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The flow-based capacity calculation methodology maximises welfare benefits. The capacity on the network elements influenced by cross-border trading (the "critical network elements") is calculated taking into account the applicable minimum trading capacity. The process is based on the network data and models provided by the transmission system operators (TSOs) and presents the technically feasible electricity trading available to the market to realise transactions.
A complex algorithm then calculates the trading capacity to be allocated to the bidding zone borders, taking into account the market bids and maximising welfare benefits. The results of these two calculations then form the trading result for the day-ahead market: the successful bids and the day-ahead electricity prices. The market coupling mechanism automatically interconnects the electricity markets of the participating countries (Austria, Belgium, Croatia, Czechia, France, Germany, Hungary, Luxembourg, the Netherlands, Poland, Romania, Slovakia and Slovenia). The coordinated procedure and optimum use of the transmission capacity will boost electricity trading and consequently increase price convergence in the region.
The flow-based market coupling mechanism has been used for day-ahead trading since May 2015 for several borders (Austria, Belgium, Germany/Luxembourg, France, the Netherlands). The flow-based capacity calculation methodology is now being extended to the whole of the Core Capacity Calculation Region (Core CCR) in central Europe.
The introduction of the flow-based approach meets a requirement of Commission Regulation (EU) 2015/1222 establishing a guideline on capacity allocation and congestion management (CACM Regulation) (Article 20). The mechanism is implemented by the TSOs, who provide the network models and data as the basis for the capacity allocation, and the nominated electricity market operators (NEMOs), who accept the market participants' bids in a way that maximises welfare benefits.