Tight Volume Coupling: Analytical Model, Adverse Flow Causality and Potential Improvements

Tanguy Janssen, Yann Rebours and Philippe Dessante

No 2012/09, RSCAS Working Papers from European University Institute

Abstract: The European Market Coupling Company (EMCC) operates an interim tight volume coupling (ITVC) that implicitly allocates the interconnection capacities between Central West European (CWE) and Nordic (Nordpool) day-ahead electricity spot markets. Though it is to be replaced by a single price coupling in the near future, the volume coupling principle can still inspire pragmatic solutions for future challenges in other situations. In order to learn from the current experience, this paper offers elements of understanding on the interim volume coupling run by the EMCC that are not highlighted in the documents already available. In particular, a new analytical model of the tight volume coupling is developed to show that the ITVC principle would not generate any inefficiencies under three assumptions. This analysis thus offers a new perspective on the causality of adverse ow events. Furthermore, this model could be used to study other tight volume coupling mechanisms because it can be applied with minor modifications to any number of areas, other kinds of traded products or areas using a ow-based method. Learning from the ITVC experience, this paper proposes an example of improvement of the tight volume coupling method based on a stronger coordination between the numerical solvers. This improved mechanism could serve as an interim solution if a price coupling numerical solver does not provide satisfactory results because of the optimisation problem size or complexity. In this case, the proposed solution is expected to be a satisfactory implicit allocation method from both technical and governance points of view.

Keywords: Volume coupling; market coupling; implicit allocation (search for similar items in EconPapers)
Date: 2012-03-09
New Economics Papers: this item is included in nep-cmp
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