Market Coupling
Market Coupling is a process where day-ahead and intraday bids for electricity are placed on power exchange without having cross-border capacities allocated in advance. During the market coupling process, power exchanges match the bids in single pan-European market and allocate scarce cross-border transmission capacity in the most efficient way possible. Before the introduction of the market coupling cross-border capacity and electricity had to be purchased separately.
Main benefits of Market Coupling are:
- Maximized social welfare → Market Coupling eliminates insufficient cross border allocation , ensuring that consumers pay a fair price for electricity. This promotes competition and lowers costs for end-users.
- Removed risks and costs of trading transmission capacity and energy separately → implicit auctions make it one-step process which maximizes and optimizes use of existing cross-border capacities.
- Enhanced energy security → Interconnected markets can rely on each other during supply shortages or unexpected disruptions, enhancing energy security by reducing dependency on a single energy source or supplier.
In summary, market coupling in the European electricity market creates more efficient and integrated market, with increased competition and price convergence. This creates benefits for both consumers and producers, while also incentivizing investment in new infrastructure and renewable energy sources.
History of European and Slovenian Market Coupling
Market coupling started in 2006 as a local initiative between the French, Belgian and Dutch day-ahead markets. In the following years, extension to Central West Europe, the Nordic countries and the North-West Europe was implemented. The process, initially developed on a commercial basis by several European power exchanges has been regulated in 2015 through the Guideline on capacity allocation and congestion management (Regulation 2015/1222), setting the rules for further operation and development.
BSP was founded in 2008 and in the first few years, it operated on local market only. First Market Coupling project successfully implemented was a Day-ahead coupling on Slovenian-Italian border in the start of 2011. Borders with Austria, Croatia and Hungary were coupled in 2016, 2018 and 2022 respectively, starting with the Day-ahead segment. Intraday coupling followed soon afterwords.
On the 22nd of June 2016 BSP introduced, together with Italian partners, an implicit Intraday auctions (MI) on Slovenian-Italian border. This was a pilot European project that later evolved to ‘Complementary Regional Intraday Auctions’ (CRIDA) and is soon to be replaced with pan-European Intraday auctions (IDA).
On 8th of June 2022 BSP has entered, together with 10 nominated electricity market operators (NEMOs) and 16 transmission system operators (TSOs) to the Core Capacity calculation region as part of day-ahead market integration. Since then, core calculation has been carried out on all borders except the Italian one.
Legal Basis
On 14th August 2015, the Commission Regulation (EU) No 2015/1222 of 24 July 2015 establishing a Guideline on Capacity Allocation and Congestion Management (CACM) entered into force. This Regulation set the rules for the functioning of the cross-border day-ahead and intraday market in European Union and made the market coupling legally binding across the European Union.
CACM guideline introduced the entity of the Nominated Electricity Market Operator (NEMO) to operate, maintain and further develop the Single Day-Ahead Market Coupling (SDAC) and the Single Intraday Market Coupling (SIDC).
The Energy Agency has designated BSP Energy Exchange LLC as a nominated electricity market operator for a period of 4 years within the territory of the Republic of Slovenia in December 2015. NEMO status has been extended in 2019 and 2023.
Governance Structure
All NEMOs and TSOs are working together to achieve a truly integrated European electricity market. The cooperation is achieved through joint governance structure called Market Coupling Steering Committee (MCSC) which includes representatives of all parties involved.
MCSC activities are supported by horizontal joint groups that address the couplings' legal and communication aspects. In addition, on the SDAC side, four joint groups deal with the following: Market and System Design, Procedures and Operation, Simulation Facility, and 15min ICG. On the SIDC side there are three joint groups dealing with: Operations (OPSCOM) and Change Control, Quality Assurance and Release Management (QARM), and Market and System Design (MSD).