Europe links 15 power markets; Greece to join at end-2014

By Julia Mengewein

Power markets across 15 European nations from the UK to Finland will be linked from Tuesday in their biggest transformation since liberalization in the 1990s.

Network operators and energy exchanges will for the first time hold a single auction at noon Paris time to determine next-day power prices across countries that account for 75 percent of Europe’s electricity supply. The move is intended to smooth price differences between nations through better control of cross-border flows, the Agency for the Cooperation of Energy Regulators, or ACER, said January 30.

The process, known as market coupling, is the biggest step in a push to integrate electricity markets by the end of this year across the 28-nation European Union, which forced utilities to open up their business to competitors in the 1990s. Linking supply and demand through trading may save consumers as much as 4 billion euros ($5.4 billion) a year by enabling electricity to flow efficiently to markets where it is most needed, according to the European Commission, the bloc’s regulator.

“Market coupling is a good thing because it promotes liquid and robust day-ahead markets and makes sure cross-border capacities are used in the best way,” Andrew Claxton, director of business development and cross-border market integration at exchange operator APX Holding BV in Amsterdam, said January 31 by e-mail. “It is the cornerstone for the single European market.”

Day-ahead power market coupling links Austria, Belgium, Denmark, Estonia, France, Finland, Germany, Latvia, Lithuania, Luxembourg, Norway, the Netherlands, Poland, Sweden and the UK excluding Northern Ireland, according to data on the website of Nord Pool Spot AS, an Oslo-based exchange.

Cross-border flows

Europe began connecting day-ahead national power markets in November 2006, when France, Belgium and the Netherlands integrated allocation of transmission capacity on electricity cables and power trading. Germany, the region’s biggest market, and Luxembourg were added in November 2010.

Before coupling, traders selling power into another country had to buy cable capacity in advance, then make a separate trade on another exchange, exposing themselves to two sets of price risk. The program allows traders to bid for energy on their local exchange, which then automatically allocates cross-border capacity based on price differences with neighbors.

The project is part of the EU’s third package of legislation intended to remove national barriers to power and gas trading and reduce energy costs. Consumer electricity prices rose 26 percent in the five years through 2012, to the highest since at least 2007, according to Eurostat data.

“Coupling favors price convergence, which fosters competition and therefore better services and ultimately better prices for consumers,” Alberto Pototschnig, director of ACER, said by e-mail from Ljubljana, Slovenia, on January 30.

The Spanish and Portuguese electricity markets will be next to join the market coupling, according to ACER. This should happen in May, Claxton said. Italy, Slovenia and Greece are expected to join at the end of this year, Pototschnig said.[Bloomberg]