Abstract
Interconnectors allow for cross-border flows of energy between two markets that would otherwise not be connected. Through an economic convergence between supply and demand, the cheapest marginal producer located anywhere in these two markets should be able to set market prices. As Jean-Baptiste Vaujour at the Emlyon Business School explains, the central question is to find an optimal allocation of the scarce interconnection capacity between the various suppliers and customers in both markets, allocated over different time horizons (from intra-day to months). It’s why the Joint Allocation Office (JAO) was set up in 2015, a centralised body to deal with the increasing complexity of the coupling of European markets. It organises more than 20,000 auctions per year, serving more than 430 market participants across 41 European bidding zones. Vaujour describes the challenges and how the JAO is meeting them, noting that its importance is bound to increase with time. This article is the final in a series of four articles by Vaujour dedicated to the development of electrical interconnectors in Europe. The first article discusses the economics of interconnectors and their important contribution to security of supply, electricity affordability and emissions reduction in Europe. The second looks at Eleclink, an innovative private interconnector. The third looks at how they are financed. Vaujour is also planning a follow-up article, written in tandem with people from the industry.