SDAC: pan-European price coupling

SDAC stands for Single Day-Ahead Coupling. It is the umbrella project that connects almost every electricity market in Europe into one synchronised auction. When the noon gate closes, all the coupled zones clear together in one optimisation. The result: one consistent set of prices across the whole continent, hour by hour.

This is why a winter morning in Berlin can spike the price in Malmö. Sweden is not running its market alone.

What SDAC actually does

flowchart TB
    A([Many national exchanges<br/>Nord Pool, EPEX SPOT, OMIE, GME, ...])

    B([Each exchange collects bids<br/>from its own members])

    C([SDAC runs one big auction<br/>EUPHEMIA algorithm<br/>25+ countries together])

    D([One price per zone per hour<br/>cross-border flows decided<br/>same instant for everyone])

    A --> B --> C --> D

    style A fill:#fed7aa,stroke:#c2410c,color:#7c2d12
    style B fill:#fed7aa,stroke:#c2410c,color:#7c2d12
    style C fill:#fed7aa,stroke:#c2410c,color:#7c2d12
    style D fill:#fed7aa,stroke:#c2410c,color:#7c2d12

The exchanges still exist. Nord Pool still runs the Nordics. EPEX SPOT still runs Germany, France, the Netherlands. But the auction clearing happens once, at the same time, across all of them.

What coupled really means

If two zones are coupled and the wire between them is not full, the auction will give them the same price. The cheap zone exports power. The expensive zone imports. The wire fills up only until prices equalise.

If the wire is full, the auction gives up on equalising. The cheap zone stays cheap. The expensive zone stays expensive. The wire ships its maximum.

flowchart TB
    A([SE3 has cheap hydro<br/>200 SEK/MWh])
    B([Germany has expensive gas<br/>1,500 SEK/MWh])
    C{Is the SE3-DE cable<br/>fully booked?}
    D([Cable not full<br/>prices converge<br/>SE3 rises, Germany falls])
    E([Cable full<br/>SE3 stays at 200<br/>Germany stays at 1,500])

    A --> C
    B --> C
    C -->|No| D
    C -->|Yes| E

    style A fill:#dcfce7,stroke:#15803d,color:#14532d
    style B fill:#fecaca,stroke:#b91c1c,color:#7f1d1d
    style C fill:#fef3c7,stroke:#a16207,color:#713f12
    style D fill:#fed7aa,stroke:#c2410c,color:#7c2d12
    style E fill:#fed7aa,stroke:#c2410c,color:#7c2d12

This is the picture that explains 95 percent of cross-border price news. When you read Swedish prices follow German gas crisis, the cables were not full and SDAC equalised the prices. When you read Swedish prices decouple from Europe, the cables filled up and SDAC let them split.

Why this was a big deal

Before SDAC, each market cleared on its own and traders had to separately trade cross-border capacity between zones. It was slow, less efficient, and prone to bottlenecks where a cheap zone could not export to a needy expensive zone.

After SDAC, the auction does both jobs at once: decides prices and decides flows. The result is that European consumers, on average, pay lower prices than they would have under the old system. The same single algorithm sees the whole continent and optimises across it.

The catch: it cuts both ways

SDAC made the European market more efficient on average. But it also created the link that means a Berlin gas crisis becomes a Malmö bill problem. The same coupling that brings prices down in normal years makes them go up together in crisis years.

This is part of the reason 2022 was so painful in Sweden. The Russian gas shock spiked German prices. Cables to Sweden were not always full. SDAC coupled the prices. SE3 and SE4 followed Germany up.

A small daily example

A normal Wednesday in May.

• SDAC clears at 12:00 CET.
• Most cross-border cables in Europe are not full.
• Most coupled zones clear at very similar prices, somewhere in the 400 to 700 SEK/MWh range.

A cold morning in November.

• SDAC clears at 12:00 CET.
• The SE3-DE cable is full, exporting from Sweden to Germany.
• Sweden is exporting its cheaper hydro to Germany.
• SE3 still feels the German price somewhat (depending on neighbour-zone dynamics).
• SE4 fully couples to Germany. SE4 hits 2,000 SEK/MWh.
• Meanwhile SE1 and SE2 stay at 300 because the wire south from SE2 to SE3 is full too.

That single hour produced four very different prices in one country, all out of the same SDAC auction.

Next

Time to read a real Nord Pool day, hour by hour. See Reading one Nord Pool day.