This repo is designed as a study guide for students trying to understand the EUPHEMIA algorithm.
- Introduction to EUPHEMIA
- Key Concepts
- Market Participants and roles
- Regulatory framework
- Swaps and derived Instruments
- EUPHEMIA Simulation (Python)
- Further Reading and Resources
- PCR project -- power coupling of regions (2009), SLO-IT (Day Ahead coupling in 2011)
- EUPHEMIA: Pan-European Hybrid Electricity Market Integration Algorithm
- Implemented in FEB 2014 following COSMOS/SESAME (Cross-border Optimisation of SMOS)
- Aims for transparency in the computation of prices and flows.
- Solves a complex optimization problem (usually MIQP - Mixed Integer Quadratic Problem) to achieve market coupling.
- Market Coupling (MC): Eliminates the need to acquire separate transmission capacity rights for cross-border trades. Trades are determined by the MC mechanism.
- Economic Surplus (Welfare): The algorithm maximizes the sum of consumer surplus, producer surplus, and congestion rent across all coupled regions.
- Flow-Based Constraints: Power flows induced by executed orders (net positions) must not exceed the capacity of the network.
- PTDF (Power Transfer Distribution Factor): Indicates how much net positions (energy exchanges) utilize the capacity of specific network elements.
- RAM (Remaining Available Margin): The available left capacity (in MW) on a network constraint for energy exchanges.
- Implicit Auction: Transmission capacity is allocated implicitly along with the energy, no need for seperate rights.
- TSOs (Transmission System Operators): Provide transmission system constraints to the EUPHEMIA algorithm. ENTSO-E (European Network of Transmission System Operators for Electricity) has 40 TSOs from 36 countries (some countries have multiple bidding zones).
- NEMOs (Nominated Electricity Market Operators): Entities designated by governing bodies to operate electricity markets and interact with EUPHEMIA.
- Market Participants Generators/Consumers: Submit bids (asks/offers) for electricity (e.g., generators, retailers, large consumers).
- Example: BSP SouthPool (Slovenian day-ahead market).
- ACER (European Union Agency for the Cooperation of Energy Regulators): Plays a significant oversight role.
- National Regulatory Authorities (NRAs): Regulate national electricity markets.
- Key EU Regulations:
- MiFID II (Markets in Financial Instruments Directive II)
- EMIR (European Market Infrastructure Regulation)
- REMIT (Regulation on Wholesale Energy Market Integrity and Transparency)
For an explanation valuation and modelling of power swaps and related derivatives like VPPAs, see swaps_explained.md.
- How much vol needs to be hedged, how much vol is pure speculation/counter trading?
- Are swaps common? Who buys options? Who writes reugulatroy framework for these instruments (fixed for floating). How liquid are they?
- Who can market make options?
- PPAs (Power Purchase Agreements) / VPPAS(virtual Power Purchase Agreements) renewables/hedging.
This repo has a super simplified Python-based simulation to show some core concepts of EUPHEMIA. euphemia_simulation directory to see more.
Useful/helpful documents, papers are in the docs directory.
- MIQP (Mixed Integer Quadratic Programming): EUPHEMIA solves a complex optimization problem, typically an MIQP, to achieve market coupling and determine prices and flows. This is necessary to cover all requirements and provide solutions within a reasonable timeframe.
The algo wants maximize the total economic surplus, calculated as:
This is a direct result of the executed orders in the market, not the algorithm itsef.
- CWE: Central Western Europe (a key region in European electricity markets).
- BSP SouthPool: The Slovenian day-ahead electricity market where participants submit bids and asks.
- NEMO (Nominated Electricity Market Operators): Entities designated by governing bodies to operate electricity markets and interact with EUPHEMIA. They receive transmission system constraints from TSOs as input for the algorithm.
- PTDF (Power Transfer Distribution Factor): A ratio indicating how much the net positions (resulting from energy exchanges) utilize the capacity of specific network elements.
- ACER (European Union Agency for the Cooperation of Energy Regulators): Holds a significant oversight role in the European energy markets.
- ENTSO-E (European Network of Transmission System Operators for Electricity): Comprises 40 Transmission System Operators (TSOs) from 36 countries across Europe. TSOs provide the transmission system constraints to EUPHEMIA.
- ESMA (European Securities and Markets Authority): Involved in the regulation of financial aspects of energy markets.
- NRAs (National Regulatory Authorities): Regulate national electricity markets.
- SIDC (Single Intraday Coupling): Facilitates cross-zonal intraday trading, often with auctions (e.g., 1-hour ahead).
- Key EU Regulations:
- MiFID II (Markets in Financial Instruments Directive II)
- EMIR (European Market Infrastructure Regulation)
- REMIT (Regulation on Wholesale Energy Market Integrity and Transparency) These regulations are likely to continue shaping the market.
Here are two brillian, in-depth books that cover the EU electricity markets from two different perspectives.
-
**Estermann, A., Schrade, M., & Anderson, L. (Eds.). (2025). European Electricity Market Coupling: A Practitioner’s Guide. [1]Springer. **
[1]This book is an essential "how-to" manual for understanding the operational and technical details of the modern European electricity market. [1]As a practitioner's guide, it's perfect for new energy professionals, policymakers, and anyone looking for a deep dive into the specifics of market coupling. [1]It covers everything from the day-to-day operations and algorithms [1]to the financial, legal, and regional aspects. [1]A major advantage is that this book is Open Access, so it is available for everyone for free.
-
Meeus, L. (2020). The Evolution of Electricity Markets in Europe. Edward Elgar Publishing.
If the Practitioner's Guide is the "how-to," this book is the "why." It offers a brilliant overview of the historical development of Europe's electricity markets from the 1990s to the present day. It's a "one-stop-shop" for understanding the legislative packages, key court cases, and the economic principles that shaped the market design we see today. Highly recommended for anyone wanting to understand the full context and the journey of market integration form the ground up.