The electricity market that replaced the single buyer

Until 2019 Ukrainian electricity worked through a single buyer. Every generator sold to one state entity at an administered price; every supplier bought from it at another. There was no price formed by supply meeting demand anywhere in the system.

That model has one virtue — it is simple to administer — and several defects. It gives no signal about when electricity is scarce, no incentive to be available at the moments the system needs capacity, and no mechanism for a large consumer to contract directly with a generator.

What replaced it

The reform introduced the standard European architecture: bilateral contracts between producers and consumers, a day-ahead market where most volume clears, an intraday market for adjustment closer to delivery, and a balancing market where the system operator resolves the difference between what was scheduled and what actually happened.

Each segment answers a different question. Day-ahead: what will be produced tomorrow and at what price. Intraday: what changed. Balancing: who pays for the error.

Where it did not go smoothly

Two problems, and both were predictable. First, price caps that were retained for social reasons distorted the signals the market was created to produce — if the price cannot rise when supply is short, it cannot tell anyone that supply is short. Second, cross-subsidy: households paid below cost, industry paid above, and unwinding that is politically difficult everywhere it has been attempted.

Add to that a debt problem in the sector that predated the reform and was not solved by it.

Why it still counts as an achievement

Because the architecture is now the European one. When the grid synchronised with continental Europe in 2022 and began trading across the interconnection, the market design was already compatible. A country that had kept the single buyer could not have done that. The reform was messy and incomplete and it made the later integration possible.

Under a single buyer a price is not a negotiation but a notification, and I watched that arrive on the bills of my more energy-intensive customers. Building a market did not make everything cheaper, but it made it possible for the first time to ask where a price came from. In industry predictability is usually worth more than cheapness, because it is the only one of the two you can budget.