counterparty. This approach is consistent with the development of futures instruments, which are already common practice in European energy markets.
What is the practical value of such an instrument for suppliers, traders, producers and large consumers? How can futures protect a company from sharp price changes without assuming physical delivery of electricity? Why could the emergence of an exchange-traded forward price curve be important not only for hedging, but also for bank financing of new energy projects? And why, without a central counterparty, a full-fledged futures market will actually not be able to work?
This is what Maksym Nemchynov, Vice President of Energy Club, Deputy Minister of Energy of Ukraine in 2020–2021, tells about in an interview with the Energy Club media department. He explains why the excessive dependence of companies’ financial results on short-term prices creates a systemic risk for the market, how settlement futures can make the price more predictable, why a transparent price curve is important for investors and banks, and what steps the NBU, the Settlement Center, the Ukrainian Energy Exchange, regulators, and market participants themselves should take to make hedging a real risk management tool in Ukraine.
– Mr. Maksym, Energy Club has appealed to the National Bank of Ukraine regarding the development of price risk hedging instruments in the electricity market. Why has this topic become relevant now?
– The topic itself is not new – the need for hedging instruments in the electricity market has been discussed at least since its launch in 2019. But now several circumstances have coincided that have moved it from the plane of discussion to the plane of practical necessity.
First, the market has gone through several years of extreme price volatility. Damage to generation and network infrastructure, changes in the structure of imports and exports, and sharp seasonality have all led to the fact that the price on the “day-ahead” market can change many times both during the day and between seasons. Companies operate in an environment where financial results are determined not by management efficiency, but by how the price situation develops.
Second, the structure of the market itself has changed. The market share of bilateral contracts is growing, demand for longer contracts has appeared, distributed generation and energy storage systems are developing – and they require bank financing, which is impossible without forecasted revenue.
Third, Ukraine is moving towards integration with EU markets. In the European model, the term segment is a basic element of the market architecture, not an option. The market without it is considered structurally incomplete.
And we turned to the National Bank because the key element of such infrastructure is a clearing institution with a license to operate as a Central Counterparty. In the Ukrainian configuration, this function can only be performed by the Settlement Center, which has a banking license and is regulated by the NSSMC, but the NBU is the majority shareholder. Without the position of the National Bank, the issue will not move forward regardless of the readiness of the exchange or the market participants themselves.
– In the appeal, the Club emphasizes that the financial result of market participants is excessively dependent on price fluctuations in the “day-ahead” market. How serious is this problem for suppliers, traders, producers and large consumers of electricity?
– This is not a hypothetical risk – it has already been realized repeatedly, and each category of participants feels it in its own way.
The most acutely – suppliers. A company that buys a resource at fixed prices on the Bilateral Contracts Market and then supplies it to customers at a variable price on the day-ahead market effectively holds an open price position for its entire portfolio. When the price of the DAM falls, the loss occurs immediately, while the conditions for the consumer can be revised at the earliest from the next period,and often – it is not possible at all. Hence the cash gap, and then – non-payments. And here the risk ceases to be the risk of one company: the supplier’s debt is transmitted further along the chain – to the transmission system operator, the guaranteed buyer, the producers. That is, the price risk of an individual participant quickly becomes systemic.
For traders, the problem is that the margin in this business is thin, and one unsuccessful month can cover the result of the quarter. Manufacturers cannot confidently plan repair and investment programs, because they do not have a reliable estimate of next year’s revenue. Large consumers – metallurgy, chemistry, the food industry – cannot correctly draw up a budget and include the energy component in the price of their own products, and this is a question of the competitiveness of Ukrainian exports.
That is, the volatility of the “day-ahead” market is not a problem of a separate group of companies. It is a common denominator for everyone, it’s just that the consequences manifest themselves in different forms.
– Why is it important for the Ukrainian market to have not only short-term electricity trading, but also tools that allow planning the price for future periods?
– Short-term markets perform their function well: they balance supply and demand in physical terms and form the price immediately. The question is different – practically no economic decision in the energy sector is made within a day. A contract with an industrial consumer is concluded for a fixed period, a loan for the construction of a generation or storage facility – for years, the company’s budget is approved at least a year in advance. That is, the horizon of obligations is much longer than the horizon in which the market gives a price signal.
A derivative exchange instrument solves exactly this. A position can be opened and closed at any time, the closing price is known and public, and the very possibility of exit means that the participant manages the risk dynamically, and not once. Of course, this tool works exclusively in tandem with “long contracts” on the RDD and spot agreements on the RDN, since the main advantage of a derivative contract is the absence of electricity supply, but rather price balancing.
– Energy Club supported the initiative of the Ukrainian Energy Exchange to introduce a settled futures contract on the RDN index. What practical benefit can such an instrument provide to market participants?
– The key characteristic is a settled contract. It does not involve the physical supply of electricity, and therefore does not change the company’s usual purchasing logic. The participant continues to buy the resource where he bought it – on the day-ahead market or under bilateral agreements – and futures work as a financial superstructure. If the price has increased and the company has overpaid on the physical market, the profit on the futures compensates for this overpayment; if the price has fallen – vice versa. Result: the predicted average price for the period, regardless of how the market behaved.
The second practical benefit is the expansion of the circle of participants. Since there is no supply, those who do not work with physical electricity can enter the market: banks, financial companies, institutional investors. In developed markets, they are the ones who provide liquidity and take on the risk that producers and suppliers want to get rid of. Without this category, the futures market remains symmetric – all participants want to protect themselves from the same price movement, and deals simply do not form.
The third is capital efficiency. To enter a position, you do not need to divert the full value of the contract, collateral is enough. For an industry with a chronic deficit of working capital, this is fundamental.
And the fourth is the anonymity of trading. The participant does not assess the creditworthiness of the person on the other side of the transaction, because his counterparty becomes the central counterparty.
– Can we say that the emergence of a futures contract on the DAM index will help form a more transparent forward price curve for the Ukrainian electricity market? Why is this important for banks, investors and companies planning long-term contracts?
– Yes, and I would say that for the economy as a whole this is an even more important effect than hedging as such.
Today in Ukraine there is no public market answer to a simple question: how much will electricity cost, say, in the second quarter of next year. There are expert assessments, there are forecast models, there are prices of individual bilateral agreements that are not disclosed. Exchange quotes of futures for several periods ahead form a curve – a public, observable and daily verified benchmark by the market, behind which the real money of the participants stands, and not the assumptions of the analyst.
For banks this has direct practical significance. When financing a generation or storage project, the lender estimates future revenue. Currently, it does this based on its own conservative assumptions and builds a premium for uncertainty into the rate or abandons the project altogether. If there is a market curve, and even more so, the ability to hedge part of the future revenue, the risk of the project is reduced, and with it the cost of financing.sion. This is a direct channel of influence on the volume of investments in the sector, which we critically need for recovery.
For companies, the curve is a basis for negotiations on long-term contracts and the basis for budgeting: a common starting point appears, from which the parties agree on a premium or discount. For the state and regulators, it is a market indicator of expectations, which is difficult to replace with an administrative assessment.
– The appeal refers to the need for clearing services for futures contracts by a central counterparty. Why is the launch of such an instrument actually complicated without this element?
– Because a forward contract is an obligation that is not fulfilled today, but in months. All this time, the parties bear each other’s risk. In a bilateral format, this means that each participant must independently assess the credit quality of each counterparty, set limits, and agree on collateral. In practice, such a circle narrows to a few large companies that historically trust each other, and the market as such does not arise.
The central counterparty eliminates this problem: it becomes a buyer for every seller and a seller for every buyer. Then a standard set of mechanisms, proven in world practice, works – initial margin, daily revaluation of positions and variation margin, guarantee fund, clearly described sequence of covering losses in case of participant default. This is what allows trading anonymously and allows a wide range of participants to enter the market – from a large manufacturer to a small company.
There is also a purely legal dimension. The legislation stipulates that clearing of derivative contracts is carried out by an institution with an appropriate license; this is not an element that can be replaced by agreements of the parties. In the Ukrainian configuration, such an institution is the Settlement Center – and therefore the issue of launching the instrument rests on its readiness and the position of the National Bank. Without this, everything else – contract specification, trading platform, interest of participants – remains preparatory work.
– What should be the next step after Energy Club’s appeal to the NBU? What, in your opinion, should the NBU, the Settlement Center, the Ukrainian Energy Exchange and market participants do to make hedging instruments really work in Ukraine?
– The optimal format is a working group with the participation of all parties with a roadmap and deadlines.
The National Bank – to determine the position on the participation of the Settlement Center in servicing derivative contracts for electricity and to remove open issues regarding the regime of storage and investment of collateral. As far as we understand, this does not require changes to the laws – it is more about decisions and regulatory certainty.
The Settlement Center – to assess technological and operational readiness, prepare clearing rules, margining methodology and procedures in case of participant default, synchronize these processes with the exchange platform.
Ukrainian Energy Exchange – finalize the contract specification and risk management parameters, provide a liquidity support mechanism at the start and conduct training for participants. The latter is underestimated, but without it the market will not launch: most companies have never worked with exchange derivatives.
Market regulators – the National Securities and Markets Commission and the National Energy Regulatory Commission – ensure consistency of approaches: how the instrument qualifies, how it is reflected in accounting and reporting, how it correlates with the licensing conditions of suppliers and traders. The participant must understand the tax and regulatory consequences of hedging in advance, otherwise he will not succeed in it.
And finally, the market participants themselves are already part of our work. It is necessary to adopt internal hedging policies, determine limits, establish accounting for derivatives, and train people. The tool itself does not work if the company does not decide who, when and to what extent it will be used. Energy Club is ready to be a platform for this training and for dialogue with regulators.
The launch of hedging instrumentsisan important step towards the formation of a full-fledged term segment of the Ukrainian electricity market. It will enable businesses to manage price risks, banksto more accurately assess energy projects, and investorsto receive transparent market guidelines.
At the same time, this requires coordinated actions by the NBU, the Settlement Center, the exchange, regulators, and the market participants themselves. Therefore, Energy Club’s appeal to the NBUisa proposal to move from long-standing discussions to practical solutions.
It is important for the Ukrainian energy market to learn not only to withstand price volatility, but also to professionally manage it. And this may become one of the keys to attracting investment and further developing the energy sector.
