Elementum Energy, a member of UWEA, has concluded Ukraine’s first pilot price stabilisation agreement between the 100 MW Dnistrovska wind farm, which it manages, and an industrial enterprise. The contract, designed for one year, is based on the CfD mechanism (Contract for Difference), which allows businesses to forecast electricity costs and protects them from price fluctuations. Read about the terms of the test agreement at the link:
Under the terms of the agreement, the parties agree on a “price corridor” — a range within which market fluctuations do not trigger additional settlements between the producer and the consumer. If the price on the market exceeds the upper limit or falls below the lower one, the difference is compensated by the relevant party. In the event of the upper limit being exceeded, the producer compensates the consumer for the difference, and if the price falls below the corridor, the consumer compensates the producer. Settlements are based on the indicative price benchmark defined in the agreement (for example, the base index of the day-ahead market) and an agreed volume of electricity. At the same time, no physical delivery of electricity takes place, and all transactions are carried out on the open market.
This approach makes it possible to minimise volatility risks for both parties and creates the possibility of effective cost planning on the energy market.
This pilot project will make it possible to test the viability of the CfD mechanism under the conditions of the current regulation of Ukraine’s energy market. Olha Rybachuk, Managing Director of Elementum Energy, notes: “We are introducing in practice an innovative instrument on the complex energy market of Ukraine, where instability has become the norm. Our pilot project will help to assess how the CfD mechanism works in real conditions and will prepare the basis for its application in new large-scale projects that we are already developing”.
An important aspect of the agreement is its term of validity. Under wartime conditions, businesses are not ready to conclude long-term contracts for 10–20 years because of market uncertainty. At the same time, price stabilisation instruments for 1–3 years arouse considerable interest, as they provide the opportunity to forecast costs and reduce risks.
This is not the first time that Elementum Energy has tested such instruments on the market. The pilot agreement will be another step in the development of this mechanism, which may further become an important tool for the stable reconstruction of Ukraine’s energy infrastructure.
UWEA sincerely welcomes the initiative of Elementum Energy and its significant contribution to the introduction of innovative support mechanisms on the Ukrainian energy market. The first pilot CfD agreement is a landmark step towards stability and predictability under the conditions of an unstable market. Thus, Elementum Energy confirms that Ukraine’s energy sector is ready for new solutions that are being successfully applied around the world. We are confident that this pilot will become the basis for a larger-scale implementation of the CfD mechanism, which will be important for the effective reconstruction of Ukraine’s energy infrastructure and will contribute to integration into the European energy markets.
