emcc: Glossary

Cross-border power flow in the “wrong” direction, i.e. from the high price area to the low price area. This may happen under certain circumstances, e.g. in case of curtailment or following rounding or currency conversion at the local exchanges. Minor adverse flows are inherent to volume market coupling.

Available Transfer Capacity (ATC) is a measure of the transfer capacity remaining in the transmission network or on a specific interconnector for further commercial activity over and above already committed uses. It is thus the part of the NTC (Net Transfer Capacity) that remains available after each phase of the allocation procedure for further commercial activity.

Market coupling on the CWE-Nordic interconnectors is based on ATCs.

The auction trading system denotes a trading system, where the price is set by calculating the intersection between the supply curve (constructed on the basis of all the sale offers) and the demand curve (constructed on the basis of all the purchase bids).

Energy account which the TSO keeps for every user of the system for every quarter of an hour. In this account, the feeding into the systems, withdrawals and the transfer of energy to other balance areas (schedule) are booked in order to establish the deviation in the energy balance of every trading participant for every quarter of an hour.

When a participant sends his bids/offers, the participant must specify in which bidding area he wants to trade. For example, a participant may send bids/offers specifying that these bids/offers refer to Eastern Denmark.

A bidding area does not always represent a country. For example, Norway is divided into a number of different bidding areas and Denmark is split in Western and Eastern Denmark (DK1, DK2).

A block sales offer is an offer, where the seller states he wants to sell a given volume during some specified hours, if the average price during these hours is above a certain limit. The seller will either sell the whole volume or nothing. Compare single-hour bid.

Example: During the four hours from 7 am to 11 am, I will sell 200 MWh per hour if the average price is 30 EUR/MWh or higher.

A block purchase bid is a bid, where the buyer states he wants to buy a given volume during some specified hours, if the average price during these hours is below a certain limit. The buyer will either buy the whole volume or nothing.

Example: During the five hours from 4 pm to 9 pm I will buy 100 MWh per hour if the average price is 20 EUR/MWh or lower.

A block bid is the common term for block sales offers and block purchase bids.

In case of extreme prices on Nord Pool Spot, some block bids are converted into single hour bids in case they would not be executed otherwise. The conversion of a block bid on the supply side in a situation of undersupply will reduce – or even help to avoid – the need of curtailment on the purchase side.

If required, the EMCC system can also activate block bid conversion so that converted block bids will result in an hourly bid curve. 

The selection of block bids in the market coupling calculation is rather complex as many different types of block bids are traded on the exchanges.

The EMCC IT-system uses an algorithm which combines linear and quadratic optimisation principles. In case a block bid is incompatible with the calculated price, it is excluded. This is done until all block bids and flexible block bids are in line with price and volume criteria and the economic optimum is found.

The term congestion is used to denote situations in which the demand for power transmission exceeds the capacities of the transmission network, i.e. in which the utilization of the network would lead to a violation of network security limits.

Congestion management refers to the principles used by TSO to handle the requests on transmission capacities on interconnectors within an area or between two or more market areas (price areas) in case these commercial requests exceed the available transmission capacities. Most largely accepted market-based methodologies are explicit auctions and implicit auctions. However, continuous trading and pro-rata methodologies are still used as well as explicit auctions for intra-daily allocations.

Cross-border energy flow is the flow on power lines connecting two neighbouring bidding areas. Hence, the “border” need not be a border between two countries, it may also be a border between two bidding areas inside a country.

Curtailment means a reduction in the scheduled capacity or energy delivery. This sometimes happens in the Danish market, for example, when there is a danger of oversupply. Curtailment of bids at NPS will take place in the situation where the aggregated supply and bid curve within a price area do not intersect. This may be the case in an area where there is significant over supply or under supply.

In order to settle the price in an area with over supply it is necessary to curtail the sales bids so that the supply curve intersects with the demand curve at minimum price, which is currently € -200.

Central Western Europe (France, Germany, Belgium, Luxemburg, the Netherlands)

Direct current.

European Market Coupling Company.

Explicit auction is when the transmission capacity of an interconnector is auctioned separately from the electricity itself and at a market value independent from the marketplaces where electricity is auctioned.

The interconnection capacity is normally auctioned in portions through annual, monthly and daily auctions. Each MW is a directional option to use an interconnection transmission capacity. The annual and monthly capacities that are not used are either sold by the market participants in day-ahead allocations or given back to the market at the daily auction (use-it-or-lose-it principle).

In this process, market players have no certainty about what they require for each of these steps. This uncertainty bears both risks and opportunities for market players. For TSOs, however, this bears the risk of an inefficient use of transmission capacities, especially for the daily auction.

Electric energy always flows from a source (generation of power plants) to a sink (industry, households, etc.). The flow patterns in the grid result from the production of all sources, the consumption at all sinks and the grid topology at any moment in time. Electricity transmission flows fan out across all available parallel paths in accordance with the laws of physics.

The flow-based model is a methodology which is based on the description of the network in order to take into account network security constraints when optimising the market flows (i.e. the match of offer and demand) for the concerned region.

The flow-based methodology is recognised to be more efficient but also more complex and difficult to implement than the ATC-based methodology.

A future is a financial contract which is settled daily from the day of the purchase/sell. 
A forward is a financial or physical contract which is settled daily from the beginning of the delivery period

Implicit auction is when the commercial flows on interconnectors result from a market coupling algorithm which considers the daily available transmission capacities and market data from the connected marketplaces. Thus, the handling of capacity is included in the auctions of electricity.

In implicit auctions, transmission capacity between bidding areas (price areas / control areas) is made available to the spot market mechanism in addition to bids / offers per area, thus the resulting prices per area reflect both the cost of energy and the cost of congestion.

Implicit auction can be market splitting and market coupling. 

Interim Tight Volume Coupling.

Tight Volume coupling operated by EMCC between Central Western Europe (Belgium, France, Germany, Luxemburg, the Netherlands) and the Nordic countries.

Used for single-hour bids.

Example: Suppose a player has sent the following single-hour bids for the hour between 8 am and 9 am: At the price 20 EUR/MWh, I will buy 400 MWh. At the price 30 EUR/MWh, I will buy 200 MWh.

If the price during this hour turns out to be 25 EUR/MWh, the player has bought 300 MWh.

When one company manages the cross-border flow between two or more separate price areas that are operated by two different power exchanges with non-harmonised rules.

Ideally, during every hour of operation all the available trading capacity is utilised with power flowing towards the high-price area

The market coupling system is the technical software tool which EMCC uses to calculate the net positions (the volume of power to be exported or imported) and the market area prices of the respective power exchanges. Net positions will be used to calculate cross borders flows. The pricing authority remains with the exchanges.

When one power exchange manages the cross-border flow between two or more separate bidding areas. A price area may consist of one or more bidding areas with one common price.

Market coupling order. After the market coupling calculation, EMCC sends its MCO to the power exchanges.

The Net Transfer Capacity is the maximum total exchange capacity between two adjacent balance areas. The NTC must be compatible with applicable security standards, taking into account the technical uncertainties of future network conditions.

Order book. Order books from power exchanges contain all bids and offers from market participants for the day-ahead. For the market coupling calculation, the exchanges send anonymous order books to EMCC.

In this mode, the whole set of market results (net positions, prices and list of selected block orders) are determined centrally by a central calculation unit (CCU) and the exchange applies these “central” results as final results for its members. Therefore, the market coupling office does not only calculate and publish cross-border flows but also the prices in the adjacent market areas.

On a DC link connecting two bidding areas, the TSOs may specify a ramping constraint. Ramping means a restriction of how much flow is allowed to change direction from one hour to the other.

Example: In case the trading capacity on a north-south link is 1,000 MW and the TSO has set a ramping constraint of 600 MW, the energy flow on this link cannot shift with more than 600 MW from one hour to the next. If there is a northbound energy flow of 1,000 MW during hour 8 and a southbound energy flow of 1,000 MW during hour 9, the price signal would suggests a shift of 2,000 MW. In accordance with the ramping constraint, the market coupling algorithm has to reduce the capacity utilised.

In order to comply with the ramping constraint, the algorithm may even be forced to send energy in the direction of the low-price area during some hours.

A schedule is an instruction to a TSO to book power between two balance areas. The physical delivery of hourly and block contracts are fulfilled by reporting schedules to the TSOs.

A purchase bid or a sales offer where the player states he wants to trade during a given hour. Compare block bid and linear interpolation.

Example 1: For the hour between 10 am and 11 am, I want to buy 20 MWh, if the price is between the minimum price and 25 EUR/MWh.

Example 2: For the hour between 6 pm and 7 pm, I want to sell 30 MWh, if the price is between 35 EUR/MWh and the maximum price.

On the spot market, transactions are settled immediately, for example for the day ahead. See also "futures market vs. forward market".

The transmission system transmits power from power plants to the subordinate distribution system. The transmission system usually has a voltage of 220 or 380 kV. The transmission systems of single European countries are connected, however, the cross-border capacities are to be extended.

Transmission System Operator. A transmission system operator (TSO) is an company that is responsible for operating, maintaining and developing the transmission system for a balance area / control area and its interconnections

In this mode, the net positions computed by the central calculation unit (CCU), in this case EMCC, are based on anonymous order books and the available transmission capacities. EMCC calculates optimal cross-border flows, which are sent as Market Coupling Orders (MCO) to the power exchanges, which incorporate them as price acceptant orders in their matching. The exchanges thus locally calculate their prices on their own in a second step, taking into account the net positions resulting from the use of electrical interconnectors.

EMCC introduced tight volume coupling on the Nordic-German border in November 2009.