Market Coupling in Ukraine: A Legal Analysis of the Draft Law on Single Electricity Market Coupling and Its Implications for Market Participants.

The market coupling draft law, signed by the President of Ukraine on April 20, 2026, signals a fundamental restructuring of the Ukrainian energy sector aimed at full integration with the European Union market. The project is designed to implement the EU’s "Clean Energy for All Europeans Package" (2019), which transforms the operational logic of all market segments, from wholesale to retail.

From a legal perspective, the reform represents a transition from an isolated national market to an integrated cross-border trading platform, where legal consequences for participants are determined not only by domestic legislation but also by regulations and decisions of EU bodies, primarily ACER and ENTSO-E. This creates a fundamentally new regulatory space where the hierarchy of norms, appeal mechanisms, and the distribution of liability differ significantly from the current ones. However, implementing these changes also requires amending a wide range of Ukrainian regulatory acts governing tax, financial, accounting, and foreign exchange regulations for cross-border transactions.

 For more details, see the overview of new regulatory changes in the wholesale electricity market by Maksym Fedotov, Managing Partner at FEDOTOV & PARTNERS, and Inna Yakubovska, Head of Energy Business Support.

 Technical and legal architecture of market coupling

Concept and mechanism of market coupling Market coupling is implemented as a process of simultaneously matching electricity buy and sell orders and allocating cross-zonal capacity between Ukraine and EU/Energy Community states. Legally, this means that cross-border trading ceases to be a separate customs and legal transaction and acquires the status of a market operation regulated by exchange and energy legislation.

Two segments of market coupling The project identifies two key mechanisms: Single Day-Ahead Coupling (SDAC) and Single Intraday Coupling (SIDC). Trading in each segment can take place in two sessions: an internal one (conducted by JSC "Market Operator") and a general one for market coupling, conducted by a nominated operator responsible for organizing trading for a specific country within SIDC and SDAC, including interaction with the Joint Allocation Office. Thus, when the market coupling mechanism is implemented, JSC "Market Operator" will continue to function as Ukraine's market operator while simultaneously being able to perform (if appointed by the NEURC after April 1, 2027) the duties of a Nominated Electricity Market Operator (NEMO) for Ukraine within the European SDAC/SIDC model, maintaining responsibility for the internal market platform and the integration of Ukrainian participants into joint auctions with EU countries.

SDAC is an auction process where buy and sell orders are matched simultaneously with the allocation of cross-zonal capacity for different bidding zones. SDAC uses the EUPHEMIA algorithm (or a compatible one)—a price-coupling algorithm used in the Single Day-Ahead Coupling (SDAC) model across continental Europe.

SIDC is a process of continuous order matching and cross-border capacity allocation that activates after SDAC closes and continues throughout the day of physical energy delivery. The equivalent for such trading is the XBID platform or a compatible mechanism.

Implicit auction mechanism A key innovation is the introduction of implicit auctions. Unlike explicit auctions, where participants buy the right to cross-border capacity separately and then trade energy, an implicit auction automates this process: the transmission right and the energy itself are allocated simultaneously. This eliminates the inefficiency of reserving unused capacity and allows the algorithm to automatically direct energy to where demand is highest.

From a legal standpoint, this means that market participants are no longer parties to a separate transaction for purchasing capacity; instead, their obligations are formed solely by the results of a single auction process, where guaranteed capacity becomes an integral part of the exchange contract for the sale and purchase of electricity.

Algorithms and the role of NEMO. A Nominated Electricity Market Operator (NEMO) is appointed to facilitate market coupling. Its legal status is unconventional under Ukrainian law: while not a government authority, the NEMO performs quasi-regulatory functions by developing algorithms that determine prices and volumes for all market participants.

Price Coupling Algorithm: used for SDAC to determine a single clearing price for each bidding zone and the net position (the netted volume of energy exports and imports).

Continuous Trading Matching Algorithm: applied for SIDC to handle continuous order processing and cross-zonal capacity allocation.

Harmonization requirements: both algorithms must comply with pan-European rules approved by ACER or EU regulatory bodies. NEMOs are required to coordinate technical specifications with other European NEMOs.

Legal nature of cross-border operations.

A fundamental issue for legal enforcement is the classification of cross-border electricity flows under market coupling: whether they constitute imports/exports within the meaning of customs and foreign exchange legislation, as well as in the context of VAT taxation.

Under market coupling, Day-Ahead Market (DAM) and Intraday Market (IDM) trading in Ukraine is conducted via a joint auction with European zones, where electricity moves across cross-border interconnectors as a result of exchange trading rather than a standard foreign trade transaction requiring a separate customs declaration for each volume. However, the draft law fails to resolve several key tax and currency issues, specifically the application of VAT to cross-border electricity flows under SDAC/SIDC, the mechanism for currency settlements in euros, and the procedure for confirming the right to a zero-rate VAT for export operations that are not formally accompanied by a customs declaration.

These gaps require separate resolution through amendments to the Tax Code of Ukraine, as well as relevant NBU regulations and customs legislation, to ensure alignment between the international exchange nature of these operations and existing customs and tax regulations.

A new paradigm: from generation adequacy to resource adequacy.

A significant shift is occurring in the energy security planning paradigm. Instead of assessing only the adequacy of generating capacities, the concept of resource adequacy is being introduced. This means that energy storage systems (ESS), demand response, and the activities of aggregators are now considered on equal terms with thermal or nuclear power plants to meet demand.

Technological neutrality. The new approach treats all elements capable of ensuring system balance as "resources": traditional and renewable generation, ESS, demand response, and aggregation. Legally, this means that all these categories of participants gain equal rights and obligations when participating in market mechanisms, particularly in capacity adequacy mechanisms.

New assessment mechanism. The Transmission System Operator (NPC Ukrenergo) is required to conduct an annual national resource adequacy assessment based on the pan-European ENTSO-E and ACER methodology, taking into account not only physical capacity availability but also economic factors: wholesale energy prices, carbon emission costs, and the probability of decommissioning older power plants.

Capacity mechanisms. If the results of a security of supply assessment reveal risks of a generation capacity deficit, the state is obligated or entitled to establish a capacity mechanism by paying market participants not for electricity actually produced, but for the readiness and availability of their generating resources during periods of expected deficit, particularly during critical hours of the load profile.

New market entities: legal status

The draft law defines the legal status and powers of new market participants and transforms the roles of existing ones, including: 

 Nominated Electricity Market Operator (NEMO) NEMO develops and maintains algorithms, processes capacity data from the TSO, verifies trading results, and distributes them to market participants and system operators. It bears financial consequences for the fulfillment of obligations within the framework of auctions. 

From a legal perspective, the status of NEMO requires clear legislative regulation regarding: licensing of activities, grounds and procedures for the revocation of nomination, and mechanisms for market participants to appeal NEMO decisions , liability for technical algorithm failures, and the delineation of powers between NEMO and the NEURC in the event of regulatory conflicts.

Central Counterparty (CCP) and Shipping Agent. The Central Counterparty becomes a party to the contract for all buyers and sellers, ensuring clearing and settlement, and acts as the entity guaranteeing the execution of agreements and settlements in cross-border trade between the Ukrainian and European markets so that participants do not bear direct risks of non-payment to one another. The role of the central counterparty can be performed by one of the participants; it can be the NEMO or a separate institution. The Shipping Agent ensures the transfer of net positions between bidding zones; in effect, it is an operational intermediary/coordinator that does not act directly as a party to the agreements but is responsible for the technical and procedural consistency of trading between Ukrainian and European platforms. The draft law defines the separate functions of the central counterparty and the shipping agent, but lacks a mechanism for their appointment.

At the same time, it should be noted that the role of the Transmission System Operator (TSO - NPC Ukrenergo JSC) is undergoing a significant transformation. The TSO is transitioning from the status of a commercial player (which it partially holds today) to the role of a technical operator accountable to Regional Coordination Centres (RCCs) and ENTSO-E. This entails: the obligation to provide such centers with data for calculating cross-zonal capacity; subordination to coordinated operational decisions of the RCC; and financial liability for guaranteed capacity and compensation in the event of curtailment. However, the draft law does not contain an assessment of the financial burden on the TSO associated with paying compensation in the event of curtailment of guaranteed capacity.

Pricing and liberalization

Negative prices. The bill officially introduces the concept of buying and selling under a negative pricing procedure. This occurs when energy supply significantly exceeds demand: the buyer effectively provides a "consumption incentive service," and the seller pays the buyer to take energy off the grid. Settlements are processed through current accounts with a special regime managed by the market operator.

From a legal perspective, negative prices create an atypical structure where the obligated party (the payer) is the seller rather than the buyer. This requires adjustments to accounting and tax treatment for such transactions, which the bill does not explicitly regulate.

 Dynamic pricing. Dynamic price contracts are being introduced, with terms that reflect price fluctuations on the day-ahead market (DAM) or the intraday market (IDM). Large suppliers (with over 200,000 customers) are required to offer such contracts publicly. A mandatory requirement for the consumer is the possession of a smart meter.

Abolition of administrative price caps and technical limits. Traditional rigid administrative price floors and ceilings are being abolished for trades within market coupling. Instead, technical price limits are being introduced, which will be harmonized by NEMOs with other European NEMOs. These limits must be high enough not to restrict trade and must account for the "value of lost load." The mechanism provides for the automatic adjustment of technical limits if the market price approaches them.

Active consumers, aggregators, and energy communities

The changes outlined in the bill detail and supplement the Law of Ukraine "On the Electricity Market" with provisions regarding the status and operation of independent aggregators and active consumers, and introduce the concept of energy communities.

The key innovation for active consumers is the ability to entrust their installations to third-party management, specifically for the purpose of aggregation, participation in ancillary services, balancing, and other market operations, without disrupting their relationship with their electricity supplier.

Energy communities are a fundamentally new type of legal entity—a non-profit organization formed by individuals, small businesses, or local government bodies based on voluntary membership. The goal is to meet the energy needs of community members (economic, environmental, or social) rather than to generate profit. Such communities have the right to produce energy, including from renewable sources, as well as to consume, distribute, store energy, and provide energy efficiency services.

Distribution system operators are required to cooperate with such communities on the basis of fair compensation. Membership does not deprive a consumer of their individual rights, such as the right to choose an electricity supplier, determine consumption patterns, or protect their consumer and energy rights.

International and regional coordination. Changing the hierarchy of norms

Direct impact of EU law. Market participants will be required to apply pan-European rules, procedures, and methodologies approved by ACER or EU regulatory bodies. Domestic Market rules are becoming subordinate to these European standards: in the event of a conflict, the rules of the Energy Community will take precedence.

This represents a qualitative shift in the legal nature of energy regulation: for the first time, rules adopted by a body of which Ukraine is not officially a member will have mandatory legal force within its territory. The mechanism for appealing ACER decisions provided for in the bill is an important safeguard, but its practical effectiveness will depend on implementation acts.

Regional Coordination Centres (RCCs). Capacity calculation between Ukraine and neighboring countries will be performed by the Regional Coordination Centre. Allocated cross-zonal capacity becomes guaranteed: if it is reduced by the system operator, transmission rights holders will be compensated. For large producers (over 200 MW), a reporting obligation is introduced not only to the NEURC but also to the Energy Community Regulatory Board.

Monitoring under REMIT. Integration involves enhanced oversight of market participant behavior in accordance with the REMIT regulation. NEMOs and TSOs are required to notify the NEURC of signs of market manipulation. The regulator will coordinate investigations with ACER. This significantly expands the scope of compliance obligations for large market participants..

Transition period: the realism of the 2027 deadline

The bill sets a key operational deadline of April 1, 2027. At the same time, it does not provide for a phased implementation mechanism for its provisions, which is standard practice for such reforms based on the experience of European countries. Specifically, it lacks: intermediate milestones for assessing readiness; legal consequences for missing the deadline; and conditions for revising timelines in the event of force majeure (military actions on the territory of Ukraine) that could negatively affect compliance with the specified deadline.

Conclusions

Market coupling is a necessary step for the full integration of Ukraine into the EU energy market and aligns with the strategic vector of European integration. The bill establishes the correct conceptual framework; however, it contains a number of significant gaps that need to be addressed before its practical application, alongside the adoption of a whole series of amendments to existing regulatory acts.

It is important to emphasize that the reform is taking place under wartime conditions, which imposes significant constraints on the pace of implementation and requires additional analysis of risks that are not always properly reflected in the bill itself.

‍