Ukrainian Energy Exchange: market according to European rules

Fair pricing for energy resources is one of the most painful issues in the Ukrainian energy sector today. The state, politicians, and large energy companies manipulate it. The gas and electricity markets' opening did not solve the problem – both models were launched with numerous restrictions but allowed all market participants to feel like independent players. The next step is to develop a real competitive environment with the help of exchange technologies. The price is formed by the ratio of supply and demand and not by the participants' relationship. Modern technologies make it possible to do this anywhere in the country – the Ukrainian Energy Exchange (UEEX) operates in electronic trading mode. Kosatka.Media found out who can participate in and how difficult it is.

In one of the Kyiv offices of the UEEX

The UEEX is equidistant from all market participants

“The main product that the exchange creates is the quotes of goods based on trading results. For example, the volume of electricity of 1000 MW was sold at a price prevailing during the trading session. Who sold it, who bought it, is absolutely unimportant. Bidding takes place anonymously. Participants cannot collude. They are bargaining for a specific product. Thus, fair market prices are formed,” explains Head of the Ukrainian Energy Exchange exchange committee, Oleksii Dubovskyi.

Алексей Дубовский, УЭБ

Oleksii Dubovskyi, Head of the Exchange Committee

“Today, we have more than 1200 companies, and liquidity is growing. In September, we launched a short-term gas market for daily balancing and are working on the development of a derivatives market that is new for Ukraine.”

Any legal entity that has received accreditation can sell or buy electricity and other energy resources on the exchange.

You can take the first steps in exchange trading in electricity, gas, oil products after obtaining the status of a non-permanent member of the Exchange. To do this, you need to know what operation you want to perform. “We accompany clients from the moment they contact us until they receive their login and password,” says Olha Artiushenko, Head of the UEEX accreditation department.  “Often they call with a request, “we need to buy gasoline of a certain brand. We explain what direction, and what type of registration a company needs, what documents must be provided, how to fill out the form.”

В приемной УЭБ

At the UEEX reception office

The time for paperwork depends on the direction: according to the electricity standards – up to 3 days, for gas and oil products – up to 10 days. “Some auctions cause increased interest in the market, and then people come to us with a request to accredit “as soon as possible.” To do this, the site has an electronic registration form, and if the compliance service gives the go-ahead, the company can get access to trading on the day of contact,” says Olha Artiushenko.

All participants in exchange trades are tested

The verification of future counterparties' integrity begins at the stage of applying for accreditation and takes place in two stages. First of all, the company's legal component is studied: the company's charter, information about the owners, registration documents. The second stage involves a deeper study of the financial history – how sensitive the company will be to new transactions, whether there is a trail of litigation and criminal cases following it. The mandatory part checks the relationship with public figures (politicians, government officials) and mentions in the sanctions lists of the NSDC of Ukraine, the US Treasury, Canada, the European Union, Great Britain, Australia, etc.

“Data for the study is taken only from open sources and registers,” explains the compliance officer of the UEEX Anatolii Shymanskyi. The completed dossier is entered into a closed electronic system, to which only employees who directly work with clients have access.

According to Anatolii, there were no clients in the history of the exchange who would have had to be refused accreditation based on the audit results. Accreditation is often suspended due to legal inaccuracies in the company's documents and resumes after their elimination.

Oleksandr Kovalenko, CEO of the UEEX, is constantly in touch

A training system is in place for newcomers

After receiving accreditation, the counterparty can immediately participate in the auction or use the training access if it has the experience. The basics of stock trading can be learned from video instructions and during webinars.

“Participants have to make serious decisions during the auction, and if a person is poorly oriented in functionality, this is additional stress. We have the opportunity to create a separate training session and go through all the stages with it. This makes it possible to train, including psychologically. It happens that questions arise even during real trading, and then we can advise by phone. Of course, the client makes decisions independently, but we will help with technical issues,” says Head of the trading department Volodymyr Bryukhovetskyi.

Volodymyr Bryukhovetskyi at work

Contractors get access to professional analytics and...

It is impossible to quickly make an informed decision, which can cost the company millions, without an objective assessment of the overall market situation. Along with accreditation, trading participants also receive access to materials prepared by the Exchange analysts and materials from other specialized sources. “The energy market in Ukraine has been launched recently, so it is essential to follow global trends. In particular, the Ukrainian gas market is import-dependent, and any change in prices on European exchanges will certainly affect prices within Ukraine. In addition to purely economic factors, it is important to consider the political situation in Ukraine and Europe. Therefore, in our work, among other things, we use data from well-known news agencies such as ICIS, Reuters, Argus, we comprehensively monitor Ukrainian media,” says Oksana Zaporizka, the UEEX gas analyst. “NEURC uses our quotes, the Ministry of Energy and AMCU.

The transition to a new model of the electricity market is the first rather significant step towards compliance with European rules and standards,” notes Inna Kripak, the UEEX's electricity market analyst. “Since Ukraine is a member of the Energy Community and has taken the first steps towards unification with the EU, the export of electricity is a logical continuation of this path. But apart from political decisions, it is necessary to solve purely technical issues of the IPS accession to Europe. It is technically possible only to export the energy of NNEGC Energoatom to Belarus, Moldova with subsequent re-export. These auctions are held at the UEEX, so we are carefully analyzing both the financial and technical components of both Western European markets and countries neighbouring Ukraine.

...New tools of exchange trading

“With the development of commodity exchange trading in Ukraine, we plan to launch trading in derivative contracts, primarily with physical delivery and a fixed price. In this context, the focus is on the electricity and natural gas markets. To date, the derivatives market is absent both in Ukraine in general and on our exchange in particular, for several reasons. Still, we see a request from market participants for long contracts with a system of guarantees for their performance. Such tools make it possible to more effectively manage price risks, plan sales, and traders to manage client portfolios,” says Olena Velyka, Head of the Derivatives Market Development Department.


A short break for a photo

Besides, to offer traders such tools, we must build a high-quality clearing system. Now we are at the stage of analyzing all possible ways to achieve this goal. In the medium term, the UEEX product line will be replenished with the futures segment. These will be understandable and well-known tools to those already working on European platforms – weekly, monthly, quarterly, semi-annual, and annual contracts.

Tags: gas, electricity, energy market, UEEX

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