Europe eases closer to intra-day trading

EUROPE: Two mechanisms for improving cross-border electricity trading in the EU, launched in early November, have been acclaimed as a big step forward in improving market efficiency.

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New measures in the process to expedite electricity trading across European countries a day ahead of delivery, known as market coupling, have brought the industry closer to so-called intra-day trading across national borders. This is vital for better market integration of wind energy, according to industry observers.

The Central West European (CWE) market-coupling price co-ordinates day-ahead electricity trading via the cross-border electricity cables (interconnectors) for the Belgian, Dutch, French, German and Luxembourg markets. The CWE-Nordic volume coupling, a variation of market coupling, connects the German border with the Nordic region.

The interconnectors can constitute bottlenecks in the free flow of electricity across national borders and their use has until now been deemed inefficient. Traders are allocated a certain amount of transport capacity in megawatts in one direction along the cross-border interconnectors for periods of one year, one month and for the next day. They acquire capacity in accordance with their expectations of which country would have the higher electricity prices at any one time. Profits are to be made by selling low-priced electricity from another country into the market with the higher prices.

However, forecasts have often been wrong, resulting in electricity frequently flowing from a high-price region to a lower-price region. "Studies have shown that up to 24% of electricity has flowed in the 'wrong' direction," says Tobias Federico of Energy Brainpool, a Berlin-based company specialising in analysis and forecasting of electricity prices. This means that power stations with high generating costs rather than those with lower generating costs were supplying the electricity in the low-priced region. "Market coupling now allows better planning," Federico says.

Better use

With market coupling, cross-border transmission capacity is allocated as part of the process of day-ahead electricity trading, auctioned together with electricity. "The coupling allows better use of the cross-border transmission capacity and, as renewables have priority access and guaranteed uptake to the grid in Germany, this is of particular benefit to renewables," says Joelle Bouillo, spokeswoman for Dutch transmission system operator (TSO) Tennet.

According to Daniel Dobbeni, president of the regulatory body the European Network of Transmission System Operators for Electricity, day-ahead market coupling prepares the way for intra-day trading, which will help with the integration of wind.

"With variable generation, such as from wind, forecasting is not perfect. Demand forecasting is also not perfect, so the closer to real time you can trade energy, the easier it is to balance supply and demand, which makes electricity cheaper. But day-ahead market coupling is needed before you can tackle intra-day," he says.

Unfortunately, intra-day trading on the interconnectors, involving the buying and selling of power on an electricity exchange within the day, is slow in coming. The European Commission's aim is to get the same market model for intra-day trading for all of Europe by 2015, says Dobbeni. Marcel Cailliau of Eurelectric, the body representing Europe's electricity industry, adds: "We have wasted a year in just discussing the models."

Some prototype cross-border intra-day trading models are being developed, one between France and Germany, and another between Belgium and the Netherlands, but these are based on different systems and will later have to be harmonised. Each type of player, be it a TSO or an energy exchange, wants to develop a model that suits themselves. "The intra-day consensus is still missing," says Cailliau.

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