Evolution of European Power Markets: From UK Pool to EU Market Coupling

1990
UK Pool System
2001

Centralized Pool-Based Trading

The UK's first wholesale electricity market following privatization

  • Mandatory central pool for all generation and supply
  • System Marginal Price (SMP) and Capacity Payment mechanism
  • Central dispatch by NGC (National Grid Company)
  • Criticized for lack of transparency and high prices
✓ Centralized Balancing
1993
Nord Pool Emergence
2000

Norway's Market Opening (1993)

First competitive electricity market in Europe

  • Voluntary day-ahead market
  • Bilateral contracts alongside exchange trading
  • Price-based dispatch

Nordic Market Coupling (1996)

From Document: "Market coupling between the Nordic area working since 1996"

  • Sweden joins (1996)
  • Finland joins (1998)
  • Denmark joins (1999)
  • Largest power consumption area in Europe: 400 TWh
✓ Regional Coupling ✓ Decentralized Balancing
2001
NETA (New Electricity Trading Arrangements)
2005

England & Wales Market Reform

Shift from centralized pool to bilateral trading

  • Bilateral contracting: Parties free to trade however they wish
  • Multiple trading platforms: Exchanges, brokers, direct deals
  • Balancing Mechanism: System Operator (National Grid) balances system through bid-offer acceptances
  • Imbalance settlement: Cash-out prices for parties out of balance
  • Gate closure moved closer to real-time
✓ Bilateral Balancing Mechanism ✓ Central Clearing (voluntary)
2005
BETTA & EU Emissions Trading
2008

BETTA (British Electricity Trading and Transmission Arrangements)

Extension of NETA to include Scotland

  • Unified GB-wide electricity market
  • Single balancing mechanism
  • Harmonized trading arrangements
✓ Unified GB Balancing

EU Emissions Trading Scheme (EU ETS)

Phase 1: 2005-2007 (Trial)
Phase 2: 2008-2012 (Kyoto Period)

  • Cap-and-trade system for CO2 emissions
  • Covers power sector from start
  • Free allocation initially, moving toward auctioning
  • From Document: "Physical Forward contracts for 2006-2012, covering the whole Kyoto period"
✓ Carbon Markets Added
2005
Nord Pool: Emissions & Clearing Integration
2008

Nord Pool Products (From Document)

  • Spot Market: Physical day-ahead (Elspot)
  • Financial Market: Futures, forwards, options
  • Green Markets: First exchange for European Allowances
  • Clearing: Both electricity and bilateral derivatives
  • Over 420 members physical and financial
  • 112 members in emissions

CER Contracts Introduction

From Document: "Introducing CER as the first exchange from 1st June"

  • Certified Emission Reductions (CER) from CDM projects
  • EUA forward and spot market
  • Netting between commodities
  • Cross-margining capabilities
✓ CER Trading ✓ Cross-Margin Clearing
2008
EPEX SPOT & EU Market Coupling
2020+

EPEX SPOT Formation (2008)

Merger of French Powernext and German EEX spot markets

  • Day-ahead and intraday markets
  • France, Germany, Austria, Switzerland
  • Later expansion: UK, Belgium, Netherlands, Luxembourg
  • 15-minute products introduced

EU Market Coupling Evolution

  • 2006: Trilateral coupling (France-Belgium-Netherlands)
  • 2010: CWE (Central Western Europe) coupling
  • 2014: NWE (North Western Europe) coupling includes UK, Nordics
  • 2015: Price Coupling of Regions (PCR) - most of EU
  • 2019+: Single Day-Ahead Coupling (SDAC) across EU
✓ Pan-European Coupling

Integrated Market Features (Current)

🌍 Carbon Layer

  • EU ETS Phase 4 (2021-2030)
  • UK ETS (post-Brexit)
  • Carbon border adjustments
  • Derivatives and spot trading

⚡ Balancing Layer

  • Balancing capacity markets
  • Frequency response services
  • Cross-border balancing
  • Harmonized products (TERRE, MARI, PICASSO)

🔄 Clearing Layer

  • Central clearing mandatory (EMIR)
  • Cross-margining across products
  • Portfolio margining
  • Netting across markets
✓ Mature Carbon Markets ✓ Harmonized Balancing ✓ Integrated Cross-Margin Clearing ✓ Full Market Coupling

Key Layers Added Over Time

Carbon Markets Emissions trading (2005+)
Balancing Mechanisms System balancing services
Cross-Margin Clearing Integrated clearing across products (2006+)
Market Coupling Cross-border market integration

Key Insights from Nord Pool Document: