The USAID Energy Security Project supports the Ukrainian energy market coupling with the EU

August 15, 2023

At the beginning of August, the USAID Energy Security Project (ESP) launched the Roadmap and Capacity Building on Electricity Market Coupling Activity aimed at helping the National Energy and Utilities Regulatory Commission (NEURC), Market Operator, and NPC Ukrenergo to implement the market coupling process.

The EU Law sets two «Target Models» for market integration —presentation by USAID ESP and EPEX SPOT.

Market coupling aims to form an interconnected electricity market and link control areas and market areas to coordinate electricity exchanges better and, in particular, to reduce price differences. The single day-ahead and intraday coupling resolve supply and demand in both areas simultaneously, and if enough interconnection capacity exists, it will result in a single price for both areas. This process increases cross-border trade and improves social welfare.

Thanks to this initiative, Ukraine can establish implicit day-ahead and intraday auctions between Ukraine, the EU, and Moldova. Through the initiative, USAID ESP will help to build the internal capacity of:

  • NEURC, which regulates, monitors, and controls business entities’ energy activities and communal services;
  • Market Operator, which is responsible for organizing the selling and buying of electricity on the day-ahead market and the intraday market, helping to balance demand and supply in the electricity market;
  • And NPC Ukrenergo, which is responsible for the transmission of electricity via trunk power grids from generation to distribution networks, as well as commercial metering administrator and settlement administrator in the electricity market of Ukraine.
Fatih Kolmek, USAID ESP Senior Electricity Regulatory Manager. Screenshot by USAID ESP.

During the kick-off meeting, Fatih Kolmek, USAID ESP Senior Electricity Manager, noted that it is a significant activity after USAID ESP delivered the recommendations to the draft law on market coupling to NEURC, Market Operator, and Ukrenergo. “We have an experienced partner in this activity, EPEX SPOT, and we look forward to jointly preparing the roadmap for market coupling to be further implemented by our Ukrainian partners leading these efforts after the synchronization with the European Network of Transmission System Operators for Electricity (ENTSO-E) in 2022.” Fatih Kolmek summed up.

Presenting the timeline for the activity, Aniss Sari, EPEX SPOT Senior Strategy Officer, said: “We are delighted to support this assignment and work with Ukrainian stakeholders to share our experience. It is an important milestone to define the way forward in market coupling. It has been achieved in Western and Northern Europe, but these are still borders to overcome to achieve the greater energy model defined by Europe.”

Olga Babyi, NEURC Commissioner. Screenshot by USAID ESP.

One of the key Ukrainian stakeholders Olga Babyi, NEURC Commissioner, thanked USAID ESP for its valuable assistance during these challenging times for the country and its energy sector. “We are performing with you an excellent task – the unification of Ukrainian commercial energy markets with the EU markets. We understand very well that after Ukraine has been granted the status of a candidate for accession to the EU, Ukraine will definitely be a part of the European energy market soon. Therefore, we must be prepared, and the roadmap we’ll jointly develop is crucial for us to be a part of European energy markets.”

Working jointly with USAID ESP experts, the EPEX SPOT team will prepare a detailed roadmap for electricity market coupling with the EU markets and Moldova and conduct a round of training for Ukrainian stakeholders to present the market coupling roadmap and roll-out.

 At the conclusion of the kick-off meeting, Fatih Kolmek underlined that USAID ESP is grateful that NEURC, Market Operator, Ukrenergo, and all stakeholders are fully committed to making reforms under such difficult conditions. “What Ukraine is doing regarding the energy market synchronization and integration into the EU is remarkable. USAID ESP is privileged to be a part of this process,” he said.

For reference

Given Ukraine’s obligations under the Energy Community Treaty and the Association Agreement between Ukraine and the EU to implement the European energy acquis into the Ukrainian legislation, the Verkhovna Rada of Ukraine adopted the Law of Ukraine ‘On Electricity Market’ No.2019-VIII (hereinafter referred as the Law) which became effective on 11 June 2017.

In the new wholesale market opened in July 2019, electricity is traded in three organized segments (with ‘organized’ meaning managed by an operator under rules set by NEURC, including pricing principles), namely the day-ahead market and the intra-day market that are operated by the Market Operator and the Balancing Power Market that is operated by Ukrenergo – Transmission System Operator (hereinafter-TSO). Electricity trade can also take place through bilateral contracts that TSO must register. These segments in which electricity is traded are supported by the Ancillary Services Market (ASM) operated by the TSO to maintain the stability of the power system continuously.

Commission Regulation (EU) 2015/1222 of 24 July 2015 establishes a guideline on capacity allocation and congestion management and lays down detailed guidelines on cross-zonal capacity allocation and congestion management in the day-ahead and intraday markets. It includes the requirements for establishing common methodologies for determining the volumes of capacity simultaneously available between bidding zones, criteria to assess the efficiency, and a review process for defining bidding zones.

Currently, in Ukraine, as was the case with the previous market model, the auctions for access to the transmission capacity of the cross-border interconnection between the TSO of Ukraine and the transmission system operators of neighboring countries are held separately. This results in higher electricity prices (as the access from each side of the border is to be paid for separately) and no guarantees of the transmission capacity, as it is required to obtain access in both countries. The market coupling will link control areas and market areas to harmonize different systems of electricity exchanges, ultimately reducing price differences.