What a week it has been for the so-called Energy Union, the European Union’s policy to connect all member-states’ energy markets towards the development of a single pan-European electricity market.

Firstly came the good news of a new electricity interconnector between Spain and France that doubles the electricity exchange between the two countries. The new line had been under construction since 2008 and is now under testing and expected to be fully operational in mid 2015.

Today, the European Commission also announced its strategy towards an Energy Union, listing the Energy Union’s core dimensions.

Italy’s electricity market couples with France, Austria and Slovenia

But for the Energy Union to materialise, the number one priority is to successfully interlink the EU countries’s existing electricity networks. For this reason, Tuesdsay’s developments in Italy make perhaps the most significant progress in integrating the EU energy markets.

Italy’s transmission grid operator Terna announced that the country’s electricity market was successfully coupled with the neighbouring markets of France, Austria and Slovenia.

This is "another significant step towards an integrated European power market," said Terna, adding that as of Tuesday, the electricity markets of Italy, France, Austria and Slovenia "were coupled with each other through the synchronization of the respective power exchanges and coordination of their respective TSOs. On the other two electrical borders (Italy-Switzerland and Italy-Greece), the process will be starting in the coming months."

With the implicit allocation of capacity on the borders between Italy and the countries of France, Austria and Slovenia, Italy is now part of the wider Multi-Regional Coupling (MRC), which already connects most of the EU electricity markets, from Finland to Portugal and to Slovenia. "At the continental level, the extension of market coupling to the MRC will cover 20 European countries, accounting for about 2,800 TWh of yearly consumption, or 75% of European electricity demand," Terna added.

The European Commission has understood the significance of the electricity markets coupling mechanism and includes it in its main objectives. The mechanism allows the geographic extension of the Day-Ahead wholesale energy markets via the assignment of the daily capacity of transit at the border, with the goal of maximising the total economic surplus of the market participants and increasing social welfare.

Recently, the French energy regulator (CRE) claimed that market coupling will reduce the cost of the electricity supply in Italy and France by 30 million a year, thanks to a more efficient use of cross-border interconnections.

More generally, Terna cited a Booz & Company study for the European Commission indicating the whole process of integrating the European energy markets would provide profits of up to 70 billion a year, of which 40 billion is in the electricity sector. "Of these, a figure between 2.5 billion and 4 billion is the result of market coupling," Terna added.

Market coupling and the Energy Union bear a great significance for the expansion of renewable energy, enabling it to be traded much farther than the location it is generated. Thus, when the sun doesn’t shine in Austria for instance, Italy’s sunny weather can transmit electrons to the neighbouring country.

The market coupling development in Italy should finally be watched carefully for another reason. Italy has the highest wholesale electricity price in Europe — it is therefore worth observing the effect in wholesale prices in the year to come.

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