Market coupling
European Union Electricity Market Glossary

 


 

 

Market coupling in the European Union Internal Electricity Market 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.

market coupling lower price higher price

 

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);

 

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.

 

The 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 for the Spanish-French, Austrian-Italian, French-Italian and Hungarian-Romanian borders, following the relevant extension of market coupling.

 

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.

 

 



Last Updated on Sunday, 22 January 2017 23:02
 

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