1. Market Coupling and Ways Forward Lene Sonne Vice President, Market
The European Electricity Market Integration and some Thoughts on Gas Markets
Market Coupling and Ways Forward
Lene Sonne
Vice President, Market

2. Agenda The Vision Status of market coupling projects
Possible ways forward
EMCC: an overarching mechanism: First of its kind
Integrating gas markets
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3. Vision for European Electricity Markets
Single European Market: Transparent and Liquid Market,
Free trade across all National Borders
Socio-Economics
Effective utilization of the existing power system
Merit order activation of generators despite geographical location
Implicit auctions:
most efficient allocation method
should be applied at all congestion points
Basic Requirements:
Energy bid/offer information and cross border capacity
PEX-TSO coordination
Single European market= where traders situated anywhere have equal access to resources, and where the only barrier is the actual physical limitation
Implicit auctions lead to socioeconomic efficient utilization of the grid,
the basic requirement for this is, that a coupling system gets both energy bid/offer information and the cross border capacity, if these two information cannot be accessed by the same entity then we need a coordination like market coupling
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4. Status of existing Regional Markets
Intraregional coupling= a set of markets that share the same coupling system, Nord Pool, TLC, Iberia etc
Interregional coupling = two regions with two different coupling mechanism, but are coordinated by another overarching mechanism, for example:
Nord Pool= market splitting
TLC/CWE= market coupling
if EMCC coordinates these two solutions then its inter-regional
The first Inter-regional Coupling
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5. Central coordination Entity
EMCC and Tasks
EMCC - European Market Coupling Company , private limited company (GmbH)
TSO and PEXs equal Shareholders
EMCC is located in Hamburg
Set the correct flows
Collect congestion revenue
Publish and maintain information ETC…
Calculate local market prices
Settlement ETC..
Nord Pool
Spot
EEX
Germany
FI,DK,SE,NO
EMCC
Central coordination Entity
EMCC lets the two power exchanges continue doing what they did before, but that they get coordinated
Tasks of EMCC:
Set the correct flows between the two market areas, a tight volume based coupling, the flows are just as good as market splitting
Tasks of local power exchanges EEX and Nord Pool
after the interregional flows have been set by EMCC, each PEX takes the flows as input and calculates market prices, and settles trade with market players
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6. Possible ways Forward Several regional/local solutions
Extremely important to coordinate these solutions
How:
Selecting compatible regions for further integration
An overarching mechanism to coordinate regions
Several regional/local solutions
as seen before there are existing regional solutions in Europe, the challenge is how to coordinate these so that we achieve the vision
How to proceed from the current situation:
Selecting compatible regions for further integration:
some regions might be easier to merge than others,
we can start with this regions and continue gradually, but how should we select these regions (see next slide)
An overarching mechanism to coordinate regions: for example the CWE and the Nordic will maintain their own market coupling, but EMCC+ will coordinate these two regions, hence no need for harmonization or merging of these regions in the short-run
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7. Selecting Compatible Regions for Further Integration
Condition:
- Efficient exchange on both sides of the congestion point
Analyze Potential benefit compared to challenges of integration:
Potential benefits:
secure right direction of flow on interconnections
Sufficient size of cross border capacity
Challenges of integration:
Number of stakeholders, difficulties of multilateral agreements
Necessary market harmonization
A gradual process that eventually extends to a Pan-European solution
Select regions for further integration on the basis of potential benefits compared to cost of harmonization. For example if the price difference between two region is volatile then the need for a tighter coupling is much important than two regions where one of them is always importing (italy)
the higher the size of the market, and the cross border capacity, the higher need for tighter integration
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8. Overarching Mechanims
Overarching Mechanism to Coordinate Regions: less need for full harmonization
Overarching Mechanims
EMCC+
MC (CWE)
MS (Nord Pool
When we cannot have the same solution for all regions, then we can build upon the regional solutions and coordinate them ( like EMCC)
The EMCC or something similar to EMCC can for example coordinate CWE and the Nordic Market, even though both have their own regional coupling solutions.
Market Coupling
PEX 1
PEX 2
Price area
Price area
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9. Governance of the Market Coupling Process
Several stakeholders involved: high level of governance challenges
Stepwise harmonization considered to be the best option
Need for regulatory guidelines:
Indicate best practice for market coupling
Require commitment from all stakeholders
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10. Integrating gas markets
The development of the gas market has been lagging behind compared to the electricity market.
An integrated and well functioning market for gas must be the final goal.
The EU Electricity & Gas markets 3rd legislative package
A vision to make the internal gas market work.
Same development for gas and electricity?
In principle yes, but differences must be recognised.
The development of the gas market has been lacking behind compared to the electricity market.
There has been a significant development of the electricity market in the past – now the time has come to take some larger steps in the development of the gas market.
An integrated and well functioning market for gas must be and end goal.
A vision to make the internal gas market work. However, the level of ambition is lower compared to electricity.
The gas sector is under development especially in DK, BEL, HOL, UK. The pressure from the Commission and ERGEG is being followed and implemented.
Same development for gas as for electricity? In principle yes, but differences must be recognised:
Electricity is produced at many locations, whereas gas is solely at finding location
Contrary to electricity, the flow of gas is often very predictable.
Long term gas contracts is still very common.
Renomination of capacity is possible for gas.
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11. Evolution of Gas and Electricity Markets
FCFS
Pro Rata
Explicit auctions
Implicit auctions
Socio-economic efficiency
Before Liberalization
Power sector?
Gas Sector?
Time
The evolutionary path for gas might be different from electricity
However, the final goal must be an efficient integrated European gas market
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12. Steps to be taken Transparent prices Further step:
Clear trend - gas exchanges are being established around Europe
Further step:
Short-run:
increase utilisation of capacity
cooperation between TSOs to harmonize capacity products
Medium-run: explicit capacity auctions
Long-run: market coupling between existing gas exchanges
An integrated market for gas is possible – but some serious challenges must to be solved.
use-it-or-loose-it
use-it-or-sell-it
Transparent prices
Nord Pool Gas launched 4 March and EEX Gas Exchange
Reliable, unambiguous, and current prices on the wholesale market are basic elements for developing an efficient competitive market.
Market players to utilise and support trade at gas exchanges.
Further step
Increase utilisation of capacity, e.g. via secondary markets for capacity trading.
Explicit capacity auctions could evolve. Ellund is being considered.
Investments if long term bottlenecks.
An integrated market for gas is possible
Separation of capacity and energy trade is problematic when there are bottlenecks => commercial congestion can exist without physical congestion.
Harmonisation and bundling of capacity products at cross border points.
Need for effective use-it-or-lose-it measures
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