Capacity allocation
Various mechanisms allocate the capacity available for import or export to the market participants, which in Belgium are known as Balance Responsible Parties (BRPs).
Long-term capacity allocation
The European transmission system operators (TSOs) have created shared rules governing the explicit auctions for allocating yearly and monthly capacity. They are known as the European Harmonised Allocation Rules (EU HAR) for long-term transmission rights. These auctions are organised through the Joint Allocation Office (JAO), designated as the single allocation platform for all European TSOs. There are similar rules (Nemo Link Access Rules) for long-term capacity allocation (yearly, quarterly and monthly) on Nemo Link, the interconnector between the UK and Belgium.
There are two main types of long-term transmission rights:
-
Long-term physical transmission rights (PTR)
A PTR is a right entitling its holder to physically transfer a certain volume of electricity between two bidding zones within a given period of time. The transfer takes place in a specific direction via a nomination to the TSOs.
A PTR holder who chooses not to make use of its right to nominate (or to only nominate a portion of the rights it holds) is entitled to receive financial compensation for the non-nominated portion. The amount of this compensation is based on the day-ahead allocation results between two bidding zones during a specified period of time in a specific direction (Use it or Sell it principle - UIOSI). For the Belgian bidding zone, PTRs with UIOSI are offered only on the border with the United Kingdom.
-
Long-term financial transmission rights (FTR)
An FTR Option differs from a PTR in that it does not give the right to nominate the electricity between two bidding zones. It only gives its holder the right to receive the same financial compensation as in the case of a PTR. In other words, it is identical to a PTR that has not been nominated.
For the Belgian bidding zone, FTR options are offered on the borders with the Netherlands, France and Germany.
Daily and intraday capacity allocation
In accordance with the objective of the internal energy market of the European Union, the Nominated Electricity Market Operators (NEMOs) organise the allocation of daily and intraday capacities by means of an implicit allocation mechanism which uses market coupling.
In the case of implicit capacity allocation, the BRP does not have to nominate its imports or exports. Unlike an explicit allocation (in which the BRP first has to purchase and nominate the cross-border capacity, and then the electricity to be transferred from both sides of the border), in an implicit allocation the cross-border capacity is directly implicitly allocated in a single step at the same time as the electricity. The NEMOs or the central counterparty (CCP) organises this on their behalf. The BRP then implicitly uses the cross-border capacity via the purchase and/or sales bids that it has placed on the NEMO power exchanges.
Market coupling serves to improve market liquidity and, consequently, to induce more convergent and stable electricity prices. Specifically, it means that the bidding zones of one or more NEMOs are coupled into a homogeneous market area for the day-ahead and intraday capacity allocation. The market coupling is achieved by joint collaboration between both TSOs and NEMOs.
Market participants submit offers to their relevant NEMO. During market coupling, the NEMOs match the received offers using a shared IT system. They take into account the transmission capacities available between the bidding zones for the corresponding period. As a result, the electricity prices in the coupled bidding zones converge, or, ideally, are fully harmonised.
-
Day-Ahead Market Coupling
On the day-ahead market, BRPs can trade electricity for one or more of the 24 hours of the following day. The European code on Capacity Allocation & Congestion Management (CACM) has introduced integrated price coupling for day-ahead electricity trading across all of Europe (all EU member states plus Norway). This is called Single Day Ahead Coupling (SDAC). The goal is to create a single electricity market.
The SDAC makes use of a common price coupling algorithm called EUPHEMIA, encapsulated within the shared PMB (Price Matching Broker) platform, managed by certain NEMOs that are members of the PCR (Price Coupling of Regions) project.
-
Intraday Market Coupling
The period after the closure of the day-ahead market (on D-1) until any last moment before the time of delivery is called ‘Intraday’. The BRPs can also trade electricity during this period. They can do this continuously by submitting purchase and/or sales bids that will use the available transmission capacity in an implicit allocation setting. Since 2018, Belgium and 13 other countries have launched Single Intraday Coupling (SIDC), as part of the XBID project. Since then, all EU member states (with the exception of Ireland, currently still separate) and Norway have been implicitly connected. The purpose of the SIDC-XBID project is to enable continuous cross-border trading and to increase the efficiency of intraday trading in general by means of a single cross-border intraday market in Europe. In 2024, three SIDC Intraday Auctions (IDA), similar to the Day-ahead auction, will be added to the SIDC-XBID, allowing for Intraday price signals to be provided to market participants.
-
Fallback mechanisms and explicit Day-ahead/Intraday allocationsConsidering the target of having only implicit allocation within the internal energy market for the day-ahead and intraday timeframes, the explicit auctions run by the JAO are only used as a fallback mechanism or on borders with countries which do not apply the internal energy market rules. This has been the case since January 2021 (Brexit) on the Belgium-UK border. Since the United Kingdom is no longer part of the European single market, it no longer participates either in the SDAC and SIDC implicit coupling projects. Day-ahead and Intraday capacity allocation on Nemo Link is therefore carried out in the same way as for long-term capacity allocation, using the method of explicit auctions.
