Day-ahead market coupling
- MARKET COUPLING THEORY
HUPX is the operator of the organized Hungarian spot power market and is licensed as a NEMO (Nominated Electricity Market Operator) by the National Regulatory Authority of Hungary (MEKH). HUPX is working with other European NEMOs and Transmission System Operators (TSOs) to perform tasks related to single day-ahead (SDAC) and single intraday (SIDC) market coupling, which are determined in the European Commission Regulation 2015/1222 of 24 July 2015 (CACM Regulation).
SDAC is an initiative between the NEMOs and TSOs which – in the framework of CACM implementation – enables cross-border trading across Europe via implicit capacity auctions for delivery of power for the following day.
The primary target of the market coupling is to assure a deeper integration of regional power markets. Given the advantages for end-consumers, traders, security of supply etc. this integration serves both national and international interests.
Before the introduction of Market Coupling, cross-border capacity and electricity had to be purchased separately. This means that a market participant had to reserve cross-border capacity in a first step, before using this capacity to transport the electricity bought in a second step. Market Coupling uses so-called implicit auctions in which market participants do not individually receive allocations of cross-border capacity, they just bid for the electricity on the Exchange. Power Exchanges then take into account available cross-border capacity in the price calculation process, in order to minimize the price difference in different market areas.
The market coupling process aims at maximizing the energy flow from the low price area to the high price area by taking into account the available cross-border capacity. Consequently, price levels among individual market areas converge.
Figure 1. Benefits of the Market Coupling
HUPX has already taken important steps in the market coupling process, such as the CZ-SK-HU Market Coupling and the 4M MC Market Coupling. After the successful go-live of the Interim Coupling Project (ICP) on 17th of June the next goals of the Single Day-Ahead Market are to execute the Flow-Based Project and the 15 minutes Implementation Project.
- HISTORY OF SDAC
CZ-SK-HU Market Coupling
In order to implement the CZ-SK-HU Market Coupling, the regulators, the power exchanges and the transmission system operators of the Czech Republic, Slovakia and Hungary have signed a Memorandum of Understanding on 30 May 2011, in order for the market coupling to launch on the trading day of 11 September 2012. Continuous work and serious efforts were needed from all participants working on the project (PXs, TSOs and NRAs). In the process of organizing the market coupling, HUPX Ltd. filled the part of project manager, hence our company played an active role in ensuring that the project would be concluded by the target date without any issues.
The implicit auction was the basic method of Czech-Slovak-Hungarian Market Coupling. The capacity allocation was based on the simultaneous consideration of power flows and available cross-border capacity within the market coupling calculation algorithms, which was the Cosmos algorithm during the operation of CZ-SK-HU.
The aforementioned market coupling was demanded by the market participants and the project was formed voluntarily by the PXs, TSOs and NRAs considering the European regulation. The Czech-Slovak-Hungarian market coupling ensured the future possibility of efficiently joining the MRC region. The explicit flow-based capacity allocation model is a less efficient solution regarding the Single European Electricity Market, which is why it is less preferable.
During the project several tests were executed by the Project Members. The successful execution of the Master Test Plan was an unequivocal precondition before the go-live of the Market Coupling. The Project Members – in a period of almost one year - have executed all of the 8 tests successfully. In these tests scenarios, fallback situations were also set up auspiciously besides the normal processes. The Project Members attended the Member Tests (on the beginning of August 2012) with high priority to assure the smooth transition to the go-live.
The Czech-Slovak-Hungarian Market Coupling Project launched successfully at the beginning of September 2012.
There were several benefits of the CZ-SK-HU market coupling. In addition to contributing to the European power market integration and the improvement of the security of supply, it also aided the growth of market depth and the enhancement of liquidity. The project resulted more stable power prices in the regional markets, as well as in the narrowing of price spreads between relevant markets. With the Market Coupling the price volatility taking place on the smaller markets is likely to be moderated, which in turn also increases the predictability of DAM prices.
A CZ-SK-HU-RO Market Coupling (4M MC)
The project started in August 2013 with the aim to extend the CZ-SK-HU Market Coupling towards Romania and to implement the PCR (Price Coupling of Regions) solution. On the 19th of November 2014, the PXs, TSOs and NRAs of the Czech Republic, Slovakia, Hungary and Romania started the operation of the day-ahead four markets market coupling (4M MC) with the PCR-based extension of cooperation with Romania. The 4M MC is an ATC based day-ahead auction with implicit allocation, which strives to be as compatible with the EU target model as possible. The 4M MC solution of the Central Eastern European (CEE) region could be seen as an intermediate step of the ”Core” regional market coupling solution.
The first test was the internal integration test, which was made between 2nd of September 2014 and 19th of September 2014. After the internal integration test successfully finished the full integration test together the PXs’ Members conducted between 13th of October 2014 and 26th of October 2014. Members could participate through only those PXs where they were registered members.
Acceptance tests were made between 2nd of November 2014 and 9th of November 2014.
After the successful member and acceptance tests and the final regulatory approval, the 4M MC project was successfully launched on 19 November 2014, which was another milestone on the way to a single European electricity market.
Figure 2. MRC members and 4M MC members in SDAC in 2021 spring
Market coupling process model during 4M MC
The introduction of 4M MC Market Coupling did not change the capacity allocation method. For the given cross-borders the adjacent TSOs calculated the ATC and the smaller value took effect in connection with the result and publishing. The involved TSOs (CEPS, SEPS and MAVIR and TEL) were responsible for the cross-border capacity allocation as well. However, the handling of capacity was a modified TSO Management Function task which was held by SEPS.
The reception of the market participant orders remained the task of the Power Exchanges. This data, in anonymized form, was forwarded to the PMB (Price Matcher and Broker). To trade in the 4M MC region was not necessary to register in all market areas. It was sufficient to register only on the local market. The Price Matcher and Broker, which assures the operation of Market Coupling, was based on the EUPHEMIA algorithm used in the Multi-Regional Coupling (MRC) region as well. The mTMF (modified TSO Management Function) provided the available capacity for the PMB, and with the help of aggregated data run the order matching process. This process was also known as the implicit auction regarding the capacities and orders. Sending the cross-border schedules in the relevant TSO system was the responsibility of shippers – in the interim solution this is also a TSO task - as the transmission of electricity between the coupled markets. The parties agreed to implement a solution similar to the solution in MRC while adapting it to the 4M MC circumstances (e.g. in case of PXs adaptation to gate closure time (GCT) at 11). Furthermore, they decided to have same roles and responsibilities, where feasible and rational, stemming from CZ-SK-HU MC arrangement (e.g. centralized TSO system and TSO shipping).
Figure 3. 4M MC Market Coupling model
In the project of market coupling, the processes and the timing were defined to give the biggest timeframe for solving possible problems. These were supported by the different backup modes, which were set up to ensure smooth operation at every level.
Figure 4. 4M MC Operational Processes and Timings
INTERIM COUPLING PROJECT – ICP
On 21st December 2018, the national regulatory authorities of Austria, Germany, Poland and the 4MMC countries (Czech Republic, Hungary, Romania, Slovakia) requested the initiation of the interim project for an NTC-based market coupling between these countries. The Project Parties involved in the DE-AT-PL-4M MC Project (’Interim Coupling’) have finalized the High-Level Market Design to be implemented and the national regulatory authorities reconfirmed their support for the continuation of the project during a NRA-TSO-NEMO meeting held on 22nd May 2019 in Budapest. After the finalization of the design and implementation of the local IT solutions, project parties have successfully completed the joint regional functional testing (FIT), simulation integration testing (SIT), end-to-end procedural tests at a wider European level and Member testing phases. The Interim Coupling Project goes went live in 17. June 2021.
The project aims to couple the 4M MC and Poland and the Multi-Regional Coupling (MRC) by introducing NTC-based implicit allocation on 6 new borders (PL-DE, PL-CZ, PL-SK, CZ-DE, CZ-AT, HU-AT) and implement Single Day-Ahead Coupling (SDAC).
Figure 5. The NTC-based capacity allocation on the 6 new borders after 4M MC joining the SDAC
Net Transfer Capacity (NTC) Calculation Method represents a calculation of transmission capacity based on the maximum amount of electricity that can be transferred between two areas. It is compatible with security standards applicable in both of the areas and taking into account the technical uncertainties on future network conditions.
The project intends to be a stepwise transition on the afore-mentioned borders from current NTC-based explicit allocation towards the flow-based implicit allocation which is to be implemented in the framework of the Core Flow-Based Market Coupling Project as target solution required by regulation. The Interim Coupling significantly contributes to the regional market integration and brings benefits to the market before the flow-based day-ahead market coupling go live in the Core region.
This marks the start of the so called “enduring phase” of SDAC, during which there is one European Single Day-Ahead Coupling only, where MRC and 4M MC are coupled.
- SINGLE DAY-AHEAD COUPLING - SDAC
The aim of Single Day-ahead Coupling (SDAC) is to create a single pan-European cross zonal day-ahead electricity market. An integrated day-ahead market will increase the overall efficiency of trading by promoting effective competition, increasing liquidity and enabling a more efficient utilization of the generation resources across Europe.
SDAC allocates scarce cross-border transmission capacity in the most efficient way by coupling wholesale electricity markets from different regions through a common algorithm, simultaneously taking into account cross-border transmission constraints thereby maximizing social welfare.
The SDAC makes use of a common price coupling algorithm, called PCR EUPHEMIA. Price Coupling of Regions (PCR) Project aims to develop a single price coupling solution to be used to calculate electricity prices across Europe and to implicitly allocate auction-based cross-border capacity. The PCR is owned currently by nine Power Exchanges: EPEX SPOT, GME, HEnEx, Nasdaq, Nord Pool, OMIE, OPCOM, OTE and TGE. The name of the algorithm EUPHEMIA is an acronym of Pan-European Hybrid Electricity Market Integration Algorithm.
Market coupling process model in SDAC
Normal operation and timing (from 17 June 2021)
After the Interim Coupling went live a normal day process looks like as follows:
- the actual coupling takes place between 12:00 and 12:57;
- starting with the gate closure time (GCT) and ending with the final result publication;
- The GCT compared to the 4 MMC operation moved to 12:00 from 11:00; (That is the most visible change for the Market Participants)
- With the GCT time change the final result publication time is also moved to 12:57;
- As a new data at 12:45 Market Participants will have a preliminary result publication;
- If there is not any intersection of the market supply curve and the market demand curve or the market price exceeds the threshold value lower than -150 €/MWh or higher than 1500 €/MWh during the price calculation for at least one hour a so called second auction is triggered. The second auction can be initiated at 12:27 and the OBK will be reopened at 12:45 for 10 minutes.
Figure 6. The normal day process in SDAC
Partial decoupling and timings in SDAC (from 17 June 2021)
If anything goes wrong and the coupling processes cannot be finalized in a certain time there are different fallback procedures to solve the issues. Fallback procedures are triggered when the market coupling results cannot be given in due time so an IC solves it by using, predefined procedures. (The IC is the actual governing body of the decoupling procedures.)
At SDAC level, two main decoupling situations exist:
- partial decoupling and
- full decoupling.
Partial decoupling due to the issue encountered in CZC process, aka early decoupling
If the Market situation leading to a risk of decoupling of one or more interconnectors the MPs will receive a message (UMM_02) about the risk of partial decoupling for one or more interconnectors at 11:15. The message will contain all the affected interconnectors. The MPs will be asked by JAO for shadow auction.
If the situation cannot be solved, PD is declared at 11:30 to MPs and the coupling process continues without the concerned interconnectors. The results of the shadow auction will be published as soon as possible as of 11:35 after the PD is declared.
Figure 7. Operation in case partial decoupling of one or more interconnectors
Partial decoupling due to the issue encountered in coupling process
If one or more NEMOs’ trading system experiences technical issues and cannot continue in MC process PD for the relevant bidding zone is declared. The MPs will be informed at 12:25 about the risk of PD via the message ExC_03. JAO will inform the MPs about the shadow auction and its deadline 12:35. If the technical issues wasn’t solved the PD is declared at 12:45 via message ExC_04.
The shadow auction results are also published at the same time. Whatever reason causes this case of PD, the Order books can be reopened for 15 minutes.
After the order submission is closed MC session is continues with the delayed times, and the results will be published asap.
The decoupled Interim Coupling NEMO runs a local Auction and publishes the Local Market Results independently from the Interim Coupling NEMO(s) which remained coupled.
Figure 8. Operation in case partial decoupling of one or more Bidding zone(s)
Full decoupling and timings after ICP go-live
The full decoupling is triggered when critical deadlines cannot be kept and there is no chance to keep any market coupled.
Figure 9. Operational process in case full decoupling is needed
A Full Decoupling of SDAC is a situation where no bidding area and interconnector remain coupled due to the unavailability of the Market Coupling Results at the deadline of 14:00.
The MPs will receive a message at 13:30 about the Risk of Full Decoupling. Bids in the shadow auction system may be updated until 13:40. And another message will be received at 14:00 when the Full Decoupling is declared.
The process is the same as partial decoupling and Hungary has to be decoupled. There will be a local auction, with explicit shadow capacity auction. The OBKs will be reopened after 14:00, and the publication of the results will be at 14:45.
- FUTURE DEVELOPMENT OF SDAC
PCR EUPHEMIA is largely compliant with CACM requirements and the final target is to complete SDAC and ensure full CACM compliance. Further, PCR EUPHEMIA as an “existing solution” has been proposed in the context of Single Intraday Coupling for the execution of intraday auctions for the pricing of cross-border capacity (IDAs). There are several ongoing development concerning EUPHEMIA, which aims to support further extensions of the market coupling, new market designs and higher quality of performance, such as:
- Geographical extensions and market growth
- Switch from NTC to flow based capacity calculation
- 15 min Market Time Unit and cross matching
- CACM requirements to the Algorithm (adequate performance, scalability and repeatability)
- New NEMOs’ and new TSOs’ requirements
- Topology changes
Core Flow-based Market Coupling
According to Article 20 of the Commission Regulation (EU) 2015/1222 establishing a guideline on capacity allocation and congestion management (CACM Regulation), a Flow-Based Market Coupling for the day-ahead timeframe has to be implemented in the Core Capacity Calculation Region (Core CCR).
In May 2015, transmission system operators in the CWE region (including Belgium, France, Netherlands and the German-Austrian- Luxembourgish bidding zone) successfully implemented the FB method. The Core CCR consists of the bidding zone borders between the following EU Member States’ bidding zones: Austria, Belgium, Croatia, the Czech Republic, France, Germany, Hungary, Luxemburg, the Netherlands, Poland, Romania, Slovakia and Slovenia.
Figure 10. Core Flow based MC Project Parties
The flow-Based approach is a capacity calculation method in which the physical limits of the network are based on available margins on critical network elements (branches) and power transfer distribution factors which are defined for every critical branch and every bidding zone within Core CCR. These factors describe how a change in the net position (import or export) of each bidding zone changes the power flow at each critical branch. The computational algorithm then searches for the most optimal energy exchanges between bidding zones. In comparison with the current Net Transmission Capacity ('NTC') method, the FB method further increases economic welfare. The FB method is more sophisticated, as it takes into account multiple parameters and optimization conditions and therefore better reflects actual network conditions. More detailed information can be available here.
The current planning foresees the go-live of Flow-Based Market Coupling in the Core CCR in February 2022.
15 min MTU Implementation
The Single Day-Ahead Market Coupling currently manages only one Market Time Unit (MTU) which is the hourly time resolution. That implies that for the cross-border trading all input data, as well as all output data is at an hourly granularity.
However, with the Clean Energy Package (CEP) requirements for the implementation of different MTUs for energy trading are set. Nominated Electricity Market Operators (NEMOs) are required to provide market participants with the opportunity to trade energy in time intervals that are at least as short as the imbalance settlement period (ISP).
In August 2020, NRAs opted for an implementation by “stepwise” approach, meaning that some markets can have 60 min MTU while others can already have 15 min MTU. This approach is more complex to implement than a big bang, as it requires additional and interim features to be provided in TSOs’, NEMOs’, and third party’s systems only required in the interim period until all bidding zones switched to 15 min MTU.
HUPX will be part of the first go-live wave of the 15 min product planned in Q1 2024.