European Market Coupling

Before the introduction of Market Coupling, cross-border capacity and electricity had to be purchased separately. This meant that a trading member had to reserve cross-border capacity in a first step, before using this capacity to transport the purchased electricity in a second step. Market Coupling utilizes so-called implicit auctions, where market participants bid for the electricity on the Exchange without individually receiving of cross-border capacity allocations. Power Exchanges then take into account available cross-border capacity in the price calculation process in order to minimize the price differences across market areas.

In so doing, Market Coupling maximizes social welfare, prevents artificial market splittings and sends the most relevant price signal for investment in cross-border transmission capacities. The efficiency of Market Coupling is furthermore proven by an increasing price convergence between market areas.

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The European Commission has established a Target Model for a Single Day-Ahead Coupling (SDAC). This model has been laid down into the Framework Guidelines for Capacity Allocation and Congestion Management (CACM) in 2015.

The aim of the Single Day-ahead Coupling (SDAC) is to create a single pan-European cross zonal day-ahead electricity market. This integrated day-ahead market aims to enhance the overall trading efficiency by promoting effective competition, increasing liquidity and optimizing the utilisation of the generation resources across Europe.

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 thereby maximising social welfare.

Learn more about the Single Day-Ahead Coupling on the All NEMO Committee Website.

Market Coupling initiatives over a decade

EPEX SPOT has a long-standing experience in Day-Ahead coupling projects. Between November 2006 and November 2010, the EPEX SPOT French auction participated in the Tri-Lateral Market Coupling (TLC), integrating the French, Belgian and Dutch Day-Ahead markets. The next step of market harmonization was achieved on 9 November 2010, with the launch of market coupling in Central West Europe (covering Benelux, France and Germany), known as CWE.

A major milestone in European market integration took place on 4 February 2014, when Price Coupling in North-Western Europe (NWE) went live. This 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 comprise the Power Exchanges EPEX SPOT (including former APX and Belpex) and Nord Pool as well as the TSOs 50Hertz, Amprion, Creos, Elia, Energinet.dk, Fingrid, National Grid, RTE, Statnett, Svenska Kraftnät, Tennet B.V. (Netherlands), Tennet GmbH (Germany) and TransnetBW. It marked the first  use the pan-European PCR (Price Coupling of Regions) solution for the simultaneous calculation of market prices and flows on interconnectors with one single shared algorithm called Euphemia.

At launch, NWE spanned from France to Finland and from Great Britain to Germany/Austria, covering the region of CWE, Great Britain, the Nordics and the Baltics. EPEX SPOT played a crucial role in the implementation of this project, in close cooperation with other Exchanges and Transmission System Operators. In May 2015, the calculation of cross-border capacities in CWE countries switched to a more efficient calculation process called flow-based methodology.

After the launch of NWE, two extensions of the PCR-coupled area took place: In May 2014, Spain and Portugal joined; in February 2015, Italy coupled with France, Austria and Slovenia (IBWT). The  enlarged coupled area took the name Multi-Regional Coupling (MRC) and covered 19 countries, standing for about 85% of European power consumption.

The European Commission has established a Target Model for a Single Day-Ahead Coupling (SDAC). This model has been laid down into the Framework Guidelines for Capacity Allocation and Congestion Management (CACM) in 2015.

In parallel, within the 4 MMC project, Hungary, Slovakia, the Czech Republic and Romania were coupled among each other. The connection of these markets to the MRC-coupled markets took place in 2021.

In 2022, the Flow-Based implicit allocation was implemented for the Core Capacity Calculation Region. This go live also meant the end of the isolated 4MMC coupling perimeter, now fully merged within the CORE and SDAC framework.

Price Coupling of Regions (PCR) is the collaborative initiative of European Power Exchanges to create a single price coupling solution to be used to calculate electricity prices across Europe, respecting the capacity of the relevant network elements on a Day-Ahead basis. This is crucial in order to achieve the overall EU target of a harmonised European electricity market. The integrated European electricity market increases liquidity, efficiency and social welfare. PCR remains open to other European power exchanges wishing to join.

What is PCR:

PCR is based on three main principles: a single algorithm, robust and resilient operation and solid cooperation between NEMOs

1. The common algorithm gives a fair and transparent determination of Day-Ahead electricity prices and a net position of a bidding area across Europe. The algorithm is developed respecting the specific features of the various power markets across Europe and the electricity network constraints. It optimises the overall welfare and increases transparency.
2. The PCR process is based on decentralised sharing of data into a single platform jointly operated by NEMOs, providing a robust and resilient operation.
3. The PCR Matcher and Broker service enables the exchange of anonymised orders and electricity network constraints among the power exchanges to calculate bidding zone prices and other reference prices as well as net positions of all included bidding areas.

History:

The project is currently being carried out by nine Power Exchanges: EPEX SPOT, GME, HenEx, Nasdaq, Nord Pool, OMIE, OPCOM, OTE and TGE. PCR is used to couple the following countries: Austria, Belgium, Czech Republic, Denmark, Estonia, Finland, France, Germany, Hungary, Italy, Latvia, Lithuania, Luxembourg, the Netherlands, Norway, Poland, Portugal, Republic of Ireland, Romania, Slovakia, Slovenia, Spain, Sweden and UK.

The initiative started in 2009 and the PCR parties signed the PCR Cooperation Agreement and PCR Co-ownership Agreement in June 2012.

One of the key elements of the PCR project is the development of a single price coupling algorithm, which was given the name EUPHEMIA (acronym of Pan-European Hybrid Electricity Market Integration Algorithm). It is used to calculate energy allocation, net positions and electricity prices across Europe, maximising the overall welfare and increasing the transparency of the computation of prices and power flows resulting in net positions.

The Single Intraday Coupling (SIDC) establishes a single EU cross-zonal intraday electricity market. In essence, it enables energy buyers and sellers (market participants) to collaborate seamlessly across Europe to trade electricity continuously on the day the energy is required.

An integrated intraday market makes intraday trading more efficient across Europe by:

• promoting competition
• increasing liquidity
• facilitating energy generation resources sharing
• adapting to changes: allowing market participants to accommodate unexpected changes in consumption and outages

With the rise of renewable intermittent production, such as solar energy, there is a growing interest among market participants in intraday trading. This is particularly relevant as it becomes more challenging for market participants to be in balance (i.e. supplying the correct amount of energy) after the closure of the day-ahead market.

Being able to balance positions until one hour before delivery time is advantageous for both market participants and power systems. It reduces the need for reserves and associated costs, while providing sufficient time for executing system operation processes to ensure system security. This flexibility is crucial, especially in the context of evolving energy landscapes and the increasing reliance on renewable energy sources with variable outputs.

Learn more about the Single Intraday Coupling Continuous and Intraday Auctions on the All NEMO Committee Website.

You can find all documentation related to SIDC below.