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European Market Coupling Company GmbH
Hopfenmarkt 31 | D-20457 Hamburg
Phone +49 30 369 054 60 | Fax +49 30 369 054 666

FAQ - Frequently Asked Questions

Benefits / Added Value

What are the benefits of market coupling?

Market coupling leads to a more efficient use of daily cross border transmission capacity compared to explicit auctioning of daily capacity.

Explicit auctions consist of two steps: At first, transmission capacity on an interconnector between two markets (market areas) is auctioned at a value not necessarily depending on the price of electricity. These auctions are provided by TSOs themselves or by auction offices acting on behalf of the concerned TSOs. In a second step, electricity needed for the intended deliveries has to be obtained and sold. Normally, these trades take place at power exchanges and/or OTC-markets.

From an economical point of view, explicit auctions don't present an optimal allocation system. The same market participants often obtain transmission capacity in both directions because they do not know in which direction the power will flow next day. This is the result of a capacity auction without electricity price signals.

At implicit auctions, auctioning of transmission capacity and obtaining or selling of electricity are done in one single step and at one single place. Because of price signals being included in the capacity allocation mechanism, the power will flow from the low-price area to the high-price area. Market parties do not have to obtain border capacity in the opposite direction. The overall picture shows a macro-economical benefit for the market, although some market parties may lose the opportunity to use the inefficiency of the current allocation system.

The overall benefits of market coupling are:

  • Instead of at least two steps (e.g. buying first the capacity and then trading on the exchange), parties are able to trade in one single step in an automatically coupled international market. Market players are not required to buy transport capacity without knowing its subsequent market value. This considerably reduces the risk, with a number of benefits:
    • Cutting down on risk 'levels the playing field' and makes it easier for smaller participants to benefit from cross-border access;
    • Capacity is used to its best advantage, in particular in periods when there is uncertainty at the time of nomination of the capacity about the direction of price differences (increasing the risk that the nomination is in the 'wrong' direction).
  • The market value of the transmission capacity is exactly identical to the price difference between the areas. This ensures that congestion income only arises when real constraints exist.
  • When there are no transmission constraints, the markets will converge and the respective power exchange prices will level out whenever there is sufficient transmission capacity. Market coupling thus represents a major step towards a more integrated European market.
  • Transmission capacity is automatically used to the maximum possible extent. Parties can never withhold capacity from the market or be prevented from using capacity for which they have paid.

The benefits are shared by all participating market parties, which can pass them through to their customers. Individual customers may also directly benefit from the advantages of market coupling by being active at one of the involved Power Exchanges (by buying or selling electricity).

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Functioning of Market Coupling

How does market coupling work?

Market coupling is a way of coupling different electricity markets into one market area. In this system, all available cross-border transmission capacity is implicitly made available to all market participants by means of energy transactions between the participating power exchanges (hence the term implicit auction). 

This means that the buyers and sellers on every participating power exchange benefit automatically from possible cross-border exchanges without having to acquire explicitly the corresponding transmission capacity right. 

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Involved Parties

Who are shareholders of EMCC?

EMCC's shareholders are

Power Exchanges

EEX AG
Nord Pool Spot AS

Transmission System Operators (TSOs)

Energinet.dk
TenneT TSO GmbH (formerly transpower stromübertragungs gmbh)
50Hertz Transmission GmbH

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Which countries are involved?

At the beginning of Nordic-German volume coupling, in November 2009, EMCC performed tight volume coupling between Germany and Denmark. In May 2010, Baltic Cable between Sweden and Germany was integrated.

With the start of Interim Tight Volume Coupling on 9 November 2010, the Central Western European market consisting of Belgium, the Netherlands, France, Luxemburg and Germany, was linked with the Nordic market.

Beginning of 2011, the NorNed cable between Norway and the Netherlands will be included in ITVC.

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Objective / Background / Vision

What is the main objective of EMCC?

The key objectives of EMCC are 

  • Carrying out a daily cross-border capacity allocation for all interconnectors between Denmark and Germany based on implicit auctioning.
  • Using a market coupling system sufficiently compatible with and extendable to other interconnectors or markets.
  • Considering possibilities for a later integration of cross-border intraday trading and balancing markets in the concept of the auction office.
  • Openness to other TSOs and power exchanges according to predefined rules.
  • In general terms, EMCC will contribute to market facilitation for all parties involved and increase system security and TSOs’ compliance with EU regulations. 

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What is the vision of EMCC?

EMCC will contribute to fair, transparent, efficient, secure, and non-discriminatory trading conditions and enhance security of supply in the region thanks to improved transmission system security management in compliance with EU regulations. 

EMCC improves market efficiency of cross-border capacity trading and promotes the integration of regional markets towards a Europe-wide wholesale electricity market.

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Why is there a need for the increase and optimisation of cross-border capacities?

Transmission system operators are responsible of guaranteeing  the transmission of electrical power from generators to consumption points at any time and in a secure manner as well as to guarantee the transits for imports and exports on interconnections.

Market players’ requests to buy and sell electricity in each electrical hub results in fixing every days’ hourly prices of day-ahead markets. Available volumes of imports and exports and market players’ forecasts of injections and consumptions for the next day will contribute to fixing these prices.

If sufficient transmission capacities are available between two electrical hubs, price differences will tend to narrow as there will be plenty of room for competition (“copper plate” effect). These structural or occasional market conditions (linked to many factors such as weather conditions, power plant availability, hub generation mix and volatility of oil and gas prices, import and export capacities, etc…), create stable or volatile price differences between European day-ahead markets.The requests for cross-border trade will therefore also be subject to important variations in terms of volumes and directions. Congestions are the result of an amount of commercial requests superior to the available transmission capacities.

One way to improve the situation is to build more interconnection lines and to make sure, through network calculations, that these new lines will bring additional transmission capacities (other constraints may become predominant and limit transit). However, this process is very long and experience from the past shows that it might last 15 to 20 years. It also requires major investments, financed by users via the tariffs, that can be undertaken only if there is a significant pay-back in the long term.Another way to improve the situation is to build new generation capacities. This takes much less time (around 4 years for thermal plants) but depends on market players.

EMCC market coupling is a market-based congestion management mechanism which will optimise, on a day-ahead basis, the transit between the EMCC electrical hubs, in order to meet market requests.

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What are the other initiatives in the region?

There are several other initiatives in Europe, each of them being in a different stage of development. For more information, please click The Concept of Market Coupling.

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Organisation

Who controls the progress and validates the work of EMCC?

  • EMCC is a joint venture of Nord Pool Spot, EEX, Energinet.dk, TenneT TSO GmbH (formerly transpower stromübertragungs gmbh) and 50Hertz Transmission (formerly Vattenfall Europe Transmission). They each hold 20% of EMCC.
  • Major decisions are taken in a General Assembly.
  • The organisation may change with the inclusion of further shareholders, for example in the framework of the ITVC project.

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Current Key Figures

  • 13th April 2014
  • 15:00
Coupled capacities:
  • DK1 TPS 0.0 MW
  • DK2 50HzT 0.0 MW
  • SE4 TPS 0.0 MW
  • NO2 NL 0.0 MW
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