Market coupling mechanisms allow the optimization of the allocation process of cross-border capacities thanks to a coordinated price formation mechanism, taking into account orders placed by the members of different exchanges.
Market coupling uses implicit auctions in which players do not actually receive allocations of cross-border capacity themselves but bid for energy on their exchange. The exchanges then use the available cross-border transmission capacity to minimize the price difference between two or more areas.
In so doing, market coupling maximizes the social welfare, avoids any artificial splitting of the markets, and sends the most relevant price signal for investment in cross-border transmission capacities. The efficiency of the mechanism is furthermore revealed by an increasing price convergence between market areas. Market coupling mechanisms are based on the reference prices emerging from liquid markets such as the one managed by EPEX SPOT.
EPEX SPOT has a long-standing experience in day-ahead market coupling projects. Between November 2006 and November 2010, the EPEX SPOT French auction has been involved in the successful Tri-Lateral Market Coupling (TLC), integrating the French, Belgium and Dutch day-ahead markets.
A major step of market harmonization has been achieved on the 9th of November 2010, with the launch of market coupling in Central West Europe (covering Benelux, France and Germany), known as CWE. In parallel, CWE has been volume coupled since November 2010 with the Nordic region via the Interim Tight Volume Coupling ITVC, through EMCC – European Market Coupling Company. EPEX SPOT has provided a crucial role to this project, in close cooperation with other exchanges and transmission system operators.
Learn more on ELIX, the European Electricity Index, on the next page.
To learn more about the functionality of CWE Market Coupling, please click here.
To learn more about the functionality of Trilateral Market Coupling, please click here.
