Market coupling and the importance of price coordination between power exchanges

In Europe, market coupling stands for a further integration of wholesale trading arrangements across country borders. More specifically, it refers to the implicit auctioning of cross-border physical transmission rights via the hourly auctions for electric energy organized by power exchanges (PEXs) one day ahead of delivery. It therefore implies that the PEXs can optimize the clearing of their day-ahead auctions. Due to verticals in the aggregated order curves, the optimal solution can be settled at different prices. In order for prices to give correct locational signals for network development, generation and consumption, price coordination between exchanges is necessary. The paper illustrates this issue, its relevance and discusses how to deal with it.