In Europe several market coupling projects have been initiated and hence open up to new terminologies used in these projects. An explanation of the different terminologies used in the market coupling project can be found below.
Auction methods
Explicit Auction
Explicit auction is when the transmission capacity on an interconnector is auctioned to the market separately and independent from the marketplaces where electricity is auctioned. Explicit auction is considered as asimple method of handling the capacity on the international interconnections in Europe. The capacity is normally auctioned in portions through annual, monthly and daily auctions.
Implicit capacity auction
Implicit auction is when the flow on an interconnector is found based on market data from the marketplace/s in the connected markets. Thus the handling of capacity is included in the auctions of electricity in the market. In implicit Auctions the capacity between bid areas (price areas/control areas) is made available to the spot price mechanism in addition to bid/offers per area, thus the resulting prices per area reflect both the cost of energy in each internal bid area (price area) and the cost of congestion.
Implicit auction is the common term for both market coupling and market splitting.
- Market coupling
Market coupling is a process where a co-operation between two or more power exchanges ensures that during every hour of operation all the available trading capacity is utilized with power flowing towards the high price area.
- Market splitting
With market splitting one power exchange ensures the right cross-border power flow by establishing production surpluses in the power exchange’s low-price areas, and production deficits in the power exchange’s high-price areas.
Current market coupling projects in Northern Europe
Market Coupling between Denmark and Germany
This project aims to improve the utilization of the daily cross-border capacity between Denmark and Germany by implementing implicit auction. Participants of the project are Nord Pool Spot, EEX, E.On Netz and Vattenfall Europe Transmission. For further information see the press release no.16/02.11.06.
TriLateral Coupling (TLC) of Netherlands, Belgium and France
TLC refers to the market coupling between, Netherlands, Belgium and France. The participants in this project involve the power exchanges APX, Belpex and Powernext and the TSOs Tennet, Elia and RTE. The TLC was launched the 21st of November 2006.
Coupling TLC with NPS through NorNed
The license for the NorNed cable, currently being laid across the North Sea between Norway and Netherlands, is given on the condition that the flow should be decided based on the market prices in the two markets Norway and Netherlands. A project including Statnett, TenneT and the power exchanges Nord Pool Spot and APX is working to find a common solution for the start of operation of the cable.
Multi Market Coupling (MMC)
Multi Market Coupling is a term derived from the project of coupling the TLC region with the NPS region. As the term implies it involves integration of many markets with a diverse set of local situations and requirements.
Market coupling system
The market coupling system is the technical software tool used by the power exchanges to calculate the cross-border flow and the market area prices. The power exchanges involved may choose between two different levels of extension in the involvement of the market coupling; Price based coupling or Volume based coupling:
- Price based Coupling – or close coupling
In price based coupling the power exchanges leaves the price calculation to the market coupling system. The prices derived from the combined price- and flow-calculations are used as settlement price on the local power exchanges. By using this method the calculation of the cross-border flow, the market area prices and the volume traded is done by one common office e.g. a Auction Office
- Volume based coupling – or loose coupling
In volume coupling only the power flow found from the coupling algorithm is used as input in the local price calculations. The flow is entered on the local power exchanges as price independent purchase or sales orders – depending on direction of flow. With volume coupling price discrepancies may occur due to slight differences in the local power exchanges price algorithms from the coupling algorithm. The extent of price discrepancies will depend on to what degree the coupling algorithm takes local differences into account in the flow calculation.
Other relevant glossaries
Auction Office
The Auction Office is an entity being responsible for calculating the cross border flows based on the market data received from the power exchanges and the available capacity given by the TSOs. If price based market coupling is chosen the prices calculated at the Auction Office will also be the settlement price at the local power exchanges. (see price based/close coupling). The auction office also has a balance responsibility with regard to the cross-border power flow meaning that the amount of power purchased on one side of the border is exactly the same as the amount of power sold to the other side of the border.
Congestion management
Congestion management refers to the principles used to handle the physical flow of power across cuts in the transmission grid with limited capacity within an area or between two or more market areas.