Transmission rights in the European market coupling system: An analysis of current proposals

Regulation EC No714/2009 on “… conditions for access to the network for cross-border exchanges in electricity …” (see European Commission 2009) and the Framework Guidelines on Capacity Allocation and Congestion Management (ACER 2011) formally introduced Transmission Rights in the European Electricity System. None of these documents really explain what these transmission rights should be but the Framework Guidelines are slightly more explicit than the regulation: transmission rights can be physical or financial; physical rights should be options subject to a use it or sell it clause (UIOSI); and financial rights can be options or obligations. Further details will come with the grid codes that Transmission System Operators (TSO) are preparing. The Framework Guidelines do not really elaborate on the market design that must accommodate these rights. They simply mention that “TSO implement capacity allocation in the day-ahead market on the basis of implicit auction … based on the marginal pricing principle”. Both Market Splitting (MS), which is now well established in the Nordic power market and Market coupling (MC), which is emerging as the European reference system outside of the Nordic countries satisfy these conditions. The US experience shows that the transmission rights and market design are closely intertwined and that one cannot discuss the former without referring to the latter. We follow suit and discuss the extent to which Transmission Rights can be meaningfully implemented in Market Coupling. Market Coupling can be seen as a very simplified version of nodal pricing (replacing nodes by zones and hoping that the rest applies). It is thus convenient to discuss transmission rights in Market Coupling keeping the nodal system in background. Chapter 3 of this book (Oren 2012) offers an in depth discussion of transmission rights in the nodal pricing model: we continuously (most often implicitly) refer to this chapter during the discussion. Much of the analysis of congestion management in nodal pricing was constructed on examples of two and three nodes grids. It is thus also reasonable to follow that approach and reason on two and three zones (not node) systems that we construct from a six-node (not zone) network. The rest of this introduction gives a brief survey of the literature on Market Coupling and the structure of the paper