Eurelectric has published a report dedicated to the functioning and development of European short-term electricity markets, including market coupling mechanisms, cross-zonal capacity management, and upcoming regulatory developments. The report examines the role of these markets in ensuring the efficient functioning of the internal electricity market and the integration of renewable energy sources. Below we present a summary of the main findings and key elements of this analysis.
The European electricity system operates on the principle of continuous balancing between generation and consumption, as electricity cannot easily be stored at large scale. This balance is ensured through a sequence of markets with different time horizons – from long-term to short-term – which allow supply and demand to be progressively aligned. Spot markets (day-ahead and intraday) constitute the central element of this system, as they determine electricity prices and enable the cross-border integration of European markets.
Forward markets enable the management of price risks through financial contracts concluded months or years before delivery, while spot markets ensure physical trading close to the time of delivery. Eurelectric notes that bids are submitted in the day-ahead market for each 15-minute period, whereas positions in the intraday market are adjusted continuously or through auctions based on updated information on generation, demand, and network conditions, with cross-border intraday trading possible until approximately 30 minutes before delivery.
Where imbalances between generation and consumption remain after the closure of the intraday market, system balance is restored through balancing markets. Eurelectric indicates that transmission system operators (TSOs) procure balancing capacity in advance and subsequently activate balancing energy in real time, while the exchange of balancing energy is progressively being integrated at European level through common platforms.
Eurelectric considers that well-functioning markets support EU objectives related to decarbonisation, economic efficiency, and market integration. Price signals formed in competitive markets encourage the dispatch of lowest-cost technologies, support the integration of renewable energy sources, and reflect carbon costs through the EU Emissions Trading System. Competition among generators stimulates innovation and efficiency, while interconnections enable electricity exchanges between bidding zones and a more efficient allocation of resources across Europe.
Market coupling is a mechanism whereby bids from different bidding zones are processed simultaneously and cross-zonal capacity is allocated automatically through a common algorithm. Eurelectric emphasises that this approach enables more efficient use of interconnectors, improved price convergence, and optimal allocation of generation resources.
The legal framework is established by Regulation (EU) 2019/943 and the CACM Regulation, which define the organisation of the European day-ahead and intraday markets, as well as the roles of transmission system operators (TSOs), nominated electricity market operators (NEMOs), national regulatory authorities, and ACER. Eurelectric notes that methodologies and market rules are jointly developed by these institutions, approved by regulatory authorities, and discussed through stakeholder consultation processes.
The European target model for short-term markets is based on zonal pricing, self-dispatch, and portfolio-based bidding. Eurelectric underlines that within the zonal model each bidding zone has a single price for a given period, while network constraints between zones lead to price differences that signal the need for investments in networks, generation, or flexibility. Under self-dispatch, market participants determine their own generation schedules and submit bids according to their economic assessments, while system operators manage residual constraints through balancing mechanisms and remedial actions. Portfolio-based bidding allows optimisation at the level of a portfolio of assets and the combination of different technologies.
The day-ahead market operates as a common European auction in which prices are determined by bidding zone and cross-border electricity flows are established. Eurelectric notes that cross-zonal capacity is calculated by TSOs in a way that ensures secure system operation.
Technical incidents may lead to the partial or full decoupling of bidding zones from the common market auction, triggering predefined fallback procedures. Eurelectric observes that such situations may result in different prices within the same bidding zone and increased price volatility, highlighting the need to further refine operational procedures.
The intraday market enables the adjustment of positions after the closure of the day-ahead market through continuous trading and additional auctions. Eurelectric highlights that shortening the cross-border intraday gate closure time to 30 minutes before delivery is intended to better reflect real-time conditions and facilitate the integration of variable renewable generation.
The introduction of pan-European intraday auctions complements continuous trading and enables the implicit allocation of cross-zonal capacity, producing a single clearing price for each bidding zone. Eurelectric notes that these auctions require temporary interruptions of continuous cross-border trading and that future changes in capacity calculation methodologies may increase the duration of such interruptions.
Planned revisions to the regulatory framework (CACM 2.0) aim to improve the governance of market coupling, harmonise capacity calculation methodologies, enhance transparency, strengthen incident procedures, and adapt the framework to the increasing complexity of the electricity system.
In conclusion, Eurelectric emphasises that integrated and competitive electricity markets deliver significant benefits through efficient resource allocation, improved price convergence, and more effective cross-border trade. Maintaining and further developing the current short-term market target model, together with enhanced transparency and reliability of market coupling arrangements, is considered essential for the functioning of the electricity system and for supporting the energy transition.
See the full report here.
