Long-term power contracts for industry. What needs to be done to make them a reality?

Traders, not industry, mostly won the first auctions for selling electricity under long bilateral contracts. For plants and steel mills to gain access to direct contracts, lot sizes must be increased, the amount of the guarantee deposit fixed, traders removed, and supply increased.

Results of the first auctions In July, the first auctions were held to sell electricity by the state generating companies Energoatom and Ukrhydroenergo under long-term contracts, but their winners were mainly traders rather than end consumers — industry. For energy-intensive industrial sectors, such as metallurgy, to gain access to direct contracts with electricity producers (companies that own power plants), a number of changes to the auction rules are necessary. Further changes needed In particular, traders should be excluded from the circle of buyers, since these market participants focus on the future dynamics of the very volatile day-ahead market. Lot sizes also need to be increased, for example, to 20 megawatts. "This volume will better match the consumption profile of large industrial enterprises and will allow them to use the long-term contract mechanism more effectively," ArcelorMittal Kryvyi Rih told RBC-Ukraine. The first auctions showed the need to reconsider the approach to setting the starting price (it is too high). It would be appropriate to use the indicator of the weighted-average price on the day-ahead market for the corresponding prior period, but with a discount of 30%. During the auction it is extremely important to increase the supply of electricity from generating companies — to double the current level (to 4% of generation volume); it is also necessary to remove the requirement for participation of at least 5 bidders. A separate issue for buyers is the size of the guarantee deposit, which the electricity seller determines at their discretion (within specified limits). To ensure predictability of the financial model for participating in the auction, the guarantee deposit rate should be made fixed. Who the changes should be aimed at These changes will create the opportunity to conclude direct, long-term contracts between generators and industry. "Access to long-term contracts for industrial consumers should be one of the key criteria when forming auction rules," reads a quote from Anatoliy Kinakh, president of the Ukrainian League of Industrialists and Entrepreneurs, cited in the publication.

Recall that in mid-June the Cabinet allowed auctions to be held under which contracts are to be concluded for a quarter, half a year, and a year. The obligation to sell electricity for the corresponding periods was placed on the state companies Energoatom (operator of nuclear power plants) and Ukrhydroenergo (large hydro and pumped-storage plants). Together these two companies must offer for sale in the auctions up to 4% of the forecast generation volume. In February, ArcelorMittal Kryvyi Rih was forced to suspend operations of one subdivision — the Foundry and Mechanical Plant — due to its unprofitability in light of rising electricity prices. 16 in August, due to a missile strike, the entire ArcelorMittal Kryvyi Rih enterprise was forced to suspend operations. As a result of the enemy strike, two people were killed and 13 employees were injured.