Closing down Central Western Europe Flows Based Market Coupling:
Pave way for the further integration of the European electricity markets
The CWE region was the first to implement the flow based capacity calculation methodology that is now the preferred way forward in the rest of Europe.
Arnhem/Bayreuth, Berlin, Brussels, Dortmund, Luxembourg, Paris, Stuttgart, Vienna
Eight TSOs from six European countries celebrate today the closure of a project that has changed the way we calculate and allocate day ahead capacity of the power grid of the involved countries. With the flow based market coupling approach it is possible to do a coordinated regional optimisation based on maximum economic value. This is contributing to the decarbonization of the European energy system and increases security of supply. This voluntary approach, for which the development started in 2006, has become obsolete with the go live of the flow based capacity calculation method in the much larger Core region on 8 June 2022.
To build an internal market for electricity the different national systems needed to be connected both physically - via interconnectors - as well as commercially. In the early 2000s some CWE countries started to couple their markets under some regional initiatives. An important other trigger to make further steps was the establishment of the Pentalateral Energy Forum in 2006 by the ministries of Belgium, France, Germany, Luxembourg and the Netherlands. This forum was meant to foster security of supply by further market integration. In 2007 an important landmark took place when the ministries, regulatory authorities, Transmission System Operators (TSOs), power Exchanges (PX) as well as the market parties signed the Memorandum of Understanding of the Pentalateral Energy Forum on Market Coupling and Security of Supply in Central Western Europe. In 2010 the Central Western European (CWE) markets were first coupled based on a coordinated NTC capacity calculation methodology. In 2011 Austria joined the Pentalateral Energy Forum. The next major step, in May 2015, was the launch of a new flow-based capacity calculation method thereby introducing flow based market coupling (FBMC). To make this innovative approach become reality, CWE TSOs together with their partners have invested significant efforts for several years.
One of the main targets of market coupling is the alignment of market prices between participating countries. Sufficient cross-border transmission capacities are crucial for the achievement of the so-called full price convergence between countries. The first approach to allocate cross border capacities was based on coordinated NTC. In contrast Flow Based Market Coupling allocates capacities in a more efficient way, as the economic value of an exchange reflects how each exchange makes use of the available grid capacity in the region. This requires regional coordination, leading to a regional optimisation. As a result, since 2015 capacities for cross-border trade and consequently the economic value of the exchanges and the level of price convergence between the CWE countries have increased over time. Accordingly, CWE TSOs have made a significant contribution to a cost-efficient dispatch of available resources to supply demand across the CWE region. Further milestones have been reached in CWE Market Coupling with introducing additional borders by the German-Austrian Bidding Zone split in 2018 as well as the ALEGrO project in 2020, and the minimum remaining available margin of 20%. CWE TSOs would like to express their special gratitude towards CWE power exchanges and the Joint Allocation Office (JAO) for the good cooperation as well as national regulatory authorities and ministries for their intense support as the main sponsors throughout the years.
The closure of the CWE Flow Based Market Coupling is a natural consequence of the go-live of the new Core Flow-Based Market Coupling. This go-live introduces the flow-based allocation into a wider European area - the Core Capacity Calculation Region (CCR) – comprising 13 countries: Austria, Belgium, Croatia, the Czech Republic, France, Germany, Hungary, Luxembourg, the Netherlands, Poland, Romania, Slovakia and Slovenia. This region accounts for a total population of 276 million. The Core CCR makes thereby use of the flow-based methodology, adding value to the version previously operated in CWE.