Market Coupling in Ukraine: Legal Analysis of the Draft Law on Single Day-Ahead and Intraday Coupling and Its Consequences for Market Participants

Maksym Fedotov, attorney, CEO and Founder of the law firm “FEDOTOV&PARTNERS”

The draft law on Market Coupling, signed by the President of Ukraine on April 20, 2026, signifies a fundamental restructuring of the Ukrainian energy sector aimed at full integration with the European Union market. The project focuses on implementing the provisions of the EU’s “Clean Energy for All Europeans Package” (2019), which alters the operational logic of all market segments—from wholesale to retail.

From a legal perspective, this reform represents a transition from an isolated national market to an integrated cross-border trading platform. Legal consequences for participants are now determined not only by domestic legislation but also by EU regulations and decisions from bodies such as ACER and ENTSO-E. This creates a fundamentally new regulatory space where the hierarchy of norms, appeal mechanisms, and distribution of liability differ significantly from the current system. However, implementing these changes requires amending a range of Ukrainian legislative acts governing tax, finance, accounting, and currency regulation for cross-border operations.

The following is a detailed overview of the 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 Market coupling is introduced as a process of simultaneous matching of buy and sell bids for electricity alongside the allocation of cross-zonal transmission capacity between Ukraine and EU/Energy Community member states. Legally, this means cross-border trade ceases to be a separate customs-legal transaction and acquires the status of a market operation regulated by exchange and energy laws.

Two Segments of Market Coupling The draft law highlights two key mechanisms:

1. SDAC (Single Day-Ahead Coupling)
2. SIDC (Single Intraday Coupling)

Trading in each segment may occur in two sessions: an internal session (conducted by JSC “Market Operator”) and a general coupling session conducted by a Nominated Electricity Market Operator (NEMO). The NEMO is responsible for organizing trades within a specific country under SIDC and SDAC, including interaction with the European auction office.

Thus, upon implementation, JSC “Market Operator” continues to function as Ukraine’s market operator and may simultaneously perform the duties of a NEMO (subject to appointment by NEURC after April 1, 2027). It will maintain responsibility for the internal platform and the integration of Ukrainian participants into joint auctions with EU countries.

• SDAC uses the EUPHEMIA algorithm (or a compatible one) to calculate a joint electricity price in the Day-Ahead model.
• SIDC involves continuous bid matching and capacity allocation via the XBID platform (or a compatible mechanism), active throughout the day of physical delivery.

Implicit Auction Mechanism A key innovation is the introduction of implicit auctions. Unlike explicit auctions, where participants separately purchase transmission rights and then trade energy, an implicit auction automates this: transmission rights and the energy itself are allocated simultaneously.

Legally, this means market participants are no longer parties to a separate transaction for capacity; their obligations are formed exclusively by the results of a single auction process, where guaranteed capacity becomes an integral part of the exchange contract for the sale/purchase of electricity.

Algorithms and the Role of NEMO The NEMO’s legal status is atypical for Ukrainian law: it is not a state authority but performs quasi-regulatory functions by developing algorithms that determine prices and volumes.

• Price Coupling Algorithm: Used for SDAC to determine the equilibrium price of each bidding zone and the net position.
• Continuous Trade Matching Algorithm: Used for SIDC.
• Harmonization Requirements: Both algorithms must comply with pan-European rules approved by ACER.

Legal Nature of Cross-Border Operations

A fundamental issue for law enforcement is the qualification of cross-border electricity flows: are they considered import/export in the sense of customs and currency legislation, and in the context of VAT taxation?

Under market coupling, energy moves across borders as a result of exchange trading rather than a standard foreign trade operation requiring a separate customs declaration for each volume. However, the draft law does not resolve key tax and currency issues, such as:

• VAT application to cross-border flows under SDAC/SIDC.
• Currency settlement mechanisms in Euro.
• Verification of the right to apply a “zero” VAT rate for exports without formal customs declarations.

These gaps require separate regulation through amendments to the Tax Code of Ukraine, National Bank of Ukraine (NBU) regulations, and customs legislation.

New Paradigm: From Generation Adequacy to Resource Adequacy

The reform shifts the focus of energy security planning. Instead of assessing only generating capacities, the concept of resource adequacy is introduced.

• Technological Neutrality: To cover demand, Energy Storage Facilities (ESF), demand response, and aggregators are considered “resources” alongside thermal or nuclear power plants.
• New Assessment Mechanism: The Transmission System Operator (JSC “NPC Ukrenergo”) must conduct an annual national resource adequacy assessment based on ENTSO-E and ACER methodologies, accounting for economic factors like carbon costs and decommissioning probabilities.
• Capacity Mechanisms: If risks of deficit are identified, the state may establish a mechanism where participants are paid for the availability of their resources during expected peak periods, rather than just for energy produced.

Legal Status of New Market Entities

1. Nominated Electricity Market Operator (NEMO): Responsible for algorithms and verifying trade results. Their status requires further legislative clarity regarding licensing, revocation of nomination, and liability for technical failures.
2. Central Counterparty (CCP) and Trading Agent: The CCP becomes the party to the contract for all buyers and sellers, ensuring clearing and settlement to eliminate direct non-payment risks between participants. The Trading Agent coordinates the transfer of net positions between bidding zones.
3. Transmission System Operator (TSO): Ukrenergo transforms from a commercial player into a technical operator accountable to Regional Coordination Centres (RCC) and ENTSO-E. It will bear financial responsibility for guaranteed capacity and compensation in case of curtailment.

Pricing and Liberalization

• Negative Prices: The draft law officially introduces “negative price” procedures. This occurs when supply significantly exceeds demand; the seller pays the buyer to take energy from the grid. This requires the adaptation of accounting and tax rules.
• Dynamic Pricing: Contracts with dynamic prices reflecting SDAC/SIDC fluctuations are introduced. Large suppliers (serving over 200,000 consumers) must offer such contracts, provided the consumer has a smart meter.
• Removal of Price Caps: Traditional administrative “price caps” are abolished for market coupling trades. They are replaced by technical price limits harmonized with European NEMOs, which must be high enough not to restrict trade and consider the “Value of Lost Load” (VoLL).

Active Consumers, Aggregators, and Energy Communities

The draft law introduces:

• Independent Aggregators: Entities that combine multiple consumer/producer loads.
• Active Consumers: Now have the right to hand over their installations (e.g., solar panels) to third parties for management/aggregation without violating their relationship with their primary electricity supplier.
• Citizen Energy Communities: A new non-profit legal entity (formed by individuals, small businesses, or local authorities) aimed at meeting the community’s energy needs rather than profit. They can produce, consume, store, and distribute energy.

International Coordination and the Hierarchy of Norms

Direct Impact of EU Law: Market participants will be obliged to apply pan-European rules approved by ACER. Internal market rules become subordinate; in case of conflict, Energy Community norms take priority. This is a qualitative shift: rules adopted by a body of which Ukraine is not yet a full member will have binding legal force on its territory.

REMIT Monitoring: Integration requires enhanced oversight of market behavior in accordance with REMIT regulations. NEMOs and the TSO must report signs of market manipulation to the Regulator (NEURC), which will coordinate investigations with ACER.

Transition Period: Realism of the 2027 Deadline

The draft law sets a key operational deadline of April 1, 2027. However, it lacks a mechanism for phased implementation—a standard practice in European reforms. There are currently no interim milestones to assess readiness or legal provisions for adjusting deadlines in the event of force majeure (such as ongoing hostilities).

Conclusions

Market coupling is a vital step for Ukraine’s EU integration. While the draft law establishes a strong conceptual foundation, significant gaps regarding tax, currency regulation, and financial liability for the TSO must be addressed before practical application. The reform’s success will depend on how well these risks are mitigated within the context of the ongoing war.