Earlier in 2025, the Ukrainian Parliament adopted Draft Law No. 12087-d «On Amendments to Certain Laws of Ukraine Regarding the Implementation of European Union Law for the Integration of Energy Markets, Enhancement of Security of Supply, and Competitiveness in the Energy Sector» dated 22 July 2025 (Draft Law No. 12087-d), which advances the market coupling of the Ukrainian electricity market with the European market and ensures the complete adoption of the EU energy acquis. Draft Law No. 12087-d is currently undergoing preparation for the second reading, which will introduce further clarifications and technical improvements (the Draft Law No. 12087-d is available at the following link in Ukrainian).
Background
In January 2024, Ukrainian Electricity Transmission System Operator, Ukrenergo (TSO), became the 40th member of the European Network of Transmission System Operators for Electricity (ENTSO-E) after fulfilling key technical conditions to ensure permanent interconnection between the power systems of Ukraine and Europe (to learn more about ENTSO-E member states, see Picture 1. ENTSO-E members as of December 2023). This connection significantly improved the reliability of Ukraine’s power system by allowing Ukraine to receive timely assistance from Europe in the event of emergency power plant outages and to import European electricity, which reduces the number of disconnected consumers.
Picture 1. ENTSO-E members as of December 2023
Source: ENTSO-E
Concurrently, Ukraine continues to advance its energy reforms in line with its obligations under the EU–Ukraine Association Agreement and the Treaty establishing the Energy Community. One of the key steps in this direction is the market coupling[1] of electricity markets thought the adoption of Draft Law No. 12087-d.
General objectives of Draft Law No.12087-d
Draft Law No. 12087-d introduces fundamental amendments to the Electricity Market Law No.2019-VIII dated 13 April 2017 and related legislation to transpose and enforce key EU instruments, including Directive (EU) 2019/944 and Regulation (EU) 2019/943.
Draft Law No. 12087-d also transforms the structural and operational design of Ukraine’s electricity market in preparation for market coupling with European systems, while preserving the core institutional architecture of the national energy sector. Picture 2. presents the main objectives of this document.
Picture 2. Core objectives of Draft Law No. 12087-d
Draft Law No. 12087-d will represent only the first step toward market coupling with the EU energy system. Ukraine will also be required to undertake substantial regulatory and technical work which, according to the TSO estimates, will take no less than two years to complete (to learn about the roadmap for the full integration of the Ukrainian electricity market with the European market, please see Picture 3 below).
Picture 3. Roadmap to the full integration of the Ukrainian electricity market with the European market by 2027
Some of the largest challenges on this path are the existing price caps in Ukraine’s electricity market and the transition of the national power system from a one-hour to a 15-minute settlement period, which has not yet been addressed by legislators.
Coupling of Ukrainian day-ahead, intraday and balancing markets with the European Ones
Draft Law No. 12087-d lays the essential legal groundwork for the integration of Ukraine’s key electricity market segments, which includes Day-Ahead Market (DAM), Intraday Market (IDM), and balancing market, with those of the European Union.
For DAM and IDM, Draft Law No. 12087-d introduces mechanisms for Ukraine’s participation in the Single Day-Ahead Coupling[2] (SDAC) and the Single Intraday Coupling[3] (SIDC), both of which are already operational in most EU member states. Draft Law No. 12087-d envisages a two-session trading model for the DAM:
- an internal session (within Ukraine); and
- an external session (within the framework of the joint market). A comparable model is already in place in Poland.
Draft Law No. 12087-d lays the foundation for the appointment of Ukraine’s Nominated Electricity Market Operator (NEMO) and for granting local market access to NEMOs operating in the electricity markets of the EU member states and the Energy Community Contracting Parties. The National Energy and Utilities Regulatory Commission[4] (Ukrainian Energy Regulator) is expected to adopt the detailed authorisation procedures within four to 12 months.
To ensure the approximation of market conditions in the coupled markets, Draft Law No. 12087-d limits the application of price caps for SDAC and SIDC trading. Ukraine’s NEMO may set maximum and minimum price caps in coordination with NEMOs operating in coupled markets. Such limitations should not unreasonably impede electricity trading. At the same time, the price caps set by the Ukrainian Energy Regulator will continue to apply to internal trading sessions.
Additionally, Draft Law No. 12087-d provides for the use of common algorithms for price coupling and continuous trading, in accordance with EU Regulation (EU) 2015/1222 (capacity allocation and congestion management Regulation). These measures facilitate the joint allocation of cross-border capacity, synchronised market operation, and price convergence between Ukraine and neighbouring EU countries.
With respect to the balancing market, Draft Law No. 12087-d paves the way for Ukraine’s participation in ENTSO-E’s coordinated balancing platforms, including the International Grid Control Cooperation and the Trans-European Replacement Reserves Exchange. It harmonises domestic regulations with the European Electricity Balancing Guideline, thereby enabling real-time coordination of electricity flows and the cross-border sharing of reserves. This integration is expected to strengthen operational security, enhance the efficiency of balancing service procurement, and reduce overall system costs.
Market access for Ukrainian and EU electricity market participants
Draft Law No. 12087-d establishes a reciprocal framework for cross-border participation in electricity markets between Ukraine, the European Union, and the Energy Community.
Under the proposed provisions, electricity market participants from EU member states or Energy Community parties may conduct activities in the Ukrainian electricity market subject to reciprocity, which means on the condition that Ukrainian participants are granted equivalent rights within the corresponding foreign electricity market.
To make this principle operational, international agreements will be concluded between Ukraine and the respective states. These agreements will define mutual conditions for participation, including licensing, trading, and regulatory requirements, and will be made publicly available through the Ukrainian Energy Regulator`s webpage.
According to Draft Law No. 12087-d, access conditions for Ukrainian and foreign companies must be equal and non-discriminatory, ensuring compliance with the principles of the EU Electricity Regulation (EU) 2019/943 and the Energy Community Treaty.
Implementation will depend heavily on:
- the speed and scope of international agreements signed under this framework;
- the harmonisation of regulatory, market, and technical standards (particularly those concerning balancing, capacity allocation, and congestion management); and
- the alignment of Ukraine’s electricity market rules with EU network codes and guidelines.
In essence, this clause represents a legal foundation for full market coupling between Ukraine and the EU in the medium term, fostering investment, competition, and the development of a truly integrated regional electricity market.
Introduction of negative prices
Draft Law No. 12087-d marks the first steps toward introducing negative prices in Ukraine’s DAM and IDM. Trading under negative prices implies that the buyer is paid for purchasing electricity during periods of production surplus. In practice, the seller will pay the buyer a service fee for boosting consumption while the buyer purchases electricity at a minimal price.
Although the detailed procedure should be defined in by-laws, this development signals Ukraine’s shift from a curtailment approach toward market-based demand management mechanisms.
Establishment of Energy Communities
Draft Law No. 12087-d also paves the way for energy communities (e.g. legal entities established by citizens, local governments, or small and medium-sized enterprises) to engage collectively in energy generation, distribution, and supply, especially from renewable energy sources. Energy communities prioritise social and environmental benefits over profit and have the potential to foster local ownership of energy resources. To achieve these objectives, energy communities will be granted specific rights, as outlined in Picture 4.
Picture 4. Fundamental rights of Energy Communities.
By establishing a legal framework for energy communities, Draft Law No. 12087-d opens the electricity market to cooperative, locally-rooted actors. The concept of energy communities is firmly embedded in EU law through the Clean Energy for All Europeans Package, specifically the Renewable Energy Directive II and the Internal Electricity Market Directive.
Across the EU, energy communities have become a proven instrument for mobilising citizens, strengthening public acceptance of renewable projects, and attracting private investment. Successful examples, such as Germany’s electricity cooperatives (Strom-Genossenschaften)[5] and Denmark’s community-owned wind farms[6], demonstrate how local participation accelerates the green transition while ensuring fair distribution of benefits.
Aligning with this EU practice, therefore, represent a significant step toward enhanced citizen participation, sustainable growth, and long-term resilience of Ukraine’s energy sector.
Legal framework for aggregation and aggregators
Draft Law No. 12087-d upgrades the legal framework for the functioning of aggregators[7] in the Ukrainian energy market, which marks a crucial step toward modernising market dynamics. Specifically, Draft Law No. 12087-d allows aggregators to access all segments of the electricity market on equal terms with traditional market participants. This ensures non-discriminatory participation and contributes to the overall decentralisation and democratisation of electricity trading in Ukraine, consistent with EU Directive (EU) 2019/944.
The aggregation mechanism plays a crucial role in maximising the value of electricity generated by prosumers and optimising grid-load management. By developing such market mechanism as an aggregation, the legislation enables more actors – including households and small-scale producers – to interact with the energy market, ensuring more efficient balancing and system services.
Integration of flexibility services
Another core component of Draft Law No. 12087-d is the formal introduction of «flexibility» as a legal and operational instrument. According to the proposed definition in Draft Law No. 12087-d, flexibility refers to the system’s capacity to react to variability in electricity supply and demand, particularly as renewable generation increases. In practice, this means that after the adoption of Draft Law No. 12087-d, distribution system operators will be able to balance the system through an additional instrument called “flexibility services”. For convenience, we have analysed the flexibility services mechanism in Figure 5 below.
Picture 5. Main elements of flexibility services under Draft Law 12087-d
The importance of this provision lies in its systemic implications. By encouraging flexibility services, the grid becomes more resilient and better suited to the integration of intermittent renewable energy, such as wind and solar.
After the adoption of Draft Law No. 12087-d, the Ukrainian Energy Regulator will be required to develop procedures for providing flexibility services, which will, in particular, include measures to incentivise such services.
Empowering active consumers
The legislation safeguards the rights of active consumers – individuals or legal entities that both consume and produce electricity. These electricity market participants can install distributed generation assets (e.g. rooftop solar panels) and engage in the market by selling surplus electricity or providing demand-response services.
Draft Law No. 12087-d guarantees active consumers fair remuneration, transparent connection procedures, and non-discriminatory access to market participation. Boosting active consumption would contribute to alleviating peak loads, promoting decentralisation, and broader public engagement in the energy transition.
Strengthening the role of the TSO in European cooperation
Draft Law No. 12087-d significantly strengthens the role of Ukraine’s TSO in regional and European cooperation. It explicitly authorises the TSO to interact with EU transmission system operators under agreements on cross-border balancing, reserve sharing, and regional capacity calculation. The TSO is also required to engage in market coupling and participate in ENTSO-E governance structures.
This institutional embedding enables the TSO to influence regional decision-making processes and participate in the development of future European grid codes. It ensures legal compatibility with ENTSO-E membership rules and allows Ukraine to benefit from coordinated grid management, early warning systems, and crisis mitigation procedures in line with Draft Law No. 12087-d.
Participation in European coordination platforms and ACER integration
Draft Law No. 12087-d formalises Ukraine’s participation in key European platforms, including ACER. The Ukrainian Energy Regulator in collaboration with the TSO will provide data to ACER, submit regional market rule proposals, and participate in joint consultations. Draft Law No. 12087-d also facilitates the establishment of regional coordination centres and requires relevant authorities to support integration efforts.
This legal framework ensures that Ukraine is not merely a technical participant but a fully integrated member of European energy governance.
Conclusion
The adoption of Draft Law No. 12087-d as a basis represents a crucial step toward the modernisation of Ukraine’s electricity sector. By incorporating EU legal norms and best practices, Draft Law No. 12087-d creates a foundation for transparent, competitive, and more stable electricity market. In the broader context of Ukraine’s EU integration strategy, Draft Law No. 12087-d strengthens market mechanisms, enhances investor confidence, and facilitates reciprocal participation between Ukrainian and European electricity market participants in the internal energy market. This reform is forward looking and should generate significant long-term benefits for Ukraine’s economy, consumers and energy security.
For more information on Ukraine`s electricity market and its structure, see: CMS Ukraine Investing and Doing Business in Ukraine 2025 Guide, available at the following link.
For more information on Ukrainian electricity market regulation and upcoming opportunities for investors, contact your CMS client partner or the experts: Vitaliy Radchenko, Maryna Ilchuk.
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[1] Market coupling is a mechanism that integrates different electricity market areas by coordinating cross-border capacity allocation and power trading. It links national or regional markets so that electricity can flow efficiently from lower-price areas to higher-price areas, thereby aligning market prices and physical power flows with available interconnection capacity.
[2] According to the ENTSO-E official website, the aim of Single Day-ahead Coupling is to create a single pan European cross zonal day-ahead electricity market. SDAC allocates scarce cross-border transmission capacity in the most efficient way by coupling wholesale electricity markets from different regions through a common algorithm, simultaneously taking into account cross-border transmission constraints, and thereby maximizing social welfare.
[3] According to the ENTSO-E official webpage, the aim of the Single Intraday Coupling is to create a single EU cross-zonal intraday electricity market. In simple terms, buyers and sellers of energy (market participants) are able to work together across Europe to trade electricity continuously on the day the energy is needed.
[4] The Ukrainian Energy Regulator is an independent public authority with the power to issue mandatory resolutions, orders and regulatory acts; establish tariffs and supervise, monitor and control the behaviour of market players, etc.
[5] According to Nordic energy research webpage, numbers vary slightly across data sources, there are around 1,700 energy communities in Germany (as of 2016).
[6] According to Nordic energy research webpage, Denmark has a long history of citizen ownership and is one of the EU countries with the highest share of citizen ownership of energy assets. A study from 2019 estimated that 52% of the existing installed wind capacity in Denmark in December 2016 was owned through some kind of citizen ownership model.
[7] According to the Electricity Market Law, aggregators are entities that consolidate the demand or supply of multiple electricity users or producers in order to offer these aggregated services on the market. Their presence enhances system flexibility, facilitates peak load management, and increases the participation of distributed energy resources.
