What is Market Coupling?


The term market coupling refers to the aim to form an interconnected (European) market for electricity. Market coupling is intended to link control areas and market areas in order to harmonize different systems of electricity exchanges and, in particular, to reduce price differences. This way, the electricity market is to some extent aligned with the physical reality of electricity flows, since neighbouring electricity grids are in any case physically interconnected and electricity always takes the shortest route from producer to consumer – across market boundaries. Market coupling systems (PCR, FBMC and XBID) exist both in day-ahead trading and in intraday markets. This is also valid for electricity markets outside Europe, but the details provided here refer to the European market only.

Milestones on the way to the European Single Market

The beginnings of European market coupling go back to 2006, the year in which the first transnational merger took place: Belgium, France and the Netherlands coupled their day-ahead markets in order to make optimum use of cross-border electricity capacities and increase market liquidity. The necessary conditions were provided by EC Regulation No. 1228 of 2003 and EC Directive 2006/108/EC of 2006.

Germany and Luxembourg joined the Trilateral Market Coupling (TMC) in 2010 and completed the Market Coupling Western Europe (CWE). To date, this is the largest merger of European electricity exchanges and transmission system operators (TSOs), which in turn are also organized in ENTSO-E.

The “Pentalateral Energy Forum” – consisting of the energy ministers of the five participating states – is still the higher authority within this framework and strives for a better integration of the Central West European electricity markets. It also adopts, among other things, rules on cross-border security of supply.

In 2007, a bilateral market splitting was realized between Portugal and Spain (SWE). This merger allowed the Portuguese and Spanish day-ahead markets to grow together into an integrated market called MIBEL with the joint electricity exchange OMIE.

At the same time, Scandinavia was connected to the Western European electricity market by submarine cables: electricity has been flowing between Germany and Denmark since 2007 and between the Netherlands and Norway since 2011 – however the coupling system is not very efficient and has therefore been designed as a temporary solution, as the name “Interim Tight Volume Coupling” – ITVC for short – suggests.

In 2013, Austria joined the CWE Group and began to link its market with the other Western European electricity markets. In addition, the Pentalateral Energy Forum decided to accept Austria as a full member and Switzerland as an observer.

With the help of the Price Coupling of Regions (PCR) system introduced in 2010, the European countries implemented a nationwide market coupling of a total of 15 European countries in 2014, including the Baltic States, Great Britain and Poland in addition to the CWE and the Scandinavian countries. The SWE states joined this market coupling of northwestern European states (NWE), thus enlarging the unit area around Portugal and Spain.

The last major change was in 2015: Italy coupled its borders with France, Austria and Slovenia. July 2016 saw the successful coupling of the markets of Austria and Slovenia. This means that this area in Europe, also known as Multi Regional Coupling (MRC), currently comprises 19 European countries. At 85%, these countries cover the majority of European electricity consumption.

PCR – The key to the pan-European electricity market

Price Coupling of Regions (PCR) is seen as an important step towards a harmonized electricity market through market coupling in Europe; seven European electricity exchanges (APX-ENDEX, Belpex, EPEX SPOT, GME, Nord Pool Spot, OMIE and OTE) developed the joint price coupling. The common goal of the power exchanges is the best possible calculation of electricity prices and the efficient utilization of cross-border allocations.

The PCR is based on three premises:

  • A uniform algorithm for calculating electricity prices ensures growing transparency and order within the day-ahead market.
  • The PCR members do not collect the data on a central server, but manage it decentrally.
  • The individual power exchanges have their own responsibility for their market areas. So-called PCR-Matcher and a Broker Service calculate the different market and reference prices.

According to EPEX-Spot – one of the seven PCR initiators – other European power exchanges may also join the PCR solution in order to guarantee even greater efficiency. Market participants can benefit from cross-border trading.

Market coupling in detail: What exactly is happening?

Originally, transnational electricity trading and the necessary allocation of transport capacities were two separate markets. Through so-called implicit auctions, market coupling combines the previously separate trading transactions into an integrated electricity market.

How does this work in detail?

All TSOs send their cross-border transport capacities to a Market Coupling Operator (MCO) – such as Transmission System Operator Security Cooperation (TSC). This is the interface between the TSOs and the power exchanges. The MCO models centrally and independently the capacity values. The TSOs and the MCO validate and monitor the values and exact cross-border capacities permanently. In the next step, the MCO transmits the capacity values to the electricity exchange. Once this is done, the electricity traders can submit their offers. The actual coupling is then carried out by the relevant electricity exchanges: they settle supply and demand using an algorithm accepted by all partners. However, all players need to compare their capacity values once again before publication.

The system’s underlying market coupling is therefore based on several control mechanisms to ensure maximum efficiency.

Flow-Based Market Coupling (FBMC)

On May 20th, 2015, the CWE states implemented the so-called flow-based market coupling (FBMC) in Central Western Europe. The application of the FMBC is limited to the CWE internal borders (D-NL, D-F, F-B, NL-B) so far. In parts, the FBMC allocates transmission capacities at the same time as the market clearing on the electricity markets takes place. This is a departure from the usual available transfer capacity (ATC) with capacity allocation prior to market clearing. The FBMC ensures greater cross-border transport capacity through the closer integration of capacity allocation and market activity.

Further optimizations are planned:

  • Promotion of supplier competition
  • Strengthening network security
  • Minimization of price differences

A recent paper by scientists from KU Leuven in Belgium called for an evaluation of the data since the introduction of the FBMC. According to the paper, the European TSOs should cooperate more closely, as there are still differences in coordination. Furthermore, the configuration of the market areas should be reconsidered. Market coupling and the underlying methods for calculating cross-border transport capacities are therefore not a completed process, but subject to continuous optimization.

NEMO – Nominated Electricity Market Operator

The European Union pursues the vision of a pan-European electricity market in which the market areas of the member states link together by market coupling in order to ensure the most efficient possible market. Each country of the European Union participating in market coupling must therefore nominate one or more so-called Nominated Electricity Market Operators (NEMOs) per bid zone in accordance with the EU Commission Regulation 2015/1222. The national supervisory authorities nominate the NEMO (or the NEMOs) for their area of responsibility.

These NEMOs must establish the secure functioning of the various market coupling mechanisms in the joint European network. Together with the transmission system operators (TSOs), the electricity market participants and the regulatory authorities, their task is to enable the completion and efficient functioning of the EU’s internal electricity market. This includes the best possible management and, together with the TSOs, sustainable technical development of the common transmission networks.

Who can be a NEMO?

A NEMO is always a market operator, typically an electricity exchange, which takes on specific tasks in the role of the NEMO. As an example: In Germany three NEMOs are currently competing with each other: The EPEX Spot, EXAA from Austria and Nord Pool from Norway are responsible for the German bidding zone.

Tasks of the NEMOs

As described above, NEMOs are market operators in regional or national markets and, together with the TSOs and the regulatory authorities, have to perform the following tasks:

  • Acceptance of orders (bids) from market participants
  • The overall responsibility for matching and allocating these orders according to the results of the single day-ahead market coupling and the single intraday market coupling.
  • Publication of prices
  • Settlement and clearing of contracts resulting from trading transactions in accordance with jointly agreed rules

On the technical side, the NEMOs develop and maintain the algorithms, systems and procedures for single day-ahead market coupling and single intraday market coupling. Furthermore, they process input data for cross-border capacity management and collect, validate and transmit the data generated by market coupling. In addition to joint responsibility for the single day-ahead and intraday markets, a NEMO can also be responsible for only one of the two markets.

The activities of the NEMOs also consist of many other tasks, which Article 7 of the EU Regulation 2015/1222 describes in detail. In principle, however, in principle, the NEMOs are the main institutions responsible for the common European internal electricity market and occupy an extremely important position within the market coupling structure, precisely because of the continuous exchange with TSOs and market participants.

XBID: Cross-border intraday trading for more market efficiency

Since June 12, 2018, cross-border intraday trading between Belgium, Denmark, Germany, Estonia, Finland, France, Latvia and Lithuania, Norway, the Netherlands, Austria, Portugal, Sweden and Spain has been established. The system called XBID enables bids from market participants from all participating countries to be merged into a single cross-exchange trading possibility allowing for cross-border intraday trading – provided, however, that sufficient cross-border transmission capacity is available.

XBID is based on a common IT system consisting of a Standard Order Book (SOB), a Capacity Management Module (CMM) and a Shipping Module (SM). All participants must commit to these standards. The project should enable the integrated intraday market according to the objectives of the EU and, above all, make energy trading more efficient and responsive: With XBID, market participants have the opportunity to balance their balancing groups more quickly throughout Europe, which should lead to lower balancing energy costs. The electricity exchanges EPEX SPOT, GME, Nord Pool and OMIE as well as the transmission system operators of the participating countries are involved in XBID.


What is a contract for difference?


In the energy world, contract for difference is a subsidy model in which both positive and negative deviations from a fixed reference price are paid out to the contractual partner. Contract for difference is also called symmetrical market premium.

What is the best way to counter price fluctuations on the electricity market with a subsidy system? How do you ensure that asset operators get by in times of low prices, but at the same time do not benefit unduly from the subsidy system in times of high electricity prices? A possible option, as currently used in the UK and France, is the promotion via a so-called contract for difference. This subsidy model defines a fixed minimum remuneration per MWh of electricity. The level of this subsidy rate is usually determined by a tender procedure – similar to the procedure used in the tender for the market premium model in Germany. The subsidy amount determined this way is usually granted for a defined period such as 20 years.

How does the implementation of the Contract for Difference work?

The operator promoted by this support mechanism feed their electricity into the grid as usual. If the price they achieve on the exchange is below the amount that was specified in the auction, the operator receives the difference from the fixed subsidy amount. If the price is above this reference price, the operator has to pay the difference to the contracting party. In contrast to the German market premium model, this subsidy model is also described as a symmetrical market premium model.

There is currently a discussion as to whether contract for difference solutions might also be a conceivable alternative to PPAs. They would reduce the investment risk and possible costs – which can occur especially with long-term PPAs. Such a support measure would primarily reflect the actual electricity production costs since the projected prices are based on the project and operating costs of a plant rather than market forecasts being used for price formation. This way, a symmetrical market premium would ensure better market integration than a fixed market premium, since it already confronts the operator with price fluctuations during the subsidy period but at the same time still guarantees the market premium for financial security. Both the incentives with regard to system design (revenue optimization) and the incentives with regard to feed-in behavior thus play a more important role in this subsidy model.


What does Liberalization and Unbundling of Energy Markets mean?


The liberalization of the energy market means the opening of the electricity and gas market to free competition. This has broken up existing monopolies and opened the market to more participants. In most cases, liberalization was accompanied by unbundling, which made a distinction between generation, transmission and distribution/retail in the energy sector. The aim was to make electricity supply more efficient by integrating competitive forces where possible and by integrating regulation where necessary. In Europe, liberalization began in 1996 with the adoption of the first European Directive.

Liberalization & Unbundling of Energy Markets

The electricity market with free competition, as we know it today, is still very young and under development. Three decades ago, the European electricity sector was a monopoly. Vertically integrated companies were responsible for generation, transmission and supply of electricity. In the absence of competition, these companies were able to determine electricity prices. Since those companies also held the grid infrastructure, market access of new players was impossible. Incumbent vertically integrated utilities basically were able to act as gatekeepers to the grid.

In 1996 the European Union started to gradually open the market for competition – to liberalize the energy market just like it did before with several other sectors. The legal basis of the liberalization and harmonization of the EU internal energy market are Article 194 and Article 114 of the Treaty on the Functioning of the European Union (TFEU). The aim was and is to create one single integrated internal European electricity market across all EU member states to reduce overall grid costs and benefit from synergies in the security of supply.

A key step in this process was and is the unbundling of the European power sector with the aim to split up the generation, transmission, distribution and retail activities. As a result of the unbundling process, the vertically integrated companies can no longer both generate, transport, trade and supply electricity while managing the transmission and distribution networks.

This unbundling didn’t happen overnight and is not completely finished today. In the first energy package in 1996, only accounting unbundling was required. It demanded the vertically integrated companies to split up the bookkeeping according to the different activities. This was clearly not enough to create a competitive market.

In the second directive (Directive 2003/54/EC and Directive 2003/55/EC), introduced in 2003, legal unbundling was demanded. It allowed a single company to operate in only one of the activities of the electricity value chain: either generation, transmission, distribution or supply. It also demanded that by 2007 all European customers should have the ability to choose their supplier. But, because the different companies still could be part of the same holding, the owners of those companies still had quite some market power.

In the third revision of the energy package, which came into force in September 2009, the next step towards free competition was made by introducing ownership unbundling. This package is followed by the Energy Union Winter Package in 2016/17, which strives to achieve a fully-integrated, further decarbonized electricity market and ensures security of supply through solidarity and cooperation between EU member states. The third energy package is covered in the following legal instruments: Directive 2009/72/EC and Directive 2009/73/EC, Regulation (EC) No 713/2009, No 714/2009, No 715/2009.

The Current Situation

In an ideal situation, both the generation and supply of electricity are fully competitive activities. It means that none of the companies, which pursue generation activities, can influence electricity prices on the wholesale market by using their market power. This should eventually lead to lower prices for the consumer. Also in the retail market, where the suppliers sell electricity contracts to households, free competition is in the benefit of the consumer. Households now have the choice to pick the supplier that offers them the best tariff and service.

In reality, a perfect competition seldom exists. Especially in industries with large capital investments and large infrastructure – like the energy sector – commercial activities are typically in the hands of a few large companies. For the energy economy, national regulating institutions monitor abuse of market power and quantize the level of free competition with the so-called concentration ratio CR3. An analysis by ACER, the Agency for the Cooperation of Energy Regulators in Europe, revealed for example that the level of market concentration in Italy is still very high, with Enel being the main supplier with a market share of more than 80% in household’s electricity supply.

Infrastructure as a Limiting Factor for the Unbundling

The infrastructure of the electricity grid creates a natural monopoly – very similar to telecommunication infrastructure, railroads, or motorways. It would be almost impossible to build a second grid, since the construction of such a large infrastructure would require a high level of investment and extensive permits.

In order to ensure a reliable operation of the grid and to avoid market power abuse, not only the ownership is unbundled. In addition, the natural monopoly is regulated by an independent regulator. It monitors, for example, the access tariffs that the transmission system operators (TSOs) and the distribution system operators (DSOs) charge to producers, who wish to connect their plant to the electricity grid.

While in Europe most countries secure the electricity supply via a national grid, this is not the case in all countries of the world. Off-grid solutions gain in relevance in many developing countries, particularly to provide cost-effective access to electricity in rural and sparsely populated areas. How these are to be integrated into the energy system and whether this should also lead to a liberalization of the natural monopoly of transmission and distribution is highly controversial.

The Example of Italy

In Italy, the TSO is Terna. Whereas the transmission network is operated by only one company, the distribution grid is split up in several geographical areas. The most important example of the overall 135 Italian distribution system operators (DSO) is Enel Distributione S.p.A, which covers over 80% of the Italian electricity demand. The most important local operators are A2A, ACEA, IRIDE, DEVAL and HERA. The national regulator for both electricity and gas markets in Italy is AEGGSI (Autorità per l’energia elettrica, gas e il Sistema idrico). They guarantee transparency and competitiveness of the energy market, defend consumers’ interests, and advice authorities on energy issues.

Liberalization and the Energy Transition

The Agency for Renewable Energy was able to identify links between the opening of the electricity market and the increase in the share of renewable energie. With liberalization, consumers are now free to choose their electricity supplier and the number of electricity suppliers has increased significantly as a result. 


MENA Energy Meet 2nd Edition

MENA Energy Meet 2nd Edition is the ideal virtual meeting place for global and regional energy stakeholders, C-level executives, leading industry experts, decision makers, policy makers and government officials from across the value chain to engage in dialogue, discuss current challenges and business opportunities, develop market strategies, share their knowledge, deliberate approaches and identify solutions aimed at shaping the future of the energy sector.

Aligning itself with the new goals of the energy industry as it experiences rapid changes, the Meet will feature two days of expansive line-up of sessions, engaging discussions, unique insightful presentations and power packed networking opportunities, along with a comprehensive B2B expo showcasing an array of products, services, and technologies.

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CISOLAR & IBES 2021 will be held on July 6-8 | Digital & In-Person

According to IB Centre, the total investment in solar energy projects may exceed $80 billion globally in 2021.

For the solar energy industry, one of the starting points of the new stage of development will be CISOLAR 2021, the 10th Solar Energy Conference and Trade Show of Central and Eastern Europe, which will take place both offline and online from 6 to 8 July (

The focus will be on new business models that meet the challenges faced by companies in 2020-2021, as well as on distributed generation, energy storage technologies, and waste management in solar power. During the exhibition, the latest world trends, technological solutions, and services will be presented. The CISOLAR 2021 online conference, which will be presented by outstanding speakers, will continue on July 7 and 8. This year, the CISOLAR 2021 speakers will include more than 100 international experts and more than 1,000 online and offline participants.

CISOLAR 2021 Conference registration:

The best industry projects will be determined at CISOLAR AWARDS 2021 – Best Solar Energy Projects of Central and Eastern Europe. The companies will compete for the title of the best project in 5 nominations:

On July 6-8, a digital exhibition will take place, which has become a fundamentally new and most effective tool to hold business events when communicating with the target audience without geographical restrictions. Everyone will be able to visit the virtual stands of the companies, look through the presented products, offers in a real-time environment, instantly contact its representatives via audio or video conferences, and visit online events of the companies.

With the first energy storage projects realized in the CEE countries and massive potential for such projects ahead, it became obvious, the energy storage industry of CEE needs its own solid business platform to expand further growth. 

During CISOLAR, meet IBES 2021, Energy Storage Conference, and Trade Show (Innovative Business Energy Storage).

The IBES 2021 Conference and Trade Show gathers all the energy industry decision-makers, influencers, owners, and CEOs of businesses, investors, and entrepreneurs.

You are welcomed to take part in the IBES 2021 Conference digitally and offline (in Kyiv) on July 6-8 and enjoy complimentary access to the CISOLAR conference & trade show.

CISOLAR is one of the most efficient platforms for business communications and business networking in the field of solar energy in the region of Central and Eastern Europe. Choose the most convenient format and join the professional international solar community!

Anyone interested in solar energy can take part in CISOLAR 2021, including participants who do not have the opportunity to attend the event in person!





Creating The Solar Energy Future For Central-Eastern Europe In The Covid-Affected World.

Not just one solar energy industry, or renewable energy in general, or even this particular region of Central and Eastern Europe navigates uncertainly and struggles from the covid-2019 crisis. Every aspect of our business and life meets with transformation.
Many try to guess the future. The other ones, decision-makers, just like you, understand that the best way to predict the future is to invent it. Nothing can replace the power of brightest minds of the entire industry meeting together. Use this power to fuel your development and keep staying strong in the new world. 
CISOLAR 2021 is the 10th edition of the premier forums devoted to solar energy in the emerging markets of Central and Eastern Europe. 

Participate in the full 3-day-program of CISOLAR 2021 from any place you want.

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The main business platform of the solar energy industry which for the last ten years in a row gathering all market players and representing PV companies, services, technologies and equipment from around the world for the emerging markets of Central and Eastern Europe.

At least 70% of solar energy industry of Ukraine and CEE region in general have a shared history with CISOLAR.



  • latest solar energy technology & equipment
  • services & solutions
  • trends, financing, investments
  • innovative ideas for efficiency business development
  • energy technologies that are changing the European landscape.