The Ukrainian Energy Exchange has proposed introducing DAM index futures — a financial instrument that would allow solar power producers, suppliers, and large industrial consumers to hedge against sharp electricity price swings.
This is a standardized exchange-traded contract with no physical electricity delivery: the parties lock in a price for a future period in advance, and upon expiry they settle the difference against the actual DAM index.
Key points:
- Day-ahead market prices have been formed daily since 2019.
- Solar generation is one of the factors that influence the daily DAM price.
- Renewable generation is named as one of the primary beneficiaries of futures introduction.
- Similar cash-settled contracts already trade on the European Energy Exchange (EEX).
Why solar plants feel price volatility first
The author explains: the daily DAM price reacts to temperature, solar generation volumes, and electricity imports and exports. When the share of solar generation rises, the DAM price responds to the shifting supply-demand balance. Adding to the unpredictability — what Dubovsky identifies as the main driver of uncertainty — are Russian strikes on energy infrastructure: a single attack can disrupt system balance for weeks at a time.
For solar plants, this means that revenue for the coming month or quarter is hard to forecast. A producer may be formally protected by a bilateral contract with a supplier, but only for as long as that supplier remains solvent.
How a DAM index futures contract would work
Under the Ukrainian Energy Exchange’s proposal, the underlying benchmark would be the average DAM index for the delivery month. A solar power producer concerned about falling prices would sell a futures contract for the relevant month (short position). If the index does fall, the loss on the physical market is offset by the gain on the futures leg. If prices rise instead, the loss on the futures position is covered by the higher revenue from electricity sales.
An industrial consumer, by contrast, buys a futures contract (long position) to hedge against rising costs. The goal of hedging is not to profit from price movements but to reduce uncertainty in annual or quarterly planning. In the EU, as the author notes, such cash-settled contracts on member-state DAM indices already trade on the EEX — but they reflect prices in neighboring markets, not Ukraine’s, and remain accessible to only a handful of players. We have previously covered how EU price mechanisms work in our article on dynamic tariff experience for Ukraine.
What it takes to launch in Ukraine
The author outlines several prerequisites. First and foremost, a joint decision by the NSSMC and NEURC is required, since the instrument is simultaneously financial and energy-related. A licensed clearing house serving as central counterparty is needed, along with a margin system and market makers — banks, brokers, and energy companies that would continuously quote contracts. The role of state-owned generation is highlighted separately: it must have a clear ownership mandate to hedge.
Potential beneficiaries extend beyond generators. Suppliers could stop embedding a risk premium into their prices for risks they currently have no means to cover. Non-household consumers would gain a predictable electricity cost line in their budgets. Banks financing investments in solar projects in Ukraine would benefit from reduced credit risk among energy-intensive borrowers.
The author stops short of naming specific legislative steps — the initiative remains at the level of an expert proposal for now.
For Ukraine’s solar energy sector, the emergence of a fully fledged exchange hedging mechanism could supply the missing piece needed for more stable financial planning and more productive dialogue with lenders. Until such an instrument exists, producers must rely on bilateral contracts and portfolio diversification — which, as the article makes clear, only partially covers price risk. It is worth watching the positions of the NSSMC and NEURC: without their joint decision, a derivatives market for electricity in Ukraine will not get off the ground.
Sources: epravda.com.ua
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