What is Market Coupling?

Price Coupling of Regions (PCR) is seen as an important step towards a harmonized electricity market through market coupling in Europe; seven European electricity exchanges (APX-ENDEX, Belpex, EPEX SPOT, GME, Nord Pool Spot, OMIE and OTE) developed the joint price coupling. The common goal of the power exchanges is the best possible calculation of electricity prices and the efficient utilization of cross-border allocations.

According to EPEX-Spot - one of the seven PCR initiators - other European power exchanges may also join the PCR solution in order to guarantee even greater efficiency. Market participants can benefit from cross-border trading.

Originally, transnational electricity trading and the necessary allocation of transport capacities were two separate markets. Through so-called implicit auctions, market coupling combines the previously separate trading transactions into an integrated electricity market.

All TSOs send their cross-border transport capacities to a Market Coupling Operator (MCO) - such as Transmission System Operator Security Cooperation (TSC). This is the interface between the TSOs and the power exchanges. The MCO models centrally and independently the capacity values. The TSOs and the MCO validate and monitor the values and exact cross-border capacities permanently. In the next step, the MCO transmits the capacity values to the electricity exchange. Once this is done, the electricity traders can submit their offers. The actual coupling is then carried out by the relevant electricity exchanges: they settle supply and demand using an algorithm accepted by all partners. However, all players need to compare their capacity values once again before publication.

The system’s underlying market coupling is therefore based on several control mechanisms to ensure maximum efficiency.
 

On May 20th, 2015, the CWE states implemented the so-called flow-based market coupling (FBMC) in Central Western Europe. The application of the FMBC is limited to the CWE internal borders (D-NL, D-F, F-B, NL-B) so far. In parts, the FBMC allocates transmission capacities at the same time as the market clearing on the electricity markets takes place. This is a departure from the usual available transfer capacity (ATC) with capacity allocation prior to market clearing. The FBMC ensures greater cross-border transport capacity through the closer integration of capacity allocation and market activity.

A recent paper by scientists from KU Leuven in Belgium called for an evaluation of the data since the introduction of the FBMC. According to the paper, the European TSOs should cooperate more closely, as there are still differences in coordination. Furthermore, the configuration of the market areas should be reconsidered. Market coupling and the underlying methods for calculating cross-border transport capacities are therefore not a completed process, but subject to continuous optimization.

The European Union pursues the vision of a pan-European electricity market in which the market areas of the member states link together by market coupling in order to ensure the most efficient possible market. Each country of the European Union participating in market coupling must therefore nominate one or more so-called Nominated Electricity Market Operators (NEMOs) per bid zone in accordance with the EU Commission Regulation 2015/1222. The national supervisory authorities nominate the NEMO (or the NEMOs) for their area of responsibility. 

These NEMOs must establish the secure functioning of the various market coupling mechanisms in the joint European network. Together with the transmission system operators (TSOs), the electricity market participants and the regulatory authorities, their task is to enable the completion and efficient functioning of the EU's internal electricity market. This includes the best possible management and, together with the TSOs, sustainable technical development of the common transmission networks.