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Market coupling
European Union Electricity Market Glossary

 

 

 

Market coupling in the European Union Internal Electricity Market (IEM) refers to the integration of two or more electricity markets from different areas through an implicit cross-border allocation mechanism, and, from the onset of the European energy regulatory agencies, was perceived as the key instrument for the integration of EU wholesale power markets (see, for example, ACER's annual report on its activities under REMIT in 2012).

 

Instead of explicitly auctioning the cross-border transmission capacities among the market participants, market coupling makes the capacities implicitly available on the power exchanges of the various areas.

 

Annual Report of the ACER and CEER on the Results of Monitoring the Internal Electricity and Gas Markets in 2016 (Electricity Wholesale Markets Volume) published in October 2017 mentions (p. 49) that cross-zonal capacity was used more efficiently in 2016 in the intraday timeframe on borders where the capacity was allocated by using implicit allocation methods (61% of efficiency) as opposed to explicit or other allocation methods (40%).

The role of the market coupling in the integration of the EU wholesale electricity markets has been prominently accentuated by the so-called Winter Energy Package of 30 November 2016.

 

Article 6
(1) of the European Commission's Proposal for a Regulation of the European Parliament and of the Council on the internal market for electricity (recast), 30.11.2016, COM(2016) 861 final 2016/0379 (COD) stipulates that:

 

Transmission System Operators (TSOs), and 

 

Nominated Electricity Market Operators (NEMOs);

 market coupling lower price higher price

jointly organise the management of the integrated day-ahead and intraday markets based on market coupling as set out in Regulation 2015/1222 (CACM Regulation).

 

The plain language description of the market coupling is that it consists in selling electricity together with interconnection capacity, instead of separately (Energy: New market design to pave the way for a new deal for consumers, the European Commission MEMO/15/5351, 15 July 2015).

 

The purpose of market coupling is to maximise the economic welfare of all players.

 

The mechanism aims to enable the free movement of electricity between the integrated markets.

 

Already in 2012 the following power regions and the following power exchanges were applying market coupling: Central Western Europe (EPEX Spot (German-Austrian and France), Belpex (Belgium) and APX-ENDEX (Netherlands)), Nordic region (Nord Pool Spot (Norway, Sweden, Finland, Denmark, Estonia, Lithuania)), Central-Eastern Europe (OTE (Czech Republic and Slovakia) and HUPX (Hungary)), South Western Europe (OMIE (Spain and Portugal)) and Central-South Europe (GME (Italy) and Borzen-BSP SouthPool (Slovenia)).

 

Commission Staff Working Document "Generation Adequacy in the internal electricity market - guidance on public interventions. Accompanying the document Communication from the Commission Delivering the internal electricity market and making the most of public intervention" released in November 2013 also underlined the fact that in the Union the very large majority of EU Member States had their electricity markets coupled with at least one other Member State and that in Central West Europe, electricity markets were deeply connected through price coupling, this practice was expected to expand throughout the Union.

 

Pursuant to the said Commission Staff Working Document of November 2013, coupled markets imply that power flows out of a market when prices in a neighbouring market are higher, inversely, power will be imported when domestic prices are higher.

 

The traded volumes can constitute a multiple of the interconnection capacity available but physical flows will be limited to the available capacity on the given interconnectors.

 

Market coupling is perceived as a first step towards a fully integrated market allowing short and long term trading of energy, renewable energy sources (RES), balancing services and security of supply across borders.

 

Target model for the day-ahead timeframe is a European Price Coupling (EPC) which simultaneously determines volumes and prices in all relevant zones, based on the marginal pricing principle (see ACERs market coupling website).

 

The two market time-frames are differentiated:

What is bidding zone 

- ’single day ahead coupling' meaning a coordinated electricity price setting and cross-zonal capacity allocation mechanism, which simultaneously matches orders from the day-ahead markets per bidding zone, respecting cross-zonal capacity and allocation constraints between bidding zones; and 


- 'single intraday coupling' meaning an implicit cross-zonal capacity allocation mechanism which collects orders for each bidding zone from wholesale market participants and matches them continuously into contracts to deliver electricity while respecting cross-zonal capacity and allocation constraints, and is available in the intraday market timeframe once the day-ahead market allocation process has taken place (Article 2(27) of the CACM Regulation: 'single intraday coupling' means the 'continuous process where collected orders are matched and cross-zonal capacity is allocated simultaneously for different bidding zones in the intraday market').

 

Commission Staff Working Document, Accompanying the document Report from the Commission, Interim Report of the Sector Inquiry on Capacity Mechanisms {C(2016) 2107 final}, 13.4.2016 SWD(2016) 119 final, p. 134, 135) observes, market coupling is an effective way of ensuring the most efficient use of interconnection, but creates a certain challenge for enabling foreign participation in capacity mechanisms in Europe, because interconnectors have no influence over which direction power flows between markets, and individual capacity providers in a coupled market have very little influence on which direction power flows.

 

As regards the day-ahead market coupling, a single European price coupling applied throughout the EU and Norway is envisaged.

 

It eliminates the remaining "wrong-way flows" (a 'wrong-way flow' hour occur when the final net nomination on a given border takes place from the higher to the lower price zone, with a price difference of at least one euro/MWh).

 

This has been applied firstly for the Spanish-French, Austrian-Italian, French-Italian and Hungarian-Romanian borders, following the relevant extension of market coupling.

 

European Commission in the Annex 2 to the Third Report on the State of the Energy Union of 24 November 2017 refers to 30 out of the 42 EU borders participating in day-ahead market coupling - this includes Austria, Belgium, the Czech Republic, Germany, Denmark, Estonia, Spain, Finland, France, Hungary, Italy, Lithuania, Latvia, the Netherlands, Norway, Poland, Portugal, Romania, Sweden, Slovenia, Slovakia and Great Britain (remaining European borders were still applying explicit day-ahead auctions).

 

With market coupling, it is not possible for a generator or demand response provider in a neighbouring zone to guarantee that its power will flow to consumers in another bidding zone

 

Under market conditions, power will flow to the bidding zone which offers the highest electricity price.

 

Although EU rules require TSOs to resolve network congestions without limiting commercial transactions (including across borders), TSOs can under certain conditions curtail nominations to preserve system stability (see Article 16(3) of the Regulation (EC) No 714/2009 of the European Parliament and of the Council on conditions for access to the network for cross-border exchanges in electricity of 13.7.2009).


Also relevant is Article 4(3) of the Security of Electricity Supply Directive, which states that 'Member States shall not discriminate between cross-border contracts and national contracts'.

 

This rule requires TSOs to allow market coupling to determine flows, even if this means that in a situation where two coupled markets are both facing scarcity, the result of market coupling could be more severe scarcity in one country or zone because the price of electricity is higher in the neighbouring zone.

 

 

A brief overview of market coupling developments for the European day-ahead and intra-day market and further prospects

 

 

Important milestones for the development of the European market coupling were:

 

 

North-Western Europe (NWE) Price Coupling was a project initiated by the Transmission System Operators and Power Exchanges of the countries in North-Western Europe. The 17 partners of this project comprised APX, Belpex, EPEX SPOT and Nord Pool Spot from the Power Exchanges' side; 50Hertz, Amprion, Creos, Elia, Energinet.dk, Fingrid, National Grid, RTE, Statnett, Svenska Kraftnät, TenneT TSO B.V. (Netherlands), TenneT TSO GmbH (Germany) and TransnetBW from the TSO side. The cooperation was dedicated to the price coupling of the day-ahead wholesale electricity markets in this region, increasing the efficient allocation of interconnection capacities of the involved countries and optimising the overall social welfare. A single algorithm, calculating simultaneously the electricity market prices, net positions and flows on interconnectors between bidding zones was used, based on implicit auctions and facilitated through the Price Coupling of Regions solution.

 

Price Coupling of Regions (PCR) was the initiative of seven European Power Exchanges (APX, Belpex, EPEX SPOT, GME, Nord Pool Spot, OMIE and OTE), to develop a single price coupling solution to be used to calculate electricity prices across Europe and allocate cross-border capacity on a day-ahead basis. This was crucial to achieve the overall EU target of a harmonised European electricity market. The integrated European electricity market was expected to increase liquidity, efficiency and social welfare. PCR was open to other European Power Exchanges wishing to join. 

 

South-Western Europe (SWE) Price Coupling Project was a joint project between the French, Spanish and Portuguese TSOs, RTE, REE, REN, and the Power Exchanges OMIE in Spain and Portugal and EPEX SPOT operating the French market. This project aimed to define the pre-coupling, post coupling and exceptional situations processes that were necessary to allow the implementation of price coupling between NWE region and the Iberian day-ahead markets.

 

- in May 2014 Southwest Europe (SWE) joined Northwest Europe (NWE) day-ahead coupling and renamed the project to Multi-Regional Coupling (MRC), giving an important step forward towards the European Union Internal Electricity Market.

 

- in November 2014, the 4M Market Coupling Project implemented DA ATC-based price coupling covering Czech–Slovak–Hungarian plus Romanian market areas based also on the Price Coupling of Regions (PCR) solution, to facilitate the integration of the MRC project with the 4M project,

 

- on 24 February 2015, Italian borders (Italian–Austrian, Italian–French and Italian–Slovenian) have been coupled with the MRC,

 

- on 21 May 2015, the Central-Western European Region implemented flow-based capacity calculation (flow based market coupling - FBMC) for the first time in Europe.

 

With FBMC, the remaining margins available on critical branches of the network are allocated to where they are most valuable.

 

In theory, FBMC should render more tradable capacities (i.e. minimum and maximum net positions) compared to the available transmission capacity (ATC) method (ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity Market in 2015, September 2016, p. 44).

 

ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity and Natural Gas Markets in 2014, November 2015 (p. 15) referred to folowing dates in the context of the market coupling implementation in the EU:

 

- 4 February 2014 - the go-live of the North-West Europe (NWE) day-ahead market coupling project,

 

- 13 May 2014 - the NWE extension to the Iberian market,

 

- 19 November 2014 - the extension of market coupling of the Czech Republic, Slovakia and Hungary to Romania.

 

Building on the above achievements, further actions are planned with the use of the CACM Regulation. 

 

The CACM Regulation implementation on intra-day coupling also builds on important recent progress of the regional Cross-Border Intra-Day (XBID) Project.

 

ENTSO-E and the TSOs intend to develop further the European day-ahead and intra-day market coupling in the "All TSOs" frame.

 

 

 

 

 

Brexit’s impact on European electricity market coupling

 

 

Ireland is supposed to be integrated with the UK through day-ahead market coupling in 2018; and the UK is supposed to be coupled to the Continent through intraday-market coupling in 2018 (day-ahead market coupling was already established in 2014).

 

 

CACM Regulation, Article 1(4)

 

The Union single day-ahead and intraday coupling may be opened to market operators and TSOs operating in Switzerland on the condition that the national law in that country implements the main provisions of Union electricity market legislation and that there is an intergovernmental agreement on electricity cooperation between the Union and Switzerland.

 

CACM Regulation, Article 1(5)

 

Subject to the conditions in paragraph 4 above being fulfilled, participation by Switzerland in day-ahead coupling and single intraday coupling shall be decided by the Commission based on an opinion given by the Agency. The rights and responsibilities of Swiss NEMOs and TSOs joining single day-ahead coupling shall be consistent with the rights and responsibilities of NEMOs and TSOs operating in the Union to allow a smooth functioning of the single day-ahead and intraday coupling systems implemented at Union level and a level-playing field for all stakeholders.

 

Brexit could stall this process as the underlying rules are set by institutions of the European Union.

 

The capacity allocation and congestion management guidelines are a Commission Regulation that is being implemented through network codes that were developed by ENTSO-E and ACER.

 

European Parliament’s Study for the ITRE Committee “The Impact of Brexit on the EU Energy System” of November 2017 concludes that when the UK is outside the EU it would not naturally be allowed to participate in these coupling exercises (p. 25).

 

The said Study November 2017 refers in that regard to Article 1(4) and (5) of the CACM Regulation, which entails specific provisions for Switzerland and Energy Community countries - see box.

 

The said provisions envisage that the European Union single day-ahead and intraday coupling may be opened to market operators and TSOs operating in Switzerland on the condition that the national law in that country implements the main provisions of European Union electricity market legislation and that there is an intergovernmental agreement on electricity cooperation between the Union and Switzerland.

 

The respective participation in day-ahead coupling and single intraday coupling is to be decided by the European Commission based on the ACER’s opinion.

 

 

 

 

 

 

IMG 0744

    Documentation    

 

 

 

 

 

ACER Decision No 08/2018 of 26 July 2018 on the Nominated Electricity Market Operators’ proposal for the price coupling algorithm and the continuous trading matching algorithm

 

Annexes to the ACER Decision No 08/2018 of 26 July 2018

 

ACER’s Public consultation on the compliance of the all NEMOs’ proposal for the Price Coupling Algorithm and Continuous Trading Matching Algorithm with the CACM Regulation, 26 April 2018

 

All NEMOs’ proposal for on methodologies for the intraday and day-ahead algorithms, 13 November 2017

 

Proposal for a Regulation of the European Parliament and of the Council on the internal market for electricity (recast), 30.11.2016, COM(2016) 861 final 2016/0379 (COD), Article 6(1)

 

ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity Market in 2015, September 2016, p. 44

 

Commission Staff Working Document, Accompanying the document Report from the Commission, Interim Report of the Sector Inquiry on Capacity Mechanisms {C(2016) 2107 final}, 13.4.2016 SWD(2016) 119 final, p. 134, 135

 

ACER/CEER Annual Report on the Results of Monitoring the Internal Electricity and Natural Gas Markets in 2014, November 2015 (p. 15)

 

ACER's annual report on its activities under REMIT in 2012

 

Energy: New market design to pave the way for a new deal for consumers, the European Commission MEMO/15/5351, 15 July 2015

 

Commission Staff Working Document, Accompanying the document Report from the Commission, Interim Report of the Sector Inquiry on Capacity Mechanisms {C(2016) 2107 final}, 13.4.2016 SWD(2016) 119 final, p. 134, 135

 

ENTSO-E draft Work Programme 2015 through December 2016

 

European Parliament, The Impact of Brexit on the EU Energy System, Study for the ITRE Committee, November 2017 

 

 

 

 

 

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    Links    

 

 

 

 

 

Joint Allocation Office

 

JAO implicit allocation website

 

ACERs market coupling website

 

Market Coupling Operator (MCO) function

 

Platts, Severe flaws in market coupling rooted in Germany's single price zone: CREG 

 

 

 

 

 

 

 

 

Last Updated on Tuesday, 31 July 2018 15:12
 

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