INTEGRATING UKRAINE’S ELECTRICITY MARKET WITH THE EU: AN ANALYSIS OF THE NEW DRAFT LAW NO. 12087

In October 2024, a group of Members of Parliament registered Bill No. 12087 in the Verkhovna Rada of Ukraine, titled "On Amendments to the Laws of Ukraine Regarding the Integration of the Electricity Markets of Ukraine and the European Union." The purpose of this bill is to establish a legal framework for the full integration of the Ukrainian energy market with the European one by implementing the so-called "integration package" of EU energy legislation. Its prompt adoption is viewed as a crucial step toward fulfilling Ukraine's obligations under the EU-Ukraine Association Agreement and the Energy Community Treaty.

Below, we focus on the key aspects of this bill—examining the specific changes it proposes, how they will affect the structure of the electricity market, the activities of market participants, and integration with the EU energy space.

Binding nature of ACER decisions: The bill establishes that decisions made by the European Union Agency for the Cooperation of Energy Regulators (ACER) will be binding for the Ukrainian regulator (NEURC) and all electricity market participants. This means European regulatory decisions will be directly incorporated into the national market, strengthening integration into the EU legal framework.

Introduction of Market Coupling: The bill defines the concept of "market coupling"—the integration of domestic day-ahead (DAM) and intraday (IDM) markets with the corresponding segments of the European market. 

Market coupling is a mechanism for jointly conducting day-ahead (DAM) and intraday (IDM) auctions in Ukraine and the corresponding segments of the European market. The essence of this model is that electricity buy and sell orders from both sides are entered into a single system that determines a common price. As a result, in the absence of cross-border capacity constraints, the price for both markets equalizes.

International auctions: Within the framework of market coupling, Ukraine will be able to participate in implicit cross-border auctions alongside EU countries. The system automatically matches supply and demand while accounting for transmission line capacity. If capacity is sufficient, a single electricity price is formed across the integrated market. This enhances competition among generating companies and can reduce price volatility.

Nominated Electricity Market Operator (NEMO): A key new player required for integration with European markets. Under European rules (CACM Regulation), a NEMO is a company designated by the national regulator to organize joint trading on day-ahead and intraday markets and to cooperate with other NEMOs to perform algorithmic order matching. In practice, this means the nominated operator has the right and obligation to collect participant orders, run the market coupling operator (MCO) algorithm, and publish the results. 

Alongside the NEMO, the bill defines several other new roles. Specifically, the Central Counterparty (CCP) is the organizer of trade settlement and clearing. Essentially, the CCP will guarantee the fulfillment of obligations by assuming the credit risk of buyers and sellers. This is common practice in Europe: for instance, NEMOs themselves act as central counterparties for single auction clearing under the regulation. In the bill, the CCP function is formalized separately—it "must guarantee the fulfillment of agreements and settlements in cross-border trade" (to protect participants from default risks).

Another new role is the trade agent. Although it does not have a direct equivalent in the current system, the law introduces it to coordinate actual trading between the Ukrainian and European markets. As envisioned by the authors, the trade agent will ensure process coherence: for example, preparing cross-border flows, coordinating schedules, or exchanging information on liquidity between trading platforms. The bill states that the nominated operator, the central counterparty, and the trade agent will collectively ensure the stable operation of the spot market.

Cross-border balancing and reserves: The draft law provides for the possibility of cross-border electricity balancing and the shared use of capacity reserves with neighboring countries. It establishes the legal basis for the exchange of balancing energy and reserves between Ukraine's transmission system operator and those of neighboring states to regulate frequency and improve power system reliability. This will contribute to greater resilience of the integrated power grid and security of supply.

Recognition of energy poverty and consumer protection: The concept of "energy poverty" is introduced, and protections for vulnerable consumer categories are provided. The state may support such consumers through social assistance or price regulation (state intervention in pricing). 

Limited state intervention in prices: State price regulation is permitted only within the scope of general public interest to protect vulnerable consumers and under strict conditions of proportionality. Any price intervention must be transparent, non-discriminatory, temporary, and meet the following criteria:

• General interest and proportionality: Price regulation is permitted solely to serve a general economic interest—primarily the protection of vulnerable consumers—and must not exceed what is necessary to achieve this goal. In other words, the intervention must be proportional: covering only the scope and period required to assist vulnerable categories.
• Transparency and non-discrimination: The mechanism for setting regulated prices must be transparent to the market and applied on a non-discriminatory basis. Providing selective advantages to specific suppliers or consumers is prohibited; furthermore, the intervention must not impose additional costs on market participants in a way that discriminates against certain categories. Thus, cross-subsidization between consumer groups is not permitted—one group of consumers cannot be forced to unfairly pay for the benefits of another.
• Temporary nature of the measure: State price regulation is strictly temporary. The bill contains a direct requirement to limit the duration of such intervention—it cannot be applied indefinitely, but only until the situation stabilizes or other measures to protect vulnerable consumers are implemented. This aligns with the logic that regulated prices are an emergency or transitional tool, after which the market should return to free pricing.
• Mandatory notification of the Energy Community: If the government implements price intervention, it is obligated to notify the Energy Community Secretariat (the body that monitors compliance with European rules in member countries). The Cabinet of Ministers must provide a justification for this step: explaining why other means (social payments, energy efficiency, etc.) proved insufficient to protect the population, assessing the impact of the regulated price on market competition, and confirming compliance with established requirements for price regulation. This ensures transparent oversight by the European community and control to prevent state intervention from distorting the market beyond what is necessary.
• Clearly defined special obligations. The bill separately regulates the imposition of special obligations on market participants (for example, the obligation to supply electricity to a certain category of consumers at a preferential price). Such obligations must be clearly defined and must be implemented transparently and without discrimination, be subject to audit, and remain strictly temporary. Furthermore, they must guarantee equal access to consumers for energy companies from other Energy Community countries. This provision is essential for fulfilling Ukraine’s international obligations: even when implementing domestic price caps, Ukraine must ensure that foreign suppliers (from EU and Energy Community countries) have the same access to consumers as domestic companies—meaning no discrimination based on the origin of capital.

Analysis of Problematic Aspects

Ukrainian energy legislation currently contains a number of legal, regulatory, and political gaps that are hindering the adoption of Draft Law No. 12087. The main issues are listed below.

Incomplete implementation of EU law into national legislation. Current Ukrainian laws do not fully comply with the requirements of the EU energy acquis, meaning not all provisions of European energy legislation have been transposed into national acts. This leads to regulatory discrepancies that complicate market integration: Ukraine’s electricity market rules differ from those of the EU, creating legal barriers to interaction. 

1. Lack of a legal mechanism for market coupling—the integration of wholesale electricity markets with the EU. The current Law on the Electricity Market does not provide for procedures for unified mutual access to trading with European exchanges. Currently, electricity exports and imports are carried out through separate capacity auctions and trades on the Ukrainian market, which remains isolated from the pan-European one. This prevents the automatic matching of price bids from the Ukrainian day-ahead market with EU exchanges, effectively precluding the implementation of a single trading algorithm. The result is limited competition and inefficient use of cross-border interconnections.
2. Monopolistic exchange model. The current market architecture provides for a single state-owned electricity market operator, which effectively holds a monopoly on exchange trading segments such as the day-ahead market (DAM) and the intraday market (IDM). European legislation (Regulation (EU) 2015/1222, etc.) introduced the concept of Nominated Electricity Market Operators (NEMOs)—exchanges that can compete or coexist, ensuring joint cross-border trading. Ukrainian legislation still does not define the status of NEMOs or the criteria for their designation. 
3. Absence of legally defined mechanisms for cooperation with European energy institutions (ACER, ENTSO-E, EU regulators). Currently, Ukrainian laws provide almost no regulation for the interaction between national authorities and their EU counterparts. For example, the powers of the regulator (NEURC) regarding participation in decisions of the Agency for the Cooperation of Energy Regulators (ACER) or the mechanisms for the transmission system operator (Ukrenergo) to participate in the European Network of Transmission System Operators (ENTSO-E) are not clearly defined. This leads to institutional fragmentation: even with a synchronized power system, without legislative changes, Ukraine cannot fully participate in decision-making processes and data exchange at the EU level.

In our view, integrating Ukraine into the European energy market opens up new prospects for both energy companies and investors. Domestic producers will be able to enter the pan-European market and sell electricity, allowing them to generate export revenue. In turn, Ukraine will gain the ability to import electricity at favorable prices during peak loads or crisis situations. The introduction of European rules and standards stimulates competition and creates a more favorable environment for investment, especially in the renewable energy sector. Such a step makes the market more transparent and fair. 

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