Electricity Market: Changes to the Imbalance Settlement Mechanism

The Ukrainian electricity market in 2025 is in a state of dynamic change. From the launch of the new market in 2019 to the current challenges brought about by the war, integration with the EU energy system, and reforms to the balancing segment, the rules for settling imbalances have undergone significant transformation.

Fedotov & Partners, helping businesses resolve legal issues in the energy sector,analyzes key updates to the imbalance settlement mechanism, their impact on market participants, and forecasts future industry trends.

State of the electricity market and imbalance settlement in 2021

At the beginning of 2021, the balancing market in Ukraine operated under a model that combined competitive mechanisms with transitional support tools for renewable energy. The transmission system operator (NPC Ukrenergo) played a key role in settling imbalances, purchasing surplus electricity during positive imbalances at reduced prices and selling electricity during negative imbalances at premium prices.

Renewable energy producers and their responsibility for imbalances in the electricity market

Until 2021, producers operating under the feed-in tariff were effectively exempt from financial responsibility for imbalances, which encouraged the development of renewables but placed an additional burden on the Guaranteed Buyer. From January 1, 2021, a phased compensation for imbalance costs was introduced: for plants over 1 MW — 50% in 2021 and 100% from 2022; for plants under 1 MW — 10% with an annual increase of 10% until 2030. Permissible deviations of 10% for wind and 5% for solar power plants were also established until the end of 2029.

 References:

Law of Ukraine No. 810-IX dated July 21, 2020. "On Amendments to Certain Laws of Ukraine Regarding the Improvement of Support Conditions for Electricity Production from Alternative Sources"

Law of Ukraine "On Alternative Energy Sources" (as amended, in particular, by Law No. 810-IX)

The role of the Guaranteed Buyer in settling imbalances in the electricity market

The Guaranteed Buyer acted as the balance-responsible party for the entire renewable energy balancing group. It entered into agreements with the transmission system operator, calculated the share of imbalance settlement costs for each participant, handled financial settlements, and monitored payment timeliness.

Production forecasting and participation in the balancing group

In 2021, rules for forecasting electricity output were updated. Producers were required to submit forecast schedules by 9:00 AM on the day preceding the trading day and had the option to update them up to 55 minutes before the intraday market gate closure. This significantly improved forecast accuracy, especially for solar and wind generation.

References: 

NEURC Resolution No. 1168 dated June 24, 2019. On Approval of the Market Rules

Imbalance payments and the procedure for returning to a balancing group

Renewable energy producers were required to pay their share of imbalance settlement costs within three business days of receiving the invoice. Failure to pay on time resulted in the loss of membership in the Guaranteed Buyer's balancing group, with reinstatement possible only after full settlement of the debt and receipt of formal approval.

Post-2021: Initial changes to electricity market imbalance settlement through 2024

Following the introduction of new imbalance responsibility rules for renewable energy producers in 2021, the balancing market mechanism continued to adapt to changing realities, particularly wartime conditions and the increasing instability of the power system.

Key changes during this period included:

-Reduced time for forecast acceptance:‍

- the ability to update projected electricity generation and consumption schedules up to 55 minutes before the intraday market (IDM) gate closure;

-improved forecast accuracy for solar and wind power plants;

-reduced imbalance volumes due to more up-to-date data.

-Inclusion of TSO instructions in imbalance settlement:

- when calculating the share of imbalance costs, volumes of electricity not supplied due to transmission system operator (TSO) curtailment instructions began to be taken into account;

Official source:

- NEURC Resolution No. 1168 dated 24.06.2019 On Approval of the Market Rules
 zakon.rada.gov.ua/laws/show/v1168874-19#Text

These Rules (in the section governing imbalance calculations) specifically provide that:

when determining imbalance volumes, the volumes of electricity not supplied due to transmission system operator curtailment instructions are also taken into account.

This provision was introduced following amendments to the Market Rules by NEURC resolutions in 2020–2021 (specifically, NEURC Resolution No. 1329 of 11.07.2020 and subsequent revisions).

- eliminating situations where renewable energy producers were held financially liable for production curtailments caused by system balancing. 

"Exemption of renewable energy producers from financial liability for electricity volumes not supplied due to transmission system operator commands".

- Tariff increases for consumers:

- household tariffs were increased to cover the funding deficit in the sector;

- additional revenue was directed toward the repair and restoration of energy infrastructure damaged by military actions;

- a portion of the costs was covered by the state budget to maintain control over the social aspect of tariff setting.

Key changes in 2025 regarding imbalance settlement and electricity market operations

2025 has been a period of profound transformation for the Ukrainian electricity market in terms of financial stability, the regulatory environment, and integration with the European energy system. Against the backdrop of war and massive challenges to energy infrastructure, market participants are operating under new conditions: rising price caps, stricter requirements for payment transparency, and increased volumes of international electricity trade. At the same time, the government and regulators are implementing measures aimed at reducing debt, increasing the flexibility of the balancing market, and stimulating decentralized generation.

In 2025, the Ukrainian electricity market underwent significant changes, which can be divided into several key categories.

Financial and market changes. One of the main challenges remains the critical debt in the balancing market, which has exceeded 35 billion UAH. Of this amount, over 16 billion UAH is owed by the company to the market. At the same time, there has been a gradual improvement in payments to producers operating under the "green" tariff: the debt volume has decreased to 23.3 billion UAH. Price caps have also been revised: on the day-ahead market (DAM) and intraday market (IDM), they increased from 9,000 to 15,000 UAH/MWh during daytime hours, while on the balancing market, they rose to 16,000 UAH/MWh during evening peak hours.

Regulatory changes. During the period of martial law, a resolution was adopted introducing mandatory reporting on the debt of electricity transmission and distribution suppliers. Additionally, amendments were made to the Transmission System Code, which will come into effect after July 29, 2025.

Infrastructure and external factors. There is active growth in electricity exports to the EU, which reached 237 MWh in June 2025. Meanwhile, the European side has increased electricity import and export limits by 38.5%. It is worth noting that since 2022, Ukraine has been operating in full synchronization with the EU energy system, and the integration process continues. An additional trend is the development of decentralized generation, microgrids, and rooftop solar stations (Rooftop PV).

Comparison of imbalance settlement and electricity market operating conditions in 2021 and 2025

Over four years, Ukraine's electricity market has evolved from initial changes in balancing rules to a large-scale transformation under wartime conditions, integration with the European energy system, and adaptation to new financial and market realities. While the main innovations in 2021 were the introduction of financial liability for renewable energy producers for imbalances and the reduction of time for updating forecasts, the focus in 2025 has shifted to financial stabilization, rising price caps, stricter regulatory requirements, and the development of international electricity trade.

Comparison of key electricity market parameters between 2021 and 2025

In 2021, renewable energy producers first began to bear financial responsibility for imbalances: for stations with a capacity of over 1 MW, it was 50% (with a transition to 100% starting in 2022), and for smaller facilities, it was 10% with a gradual annual increase. At the same time, permissible deviations of 10% for wind and 5% for solar power plants were established until the end of 2029. In 2025, this model remains in place: producers with a capacity of over 1 MW are fully responsible for their imbalances, while a phased scheme continues to apply to smaller stations. At the same time, forecasting accuracy has increased, as transmission system operator commands for generation curtailment are now taken into account.

Back in 2021, a rule was introduced allowing producers to update forecasts up to 55 minutes before the closing of the intraday market "gate." This approach has been maintained in 2025; however, thanks to the use of modern forecasting systems, the accuracy of submitted schedules has significantly improved, especially for solar and wind generation.

The financial state of the balancing market remained relatively stable in 2021, although the Guaranteed Buyer had already begun to accumulate debt. By 2025, the situation had deteriorated significantly: total debt exceeded 35 billion UAH, with over 16 billion UAH owed by the company to the market. At the same time, the debt owed to producers under the feed-in tariff was reduced to 23.3 billion UAH.

Regarding European integration, 2021 was a period of preparation for synchronizing the Ukrainian power grid with the European system. This synchronization was implemented in 2022, and by 2025, the EU had increased electricity import and export limits by 38.5%, allowing Ukraine to more actively develop international trade.

Prospects for the development of the imbalance settlement mechanism in the electricity market

In 2025, the Ukrainian electricity market is demonstrating a profound evolution in the rules and practices of imbalance settlement. From the initial steps of introducing responsibility for renewable energy producers in 2021 to large-scale financial measures.

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At the same time, significant challenges remain: critical debt in the balancing market, the need for over 40 billion dollars in investment, and the requirement to improve forecasting and expand decentralized generation capabilities.

For businesses, this means that successful operation in the electricity market requires not only technical and financial readiness but also a deep understanding of legal nuances, the ability to respond quickly to regulatory changes, and effective interaction with all market segments.

Fedotov & Partners has many years of experience in providing legal support for energy projects and will help you:

- conduct a legal audit of the terms for participating in balancing groups and provide recommendations;

- manage the conclusion of agreements with the TSO and other market participants;

- protect your interests in relations with regulatory authorities.

Contact Fedotov & Partners today to ensure the stability and competitiveness of your business in the modern electricity market.

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