Electricity market coupling is often discussed in technical or commercial terms, but its most profound effects are political. By linking Montenegro’s market directly to Italy’s, coupling effectively removes the border as a buffer between domestic energy policy and European price formation. This fundamentally constrains the scope for unilateral intervention in the power sector.
Before coupling, Montenegro retained significant discretion over electricity pricing and dispatch. While physical interconnections existed, domestic interventions could often be contained within national borders or masked by limited liquidity. Price caps, preferential tariffs or ad-hoc dispatch decisions primarily affected local participants. Cross-border effects were present but muted.
Market coupling changes this immediately. Once prices clear through a shared algorithm with Italy, any domestic intervention distorts not only the national market but also cross-border flows. Artificially suppressing prices in Montenegro, for example, would attract imports or restrict exports in ways that contradict market logic, triggering congestion, inefficiencies and potential disputes.
This creates a powerful disciplining mechanism. Policymakers must consider European consequences when designing domestic measures. Energy policy becomes less about national discretion and more about compatibility with a broader market framework. While this reduces policy autonomy, it enhances credibility and predictability.
The trade-off is particularly visible during periods of stress. Governments often intervene in electricity markets during price spikes to protect consumers or strategic industries. Under coupling, such interventions become costly. Suppressing prices locally can lead to unintended cross-border flows, undermining system stability or violating market rules. As a result, policy responses must shift from price control toward targeted compensation mechanisms outside the wholesale market.
For Montenegro, this represents a significant institutional transition. As a non-EU country, it voluntarily accepts constraints similar to those faced by EU member states participating in the internal energy market. This accelerates regulatory convergence but also exposes domestic policy to external scrutiny.
The implications extend beyond pricing. Dispatch rules, capacity mechanisms, renewable support schemes and balancing arrangements all become subject to compatibility requirements. Policies that favour specific generators or technologies risk distorting coupled outcomes. Transparency and non-discrimination become not just regulatory ideals but practical necessities.
This constraint can be politically uncomfortable, particularly in small systems where electricity prices have strong social and economic impacts. Yet it also delivers long-term benefits. By limiting arbitrary intervention, coupling reduces regulatory risk and improves investment confidence. Investors value markets where rules are stable and aligned with European norms.
For other SEE countries, Montenegro’s experience serves as a preview of the political economy of deep integration. Coupling offers access to liquidity and efficiency, but it demands discipline. Governments must shift from managing prices to managing social impacts through fiscal and regulatory instruments that sit outside the wholesale market.
Elevated by virtu.energy
