Single day-ahead coupling (SDAC)
Single day-ahead coupling (SDAC) is a coordinated electricity price setting and cross-zonal capacity allocation mechanism, which simultaneously matches orders from the day-ahead markets per bidding zone, respecting cross-zonal capacity and allocation constraints between bidding zones.
According to Article 2(26) of the Regulation establishing a Guideline on Capacity Allocation and Congestion Management - the CACM Regulation (Regulation on market coupling) ‘single day-ahead coupling’ means the auctioning process where collected orders are matched and cross-zonal capacity is allocated simultaneously for different bidding zones in the day-ahead market.
Single day-ahead market coupling was envisaged to be applied throughout the EU and Norway.
As of November 2017 single day-ahead market coupling was used with respect to 30 out of the 42 EU borders, i.e. Austria, Belgium, the Czech Republic, Germany, Denmark, Estonia, Spain, Finland, France, Hungary, Italy, Lithuania, Latvia, the Netherlands, Norway, Poland, Portugal, Romania, Sweden, Slovenia, Slovakia and Great Britain (Annex 2 to the European Commission Third Report of 24 November 2017 on the State of the Energy Union).
Remaining EU borders in November 2017 were still applying explicit day-ahead auctions.
In turn, the ENTSO-E Market Report 2019 of August 2019 indicates that in 2019 the SDAC included 27 countries with:
However, the project was in 2019 operationally split into the multi-regional coupling (MRC), covering most of Europe, and 4M market coupling (4M MC) covering the Czech Republic, Slovakia, Hungary, and Romania (the MRC and the 4M MC are to be merged in 2020). In total, SDAC serves more than 95% of the European electricity consumption, and the single algorithm calculates volumes in excess of 1.500 TWh/a (ENTSO-E Market Report 2019 of August 2019, p. 30).
Single day-ahead coupling uses a common price coupling algorithm (PCR EUPHEMIA) to calculate electricity prices across Europe and to implicitly allocate auctions based on cross-border capacity.
Methodology for the price coupling algorithm, the continuous trading matching algorithm and the intraday auction algorithm is stipulated in the ACER Decision No 04/2020 of 30 January 2020 on the nominated electricity market operators’ proposal for the price coupling algorithm and for the continuous trading matching algorithm, also incorporating TSOs’ and NEMOs’ proposals for a common set of requirements.
It is noteworthy, ACER Recommendation of 20 December 2021 on reasoned amendments to the Capacity Allocation and Congestion Management Regulation (Annex 1a, draft Recital 25) proposed changes to a wide range of topics, including market coupling governance and operations.
In particular, ACER recommended that TSOs and NEMOs should, to increase the transparency of price formation, regularly publish the fundamental data on the use of electricity infrastructure and prices, including also algorithms used to calculate single day-ahead and intraday coupling results.
According to the ACER:
- the source code of these algorithm needs to be considered as being a good of public interest that should be available to all interested public;
- to achieve this, the Market Coupling Operator (MCO) should obtain ownership of these algorithms with procurement from either existing owners or new providers, while avoiding any double compensation of possible historical costs already paid by network users for these algorithms.
According to Article 3 of the ACER Decision No 12/2020 of 17 June 2020 (COCZCA) the SDAC algorithm shall integrate the co-optimised allocation process that allocates cross-zonal capacities for the exchange of standard balancing capacity products or sharing of reserves.
SDAC organisational set-up
According to Article 8(1) of the CACM Regulation all TSOs in EU Member States electrically connected to another Member State must participate in the single day-ahead (and intraday) coupling. The TSOs and NEMOs, which participate in the SDAC, cooperate under the day-ahead operational agreement (DAOA), which entered into force on 28 March 2019. It was agreed to by all TSOs and NEMOs of the EU Member States plus Norway.
The signatory parties of the DAOA are as follows:
- as regards TSOs: Independent Power Transmission Operator S.A., Affärsverket Svenska Kraftnät, Amprion GmbH, Austrian Power Grid AG, AS Augstsprieguma tïkls, BritNed Development Limited, ČEPS a.s., Creos Luxembourg S.A., EirGrid plc, ESO - Electroenergien Sistemen Operator EAD, Elering AS, ELES d.o.o., Energinet Elsystemansvar A/S, Elia System Operator SA/BV, ElecLink Limited, Fingrid Oyj, Croatian Transmission System Operator Ltd., Litgrid AB, MAVIR - Magyar Villamosenergiaipari Átviteli Rendszerirányító Zártkörűen Működő Részvénytársaság, National Grid Electricity Transmission plc, PSE - Polskie Sieci Elektroenergetyczne S.A., Red Eléctrica de España S.A.U, Rede Eléctrica Nacional S.A., Réseau de Transport d'Electricité, Slovenská elektrizačná prenosová sústava a.s., SONI Limited, Statnett SF, TenneT TSO B.V., TenneT TSO GmbH, Terna - Rete Elettrica Nazionale SpA, TransnetBW GmbH, National Power Grid Company Transelectrica S.A., and 50Hertz Transmission GmbH;
- as regards NEMOs: BSP Energy Exchange LLC, Croatian Power Exchange Ltd., EPEX SPOT SE, EXAA Abwicklungsstelle für Energieprodukte AG, Gestore dei Mercati Energetici S.p.A, Hellenic Energy Exchange S.A., HUPX Hungarian Power Exchange Ltd., Independent Bulgarian Energy Exchange EAD, European Market Coupling Operator AS, OMI POLO ESPAÑOL S.A., OTE a.s., OKTE a.s., Operatorul Pieţei de Energie Electrică şi de Gaze Naturale S.A., Towarowa Giełda Energii S.A., SONI Limited, EirGrid plc, and Nasdaq Oslo ASA.
The DAOA sets forth the rights and obligations of NEMOs and TSOs concerning the implementation of the single day-ahead coupling, including the common operation and further development.
The above contractual framework is complemented by:
- an all-TSOs only agreement under the TSOs cooperation operational agreement (TCDA),
- an all-NEMOs day-ahead operational agreement (ANDOA).
Maximum and minimum clearing price limits for single day-ahead coupling
For the purposes of setting the clearing price limits for single day-ahead coupling the following definitions are used:
1. ‘harmonised maximum clearing price for SDAC’ means the maximum clearing price value which is applied in all bidding zones which participate in SDAC; and
2. ‘harmonised minimum clearing price for SDAC’ means the minimum clearing price value which is applied in all bidding zones which participate in SDAC.
The harmonised maximum clearing price limit for SDAC was proposed by NEMOs to be set at +3000.00 Euro/MWh, while the respective harmonised minimum clearing price limit was proposed at -500.00 Euro/MWh (All NEMO’s proposal for harmonised maximum and minimum clearing prices for Single Day Ahead Coupling in accordance with Articles 41(1) of Commission Regulation (EU) 2015/1222 of July 2015 establishing a guideline on capacity allocation and congestion management, 14 February 2017).
Overall, the were three options considered for the harmonised maximum clearing price limit for SDAC:
- Option 1: 3000 EUR/MWh,
- Option 2: 5000 EUR/MWh,
- Option 3: 9999 EUR/MWh.
At least one national regulatory authority opposed to the value of 3000 EUR/MWh arguing that it will give insufficient incentive for a well functioning energy only market and proposed a value of 5000 EUR/MWh instead. However, the stakeholders also argued that a higher harmonised maximum clearing price for SDAC may have an impact on the collaterals required for participation in the SDAC (see the reasons to the ACER’s Decision No 04/2017).
The opinions were also voiced that in case of increasing the maximum price above 3000 EUR/MWh it would be risky to trade if errors or other unforeseeable events occur. Such high maximum price would induce, moreover, excessive risks for market participants, which do not possess a large perimeter of flexible assets that can be activated to compensate any imbalance.
In turn, ACER considered it necessary:
1. to implement a more dynamic automatic adjustment rule for maximum clearing prices for Single Day Ahead Coupling (PmaxDA), such that it allows for a faster alignment of the PmaxDA towards the Value of Lost Load (VoLL);
2. to introduce an automatic adjustment rule for maximum and minimum clearing prices for Single Intra Day Coupling (PmaxID), such that PmaxID is always equal or higher than PmaxDA (ACER's Consultation document, of 24 August 2017, Maximum and minimum clearing prices for single day-ahead and intraday coupling (PC_2017_E_02)).
In line with the above insight ACER, moreover, proposed the new text in point 5.2 of the Harmonised maximum and minimum clearing prices for SDAC as follows:
"The Harmonised Maximum Clearing Price Limit shall be increased by an increment of 1000 €/MWh in the event the hourly Clearing Price in an individual or multiple Bidding Zones has exceeded a value of 60 percent of the Maximum Clearing Price Limit in at least one market time unit."
Finally, ACER in Article 3 of the Annex I to the Decision No 04/2017 of 14 November 2017 determined following harmonised clearing prices for SDAC:
1. The harmonised maximum clearing price for SDAC shall be +3000 EUR/MWh,
2. The harmonised minimum clearing price for SDAC shall be -500 EUR/MWh.
In addition, in Article 4 of the said Annex ACER envisaged the automatic adjustment mechanism, which stipulates the criteria and process for establishing and amending maximum price for SDAC (see the box). In particular, the harmonised maximum clearing price for SDAC is to be increased by 1,000 EUR/MWh in the event that the clearing price exceeds a value of 60 percent of the harmonised maximum clearing price for SDAC in at least one market time unit in a day in an individual bidding zone or in multiple bidding zones. The above increased harmonised maximum clearing price applies in all bidding zones, which participate in SDAC, from five weeks after the day, in which the respective event has taken place. In the reasons to the above Decision 04/2017 ACER explained that the the main purpose of the requirement to take into account an estimation of the VoLL is that the harmonised maximum price for SDAC shall never restrict the free price formation. Therefore, the automatic adjustment mechanism should ensure that the harmonised maximum price for SDAC be always above the clearing price that would occur in the absence of price limits or in the case of price limits equal to the VOLL.
It is the ACER’s view that additional, national price limits imposed on the market participants bidding prices should be removed or all at least aligned with the harmonised maximum and minimum clearing prices for SDAC established in the above ACER’s Decision 04/2017.
In order to avoid strategic bidding between different market time horizons and consider decreasing flexibility of generation units due to technical restrictions, the clearing price limit for the intraday day market should always be higher than day-ahead (ENTSO—E‘s stance quoted in the Annex II to the said ACER’s Decision 04/2017 - Evaluation of responses to the Public consultation on the proposal on harmonised maximum and minimum clearing prices). The said adjustment mechanism was applied on 11 April 2022 when the harmonised maximum clearing price for SDAC at the level of +4,000 EUR/MWh was announced to apply as from 10th May.
The new maximum clearing price shall apply in all bidding zones that participate in SDAC, from five weeks after the day the event referred to has taken place. However, the new maximum clearing price threshold to be reached to trigger the increase of the maximum clearing price is set to 2,400 EUR from the day following detection (thus applicable from 4th April, in this case), as the value of 60 per cent of the new +4,000 EUR/MWh harmonised maximum clearing price.
It is noteworthy that on 7 July 2022 the CRE - the French energy market regulator - published the Report “Analysis and lessons learnt relating to the price peak on 4 April 2022” and called for a review of the automatic rise in the price cap for the wholesale electricity market. It argues that the isolated event on 4 April 2022 had significant consequences for the entire European electricity market, with the automatic and non-reversible increase of €1,000/MWh in the European ceiling for the wholesale spot market price, from €3,000/MWh to €4,000/MWh. Under the ACER decision of 14 November 2017, the spot price cap is automatically raised in the 24 countries participating in the market as soon as the price reaches 60 % of the cap for one hour in one country. The CRE considers that raising the price cap following this episode was not necessary for the European electricity market to function properly, and was even inappropriate in the period of energy crisis. According to the CRE, the price cap might then be raised several times over the winter to the detriment of consumers. Consequently, in view of the exceptional situation, and in order to protect the internal electricity market and its consumers, the CRE called for a review of the automatic increase in the ceiling prices on the spot market, at least for the period of the crisis, or even for the mechanism to be suspended if a review is not possible soon enough.
On 24 May 2022 All NEMO Committee started public consultation on harmonized maximum and minimum clearing prices for single day-ahead coupling and on 29 August 2022 the result paper was published. On 10 January 2023 the ACER adopted Decision No 01/2023 on the Nominated Electricity Market Operators proposal for the harmonised maximum and minimum clearing price methodology for the single day-ahead coupling.
Decision of the Agency for the Cooperation of Energy Regulators No 04/2017 of 14 November 2017 on the Nominated Electricity Market Operators proposal for harmonised maximum and minimum clearing prices for single day-ahead coupling
Annex I - Harmonised maximum and minimum clearing prices for single day-ahead coupling in accordance with Article 41(1) of Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a guideline on capacity allocation and congestion management (CACM Regulation)
1. The harmonised maximum clearing price for SDAC shall be +3000 EUR/MWh.
2. The harmonised minimum clearing price for SDAC shall be -500 EUR/MWh.
1. The harmonised maximum clearing price for SDAC in accordance with Article (0), shall be amended according to the following rules:
a) the harmonised maximum clearing price for SDAC shall be increased by 1,000 EUR/MWh in the event that the clearing price exceeds a value of 60 percent of the harmonised maximum clearing price for SDAC in at least one market time unit in a day in an individual bidding zone or in multiple bidding zones;
b) the increased harmonised maximum clearing price, set according to subparagraph (a), shall apply in all bidding zones which participate in SDAC from five weeks after the day in which the event referred to therein has taken place;
c) notwithstanding subparagraph (b), for the further application of the amendment criterion defined in subparagraph (a), the increased harmonised maximum clearing price, set according to subparagraph (a), is used from the day following the one in which the event referred to therein has taken place; and
d) the bidding zones referred to in subparagraph (b) are only those bidding zones with cleared buy and sell volumes and those part of the SDAC (excluding market time units where the given bidding zone(s) has been decoupled).
2. The NEMOs shall transparently announce and publish the amended harmonised maximum clearing price for SDAC at least four weeks before its implementation and application in SDAC.
3. The NEMOs shall, at least every two years, reassess the HMMCP, share this assessment with all market participants and consult it in relevant stakeholder forums organised in accordance with Article 11 of the CACM Regulation. A reassessment may also follow any amendment in accordance with paragraph (1), if the NEMOs deem it appropriate.
Single day ahead coupling may be opened to market operators and TSOs operating in Switzerland on the condition that the Swiss national law implements the main provisions of EU electricity market legislation and that there is an intergovernmental agreement on electricity cooperation between the EU and Switzerland (Annual Report of the ACER and CEER on the Results of Monitoring the Internal Electricity and Gas Markets in 2016 (Electricity Wholesale Markets Volume) published in October 2017, p. 43).
Legal framework for the single day-ahead market coupling
Detailed rules for the single day-ahead market coupling are stipulated in Articles 38 - 50, Article 68 and Recital 29 of the Regulation establishing a Guideline on Capacity Allocation and Congestion Management - CACM (Regulation on market coupling) - see box.
Regulation establishing a Guideline on Capacity Allocation and Congestion Management - CACM (Regulation on market coupling)
Clearing and settlement
1. The central counter parties shall ensure clearing and settlement of all matched orders in a timely manner. The central counter parties shall act as the counter party to market participants for all their trades with regard to the financial rights and obligations arising from these trades.
CACM Regulation requirements
According to Article 40(1) of the CACM Regulation, NEMOs shall submit a joint proposal concerning products that can be taken into account in the SDAC. Furthermore, NEMOs shall ensure that all orders resulting from these products submitted to the price coupling algorithm are expressed in euros and make reference to the market time.
According to Article 40(2) of the CACM Regulation, all NEMOs shall ensure that the price coupling algorithm is able to accommodate orders resulting from these products covering one market time unit (‘MTU’) and multiple market time units.
According to Article 40(3) of the CACM Regulation, by two years after the entry into force of the CACM Regulation and in every second subsequent year, all NEMOs shall consult in accordance with Article 12 of the CACM Regulation:
(a) market participants, to ensure that available products reflect their needs;
(b) all TSOs, to ensure products take due account of operational security; and
(c) all regulatory authorities, to ensure that the available products comply with the objectives of the CACM Regulation.
In 2023 NEMO Committee fulfilled this obligation on 4 January - see All NEMO Committee Public consultation pursuant to Art. 12 of Commission Regulation (EU) 1222/2015 on products that can be taken into account in the SDAC.
According to Article 40(4) of the CACM Regulation, all NEMOs shall amend the products, if needed, pursuant to the results of the consultation referred to in Article 40(3). As a general requirement, Article 9(9) of the CACM Regulation sets out that every proposal for terms and conditions or methodologies includes a proposed timescale for their implementation and a description of their expected impact on the objectives set out in Article 3 of the CACM Regulation.
For this purpose, on 5 February 2024 All NEMO Committee started public consultation pursuant to Art. 12 of Commission Regulation (EU) 1222/2015 (hereinafter CACM) on amendments to the terms and conditions applied to the “Products That Can be Taken into Account in the Single Day-Ahead Coupling” (hereinafter SDAC Products Methodology).
ACER Decision 37/2020 on DA products
ACER Decision No 37/2020 of 22 December 2020 on the Products that can be taken into account in the Single Day-Ahead Coupling (ACER Decision 37/2020 on DA products) requires that:
- each NEMO must publish in its market rules the list of SDAC products that are available in its NEMO trading hub;
- all orders resulting from the products submitted to the price coupling algorithm shall be expressed in euros and make reference to an MTU. NEMOs are entitled to arrange that orders submitted by market participants are expressed and settled in local currencies or euros.
As regards the differentiation between mandatory and optional products, ACER clarifies in the Annex II to the said Decision that “the meaning of ‘mandatory products’ is that it represents a list of products that must be (as a minimum legal requirement) accommodated by the price coupling algorithm. Therefore, the choice of mandatory products is fixed, because it is determined by the provisions set out in the CACM Regulation. Thus, the group of mandatory products cannot be extended by any other products. On the other hand, any product that complies with the objectives of the CACM Regulation can be added to the list of optional products”.
Moreover, the “set of optional products should reflect the market participants needs and establishes the choice of products the NEMOs can offer to market participants if the price coupling algorithm’s performance allows for it. The elimination or replacement of products from the list of optional products represents the NEMOs’ choice and ACER did not alter the listed products anyhow. All the governance and rules that enable the NEMOs to make choices and to develop/operate the functionalities of the price coupling algorithm are established in the Algorithm methodology”.