The Achievement of the EU Electricity Internal Market through Market Coupling

The achievement of the internal market for energy is going ahead in the EU 15 since a model is
emerging for “coupling the national markets for electricity”.
For about 15 years the EU 15 was made up of national markets open to each other through rules of
access to the grids while organized market pricing was kept national. The main exception was in the
Nordic countries (Sweden, Finland and Denmark plus Norway –not a member of the EU). In this
region the coupling of national markets is obtained through a single Power Exchange being a common
subsidiary of the Nordic transmission system operators (TSOs). This single PX runs a single Day
Ahead market pricing zone when the grid is not constrained and splits itself into different pricing areas
when structural constraints arise. This model is known as “market splitting”.
The Netherlands, Belgium and France did later create a less centralized single pricing mechanism by
“coupling” their three national PXs with a common pricing algorithm coordinating the price formation
among the three national exchanges. The empirical success of this new model has validated it as an
EU model for other regional markets.
A counter-model has been experimented between Germany and Denmark. It consisted of a coupling of
“volumes” linking the quantities offered and demanded in the two exchanges while keeping the price
formation in these two markets separated. That experiment failed and started to work again only when
elements of price coupling have been introduced.
Having now three workable models of market coupling, the European Union (at least EU 15) should
be able to successfully achieve one layer of its internal market soon. However, several further
questions are kept open such as how to successfully bridge several regional markets all over the EU 15
or how to integrate more and more PXs having different regulatory frames. A centralized approach
(known as CMU) is advocating creating a single pan-European trading entity by a mandatory
restructuring of all existing PXs plus a clubbing of all TSOs and the extensive harmonization of all
existing national regulatory frames. An alternative approach is the one known as PCR (“Price
Coupling of Regions”). It allows building a less demanding common pricing mechanism to coordinate
existing PXs in a decentralized network. It is permitting grid access and trading to keep a national
flavour when requested by particular local preferences.