131      ECONOMIC AND BUSINESS REVIEW  |  VOL. 19  |  No.  2  |  2017  |  131-154
THE IMPACT OF IMPLICIT ELECTRICITY 
MARKET COUPLING ON THE SLOVENIAN-
AUSTRIAN BORDER ON THE EFFICIENCY 
OF CROSS-BORDER TRANSMISSION 
CAPACITY ALLOCATION AND SOCIAL 
WELFARE IN SLOVENIA
ANŽE PREDOVNIK
1
 Received: January 4, 2016
MATEJ ŠVIGELJ
2
 Accepted: September 5, 2016
ABSTRACT: On the Slovenian-Austrian border cross-zonal capacities (CZCs) are currently 
allocated at explicit auctions, although in the future to comply with the European Target Elec-
tricity Model one can expect implicit auctions within market coupling to be implemented. Via 
a simulation, this paper aims to study the impact of implicit electricity market coupling on the 
Slovenian-Austrian border on the efficiency of CZC allocation and social welfare in Slovenia. 
The simulation results show that the use of implicit auctions would increase the efficiency 
of CZC allocation, reduce the price of electricity and increase the volume of trading in the 
Slovenian electricity exchange market. Further, implicit market coupling on the Slovenian-
Austrian border would increase social welfare in Slovenia. 
Keywords: market coupling, implicit auctions, day-ahead electricity market, Slovenia
JEL Classification: L94, L51, Q47
DOI: 10.15458/85451.47
1. INTRODUCTION
Electricity trading is conducted on the basis of long- and short-term contracts for the 
purchase or sale of electricity without constraints within an individual country in the EU. 
However, cross-zonal trading on energy borders among EU member states is limited by 
cross-zonal capacities (CZCs) (Meeus, Vandezande, Cole & Belmans, 2009). CZCs can 
be allocated by transmission network system operators (TSOs) by using various non-
market- or market-based methods.
3
 As non-market methods are prohibited by legislation 
(Regulation (EC) 1228/2003), since 2006 CZCs have been allocated at explicit or implicit 
auctions on all energy borders within the EU (Zachmann, 2008).
1 BSP Regional Energy Exchange LL C, Ljubljana, Slovenia, e-mail: anze.predovnik@bsp-southpool.com
2 University of Ljubljana, Faculty of Economics, Ljubljana, Slovenia, e-mail: matej.svigelj@ef.uni-lj.si
3 For a more detailed explanation of the market and non-market methods of allocating CZCs, see Kristiansen 
(2007a).

ECONOMIC AND BUSINESS REVIEW  |  VOL. 19  |  No. 2  |  2017 132
At explicit auctions, orders for the purchase of CZCs are submitted separately from orders 
for the purchase or sale of electricity. Each cross-border electricity trade consists of two 
transactions: the purchase of CZCs at an explicit auction and the purchase or sale of 
electricity in a bilateral or exchange market. When CZCs are being allocated at exchange 
markets at the same time as orders for the purchase and sale of electricity, this is referred 
to as an implicit auction (Kladnik, Artač, Štokelj & Gubina, 2010).
In July 2011, the Agency for the Cooperation of Energy Regulators (ACER) published 
the Framework Guidelines on Capacity Allocation and Congestion Management for 
Electricity in compliance with the requirements of Regulation (EC) 714/2009 and defined 
the method of implicit auctions within market coupling for the Target Electricity Model 
for short-term CZC allocation within the EU (ACER, 2011).
4
 
The main measures used to evaluate whether CZC allocation is better by means of implicit 
auctions than through explicit auctions are the better price convergence and greater 
efficiency of CZC allocation (Jullien, Pignon, Robin & Staropoli, 2012).
5
 
Greater efficiency in CZC allocation enables TSOs and market participants to have 
larger volumes of cross-border trade and quality price signals for the value of CZCs. 
Consequently, TSOs have a more accurate basis for decision-making with regard to 
investments in the transmission network and for market participants with regard to the 
cross-zonal purchase or sale of electricity. An improvement in CZC allocation efficiency is 
therefore also reflected in greater social welfare (Kristiansen, 2007a).
The unified and competitive ”Northern Market” is regarded as the first example of price 
market coupling in Europe. The Northern Market developed gradually. In 1991, the 
Norwegian National Exchange Market was established, which by 2000 was liaising with 
the neighbouring four countries and had grown into a regional market. Sweden joined in 
1996, Finland in 1998, part of western Denmark in 1999, and eastern Denmark in 2000 
(NordPool, 2004).
Northern Market integration was followed by the trilateral price market coupling (TLC) 
of the Belgian, French and Dutch markets in 2006. The German and French markets were 
price coupled in 2007. In 2009 and 2010, the German market integrated with the Danish 
and Swedish markets through volume market coupling. In 2010, the TLC was merged with 
the price market coupling of the German and French markets in a unified price market 
coupling of the Central West Region (CWE). In the same year, the Polish and Swedish 
markets were price coupled as well. The Slovenian market joined the market coupling 
implementation processes in January 2011 when the Slovenian and Italian markets were 
price coupled. In the same year, the Norwegian and Dutch markets were also merged 
4 Market coupling can take the form of either price or volume market coupling. With price market coupling, 
the trading platform algorithm is able to determine prices, quantities and flows for each of the coupled mar-
kets, whereas with volume market coupling only the net flows across the borders are calculated (Pellini, 2012).
5 For a more detailed description of the differences between explicit and implicit auctions, see Jullien et al. 
(2012) and Belpex (n.d.). 

A. PREDOVNIK, M. ŠVIGELJ  |  THE IMPACT OF IMPLICIT ELECTRICITY MARKET COUPLING ... 133
through volume market coupling (Farrington, 2011). The Czech and Slovak markets were 
price coupled on 31 August 2009 (SEPSAS, 2009). Since 1 April 2010, the Finnish and 
Estonian markets have been price coupled as well (Tere, 2010). Since 11 September 2012, 
the Hungarian market has been price coupled with the Slovak/Czech markets (CEPS, 
2012). 
The coupled markets or regions differ due to their use of various trading systems, 
market rules, and exchange markets closing times. For this reason, six power exchanges 
(APX, Belpex, EPEX, GME, NordPool and OMIE) joined forces in a project to integrate 
the regional markets to form a joint European market through which the mentioned 
differences are being dealt with (Farrington, 2011). 
ELES, the Slovenian TSO, and BSP , the Slovenian electricity exchange, have been engaged 
in CZC allocation on the Slovenian-Italian border through implicit auctions since January 
2011. On the Slovenian-Austrian border, CZCs are allocated by means of explicit auctions. 
Since this is not in compliance with the ACER target model, it is expected that in the future 
implicit auctions will be carried out on this border as well. Although on the Slovenian-
Croatian border CZCs are allocated through explicit auctions, the CZC allocation will not 
be changing in the near future because there is no active power exchange in Croatia and 
so it is not possible to conduct implicit auctions. There are no interconnectors between 
Slovenia and Hungary and CZCs are thus not allocated on the border between these two 
countries.  
The purpose of this paper is to study the impact of implementing implicit auctions on 
the Slovenian-Austrian border in the Slovenian electricity exchange market by means 
of a simulation. We investigate whether implementing implicit auctions on this border 
would be more effective than the existing explicit auctions in terms of CZC allocation. 
In addition, the impact of implicit auctions on the Slovenian-Austrian border on social 
welfare in Slovenia is analysed. 
In the paper, we verify the hypotheses that, following the implementation of implicit 
auctions on the Slovenian-Austrian border the electricity price differences between the 
Slovenian and Austrian electricity exchange markets will decrease (H1), the average 
electricity price in the Slovenian electricity exchange market will decrease (H2), the 
efficiency of the available CZC utilisation will increase (H3), the trading volume in the 
Slovenian electricity exchange market will rise (H4) and that social welfare in Slovenia 
will increase (H5).
The paper is structured as follows. Section 2 provides a brief review of the literature on 
electricity market integration and on different capacity allocation mechanisms. In section 
3, we present the theoretical background on how CZC allocation influences social welfare. 
In section 4, we describe the data and outline the simulation of implicit auctions on the 
Slovenian-Austrian border. In section 5, we analyse the results of the simulation. Finally, 
the findings and conclusions are summarised in section 6.

ECONOMIC AND BUSINESS REVIEW  |  VOL. 19  |  No. 2  |  2017 134
2. LITERATURE REVIEW
The economic literature on electricity market integration and capacity allocation 
mechanisms can be classified in three main categories. The first category consists of 
literature that analyses the impact of different market integration models on the degree of 
competition in electricity markets. The second category highlights the inefficiencies of the 
explicit auction mechanism for allocating CZC. The third category researches the impact 
of introducing implicit auctions on the efficiency of allocating CZC and on social welfare. 
Borenstein, Bushnell and Stoft (2000) show that the introduction of a transmission 
capacity between two separated symmetric monopoly markets fosters competition and, 
moreover, that even a modest expansion of transmission capacity between markets that 
suffer from market power problems may have very high payoffs in terms of increased 
competition in electricity markets. Harvey and Hogan (2000) explore the comparative 
effects on competition of nodal pricing vs. zonal pricing and conclude that nodal pricing 
supports the market and expands the range of tools available to mitigate market power. 
Joskow and Tirole (2000) provide a study of the effects of market coupling/splitting 
bid-based pools with financial transmission contracts and bilateral contracting systems 
organised with tradable physical transmission contracts in constrained two-node and 
three-node networks. In their study, they argue that physical transmission contract rights 
may have worse welfare effects than financial transmission contracts rights because they 
can be withheld from the market, thereby reducing effective transmission capacity and 
introducing production inefficiency. Further, Neuhoff (2004) explores the comparative 
effects on competition of market coupling/splitting with financial transmission contracts 
vs. bilateral trading with physical transmission contracts and concludes that market 
coupling/splitting reduces the market power of generation companies compared to a 
market design relying on bilateral trading with physical transmission contracts. Gilbert, 
Neuhoff and Newbery (2004) extend previous studies by analysing a larger range of cases 
for different market designs and by studying welfare effects when transmission rights 
are obtained in an auction or inherited as legacy rights. Ehrenmann and Smeers (2005) 
and later on Ehrenmann and Neuhoff (2009) explore the comparative welfare effects of 
introducing two different capacity allocation design options (an integrated market design 
or a coordinated transmission auction) and demonstrate that an integrated market design 
performed better. In addition, Jullien et al. (2012) compare the two design options and 
come to the same conclusion that an integrated market design is more efficient than a 
coordinated transmission auction. 
The second category of the literature provides an assessment of the inefficiencies of the 
explicit auction mechanism for allocating CZC. Analysing the results of auctions held for 
the Dutch-German interconnector and for the French-England interconnector, Newbery 
and McDaniel (2002) find that with explicit auctions CZCs are underused as a result of no 
flows netting. Moreover, imperfect arbitrage is present as the average price of daily capacity 
is lower than the monthly and annual prices. Similarly, while assessing the performance 
of the Kontek cable and of the interconnector between West Denmark and Germany 
Kristiansen (2007b) also finds evidence of imperfect arbitrage. Bunn and Zachmann 

A. PREDOVNIK, M. ŠVIGELJ  |  THE IMPACT OF IMPLICIT ELECTRICITY MARKET COUPLING ... 135
(2010) demonstrate that with an explicit auction, a generator which is both a dominant 
player in one market and a competitive player in another, has an incentive to acquire 
transmission rights to export against the price differential, thus resulting in inefficient use 
of cross-border interconnections. In addition, Bunn and Zachmann (2010) claim these 
inefficiencies occur because the energy and transmission markets are decoupled through 
the ex ante nature of the capacity auctions. Implicit auction approaches with nodal pricing 
would preclude these inefficiencies. Meeus (2011) computes a performance indicator for 
no-coupling, volume market coupling and price market coupling auction mechanisms on 
the Kontek Cable between Denmark and Germany and finds that price coupling is able to 
outperform both no-coupling and volume-market coupling. 
The third category of the literature focuses on the impact of implicit auctions on the efficiency 
of allocating CZCs and on social welfare in the integrated markets. Hobbs, Rijkers and 
Boots (2005) analyse the potential impact of market coupling for the Belgian and the Dutch 
markets before the start of the Trilateral Coupling project among Belgium, France and 
the Netherlands. The authors estimate the project’s welfare effect by simulating a Cournot 
Nash equilibrium model with five alternative market settings. The results show that, if the 
Belgian incumbent plays strategically, the change in the aggregate social surplus due to the 
market coupling is quite significant, but it occurs at the expense of Dutch consumers. On 
the other hand, when the Belgian incumbent acts as a price-taker, market coupling brings 
about a smaller increase in the aggregate social surplus, but it is more equally distributed 
among Belgian and Dutch consumers. Finon and Romano (2009) analyse the effect of 
market integration on electricity prices, showing that consumers living in countries with 
a high variable cost of capacity enjoy a price fall at the expense of consumers living in 
countries with a low cost capacity. Similarly, Pellini (2012) analyses the impact of market 
coupling in the Italian electricity market and confirms that, in the Italian case, market 
coupling maximises the use of the interconnection capacity with neighbouring countries, 
allows flows-netting, eliminates inefficient arbitrage that may occur with the explicit 
auction mechanism and increases the welfare gain of the coupled markets. 
There are also some studies investigating the market coupling of the Slovenian and Italian 
electricity markets. The study of GME, Borzen and BSP (2008) identifies four efficiency 
gains from the adoption of implicit auctions on the Slovenian-Italian border. Namely, lower 
operational risks, lower trading risk/cost, higher liquidity of markets and more efficient use 
of the interconnection capacity. In addition, while analysing price convergence between 
the Slovenian and Italian electricity markets after the implementation of market coupling 
Parisio and Pelagatti (2014) find that the two markets are still far from being strongly 
integrated in terms of prices. Further, Cavaliero (2013) shows that the introduction of 
implicit auctions on the Slovenian-Italian border has influenced the efficiency of CZC 
allocation since in 2011 and 2012 the cross-border flows determined by market coupling 
resulted to be efficient in 100% of cases, compared with 98.2% guaranteed by the previous 
mechanism based on an explicit auction.
An empirical assessment of the effect of the market integration of the Slovenian and 
Austrian electricity markets from introducing implicit auctions on the Slovenian-

ECONOMIC AND BUSINESS REVIEW  |  VOL. 19  |  No. 2  |  2017 136
Austrian border is still to be carried out. Th erefore, this paper aims to contribute to the 
empirical literature on market integration, presenting a comprehensive investigation on 
the effi  ciency of the CZC allocation and the welfare eff ect caused by the use of implicit 
auctions on the Slovenian-Austrian border.
3. CAPACITY ALLOCATION AND SOCIAL WELFARE
Connecting two isolated electricity exchange markets is possible if interconnectors or 
CZCs are available. In order to conduct cross-border electricity transactions, a market 
participant has to gain the right to use CZCs. Th e CZCs of an individual interconnector 
pose a quantity constraint on trading between the two markets (Neuhoff , 2004). 
If the CZCs are not fully utilised and there is no transmission network congestion between 
the two markets, electricity prices in both markets are equalised (Figure 1). Let us assume 
that at the beginning the electricity price (P
A
) in Market A is lower than the electricity 
price (P
B
) in Market B and therefore Market A will export electricity to Market B. Exported 
electricity is bought in the export area of Market A (additional purchase of electricity in 
Market A shift ing the position of demand D
0
 to position D
1
), and is sold in the import area 
of Market B (additional selling of electricity in Market B shift ing the position of supply S
0
 
to position S
1
). Consequently the electricity price in Market A will increase and decrease 
in Market B. If CZCs for the export of electricity from Market A to Market B are suffi  cient, 
the prices in both markets will equalise P*
A
 = P*
B
 (Adamec, Indrakova, & Pavlatka, 2009).
6
Th e producer surplus in Market A increases since the electricity produced in this market 
can be sold by the producers at a higher price than before the market coupling (area 
a+b+c). Th e consumer surplus in Market B increases as well because the electricity in this 
market can be purchased by consumers at a lower price than before the market coupling 
(area d+e+f) (Figure 1) (Jacottet, 2012). On the contrary, the consumer surplus in Market 
A decreases since consumers have to purchase electricity at a higher price than before the 
market coupling (area a+b). Further, the producer surplus in Market B is also decreased 
because the electricity produced in this market can be sold by the producers at a lower 
price than before the market coupling (area d) (Figure 1) (Jacottet, 2012).
6 For mathematical proof that market prices equalise if there are no CZC constraints between two or more 
markets, see Coenraad (2011).

A. PREDOVNIK, M. ŠVIGELJ  |  THE IMPACT OF IMPLICIT ELECTRICITY MARKET COUPLING ... 137
Figure 1:  Social welfare eff ects of market coupling with an uncongested interconnection
Sources: Adapted from Jacottet, 2012; Adamec et al., 2009.
Notwithstanding the mentioned losses of individual participants in Markets A and B, 
the coupling of the two markets has net benefi ts for them both. Namely, the losses of an 
individual market participant are compensated for by the gains of other participants in 
this market. Th e social welfare of both coupled markets, between which CZCs are not 
fully utilised, is greater than the social welfare of the two isolated Markets A and B when 
calculating the net benefi ts due to the increased exports in Market A (area c) and the net 
benefi ts from increased imports in Market B (area e+f). Th e areas c, e and f represent the 
increase in social welfare due to the coupling of the two markets without CZC constraints 
between them (Figure 1) (Jacottet, 2012).
If the CZCs between the two markets are fully utilised, network congestion occurs and 
electricity prices in both markets are not equalised (Figure 2). With CZC allocation, 
electricity prices between the two markets are drawn nearer to the moment when the 
last CZC unit is allocated between the two markets. Aft er CZC allocation, the price in 
an individual market is formed according to the remaining orders for the purchase or 
sale of electricity in that market (Coenraad, 2011). In this case, the quantity of electricity 
exchanged between Market A and Market B is equal to the complete CZCs available 
between the two markets. Exported electricity is purchased in Market A at price P*
A
 and 
sold in Market B at price P*
B
. Th e diff erence between prices P*
A
 and P*
B,
 multiplied by the 
CZCs used, represents income of system operator from the network congestion (area g) 
(Figure 2) (Adamec et al., 2009).
In two coupled electricity markets between which CZCs are fully utilised, the price in both 
markets is not equalised, since Market B cannot import suffi  cient quantities of electricity 
from Market A as it would wish to based on the price diff erence. Nevertheless, because 
the electricity off er fl ows from the lower to the higher price range, the prices of the two 
markets are brought closer together, yet not to the extent as in price market coupling 
between two markets without CZC constraints between them (Coenraad, 2011). 
Sources: Adapted from Jacottet, 2012; Adamec et al., 2009. 
Notwithstanding the mentioned losses of individual participants in Markets A and B, the coupling of the two 
markets has net benefits for them both. Namely, the losses of an individual market participant are compensated for 
by the gains of other participants in this market. The social welfare of both coupled markets, between which CZCs 
are not fully utilised, is greater than the social welfare of the two isolated Markets A and B when calculating the 
net benefits due to the increased exports in Market A (area c) and the net benefits from increased imports in
Market B (area e+f). The areas c, e and f represent the increase in social welfare due to the coupling of the two 
markets without CZC constraints between them (Figure 1) (Jacottet, 2012).
If the CZCs between the two markets are fully utilised, network congestion occurs and electricity prices in both 
markets are not equalised (Figure 2). With CZC allocation, electricity prices between the two markets are drawn 
nearer to the moment when the last CZC unit is allocated between the two markets. After CZC allocation, the price 
in an individual market is formed according to the remaining orders for the purchase or sale of electricity in that 
market (Coenraad, 2011). In this case, the quantity of electricity exchanged between Market A and Market B is 
equal to the complete CZCs available between the two markets. Exported electricity is purchased in Market A at 
price P*
A
and sold in Market B at price P*
B
. The difference between prices P*
A
and P*
B,
multiplied by the CZCs 
used, represents income of system operator from the network congestion (area g) (Figure 2) (Adamec et al., 2009).
In two coupled electricity markets between which CZCs are fully utilised, the price in both markets is not 
equalised, since Market B cannot import sufficient quantities of electricity from Market A as it would wish to 
based on the price difference. Nevertheless, because the electricity offer flows from the lower to the higher price 
range, the prices of the two markets are brought closer together, yet not to the extent as in price market coupling 
between two markets without CZC constraints between them (Coenraad, 2011). 
The social welfare of two coupled markets between which CZCs are fully utilised is greater than the social welfare 
of two isolated Markets A and B when calculating the net benefits due to the increased exports in Market A (area 
c) and the net benefits from the increased imports in Market B (area e+f) and the congestion rent (area g) (Figure 
2). Areas c, e, f and g represent the increase in social welfare due to the coupling of two markets with CZC 
constraints (E-Bridge, 2009). The increase in social welfare due to the coupling of two markets with CZC 
constraints is smaller than with the coupling of two markets where the CZCs are not constrained (Coenraad, 2011).
Figure 2: Social welfare effects of market coupling with a congested interconnection

ECONOMIC AND BUSINESS REVIEW  |  VOL. 19  |  No. 2  |  2017 138
The social welfare of two coupled markets between which CZCs are fully utilised is greater 
than the social welfare of two isolated Markets A and B when calculating the net benefits 
due to the increased exports in Market A (area c) and the net benefits from the increased 
imports in Market B (area e+f) and the congestion rent (area g) (Figure 2). Areas c, e, f 
and g represent the increase in social welfare due to the coupling of two markets with CZC 
constraints (E-Bridge, 2009). The increase in social welfare due to the coupling of two 
markets with CZC constraints is smaller than with the coupling of two markets where the 
CZCs are not constrained (Coenraad, 2011).
Figure 2:  Social welfare effects of market coupling with a congested interconnection
Sources: Adapted from E-bridge, 2009; Adamec et al., 2009.
Explicit and implicit auctions (considering the assumptions that CZCs are allocated in 
completely competitive markets where market participants have all information available, 
there are no uncertainties, and where the results of trading are completely predictable) 
lead to the same result when calculating the social welfare (Ehrenmann & Neuhoff, 2009).  
In practice, the mentioned assumptions are not completely realised, leading to inefficiencies 
that reduce the social welfare (Creti, Fumagalli & Fumagalli, 2010). Due to market power 
abuse by market participants and unreliable information resulting from the two-stage 
process of cross-border transactions (first, a market participant acquires the right to use 
CZCs at explicit auctions, and then it conducts a transaction for the purchase or sale 
of electricity), explicit auctions are less efficient than implicit ones because cross-border 
transactions for the purchase or sale of electricity are conducted concurrently with CZC 
allocations between the two markets (Consentec & Frontier Economics, 2004).
Sources: Adapted from E-bridge, 2009; Adamec et al., 2009. 
Explicit and implicit auctions (considering the assumptions that CZCs are allocated in completely competitive 
markets where market participants have all information available, there are no uncertainties, and where the results 
of trading are completely predictable) lead to the same result when calculating the social welfare (Ehrenmann & 
Neuhoff, 2009).  
In practice, the mentioned assumptions are not completely realised, leading to inefficiencies that reduce the social 
welfare (Creti, Fumagalli & Fumagalli, 2010). Due to market power abuse by market participants and unreliable 
information resulting from the two-stage process of cross-border transactions (first, a market participant acquires 
the right to use CZCs at explicit auctions, and then it conducts a transaction for the purchase or sale of electricity), 
explicit auctions are less efficient than implicit ones because cross-border transactions for the purchase or sale of 
electricity are conducted concurrently with CZC allocations between the two markets (Consentec & Frontier 
Economics, 2004).
4. MARKET COUPLING SIMULATION ON THE SLOVENIAN-AUSTRIAN BORDER
4.1. Data sources 
Data were acquired from various sources. Data on CZCs on the Slovenian-Austrian border were acquired from the 
Central Allocation Office website (CAO, n.d.). Data on CZCs on the Slovenian-Italian border and data on offers 
for purchases or sales in the Slovenian day-ahead market were acquired from the internal materials of the 
Slovenian electricity exchange – BSP (BSP, 2012). Data regarding the price on the day-ahead market on the Italian 
electricity market were acquired from the Italian electricity exchange website – GME (GME, n.d.). Data regarding 
the price on the day-ahead market on the Austrian electricity market were acquired from the Austrian electricity
exchange website – EXAA (EXAA, n.d.).
Data were based on an hourly level for all 365 days or 8,784 hours in 2012 during which electricity was traded. 
The data consist of 351,196 offers for the sale of electricity on the Slovenian day-ahead market and 241,784 offers 
for the purchase of electricity on the Slovenian day-ahead market. In addition, 17,566 CZCs on the Slovenian-
Italian border, 17,566 CZCs on the Slovenian-Austrian border, 8,784 prices of electricity in the Italian day-ahead 
market and 8,784 prices of electricity in the Austrian day-ahead market were used.
4.2. Reference scenario
Prior to assuming the implementation of implicit auctions on the Slovenian-Austrian border, short-term CZCs are 
being allocated at explicit auctions. Consequently, according to the gained rights to use CZCs at explicit auctions 
and their business strategy, Slovenian market participants can enter their offers for the purchase and sale of 
electricity in the order book of the Slovenian electricity exchange market and Austrian market participants in the 
order book of the Austrian electricity exchange market. Since the Slovenian electricity exchange market is 
connected to the Italian electricity exchange market via implicit auctions within the market coupling, the order 
book of the Slovenian market is combined with the order book of the Italian electricity exchange market. 
The calculations of actual/reference trading results were made with the EuroMarket trading system that is used by 
the Italian and Slovenian electricity exchanges (Mercatoelettrico, n.d.). The trading results in the Slovenian 
electricity exchange market were calculated on an hourly basis for all hours of the leap year 2012 based on data 
from the common order book of the Slovenian and Italian electricity exchange markets, taking into account that 

A. PREDOVNIK, M. ŠVIGELJ  |  THE IMPACT OF IMPLICIT ELECTRICITY MARKET COUPLING ... 139
4. MARKET COUPLING SIMULATION ON THE SLOVENIAN-AUSTRIAN 
BORDER
4.1. Data sources 
Data were acquired from various sources. Data on CZCs on the Slovenian-Austrian border 
were acquired from the Central Allocation Office website (CAO, n.d.). Data on CZCs on 
the Slovenian-Italian border and data on offers for purchases or sales in the Slovenian 
day-ahead market were acquired from the internal materials of the Slovenian electricity 
exchange – BSP (BSP, 2012). Data regarding the price on the day-ahead market on the 
Italian electricity market were acquired from the Italian electricity exchange website – 
GME (GME, n.d.). Data regarding the price on the day-ahead market on the Austrian 
electricity market were acquired from the Austrian electricity exchange website – EXAA 
(EXAA, n.d.).
Data were based on an hourly level for all 365 days or 8,784 hours in 2012 during which 
electricity was traded. The data consist of 351,196 offers for the sale of electricity on the 
Slovenian day-ahead market and 241,784 offers for the purchase of electricity on the 
Slovenian day-ahead market. In addition, 17,566 CZCs on the Slovenian-Italian border, 
17,566 CZCs on the Slovenian-Austrian border, 8,784 prices of electricity in the Italian day-
ahead market and 8,784 prices of electricity in the Austrian day-ahead market were used. 
4.2. Reference scenario
Prior to assuming the implementation of implicit auctions on the Slovenian-Austrian 
border, short-term CZCs are being allocated at explicit auctions. Consequently, according 
to the gained rights to use CZCs at explicit auctions and their business strategy, Slovenian 
market participants can enter their offers for the purchase and sale of electricity in the 
order book of the Slovenian electricity exchange market and Austrian market participants 
in the order book of the Austrian electricity exchange market. Since the Slovenian 
electricity exchange market is connected to the Italian electricity exchange market via 
implicit auctions within the market coupling, the order book of the Slovenian market is 
combined with the order book of the Italian electricity exchange market. 
The calculations of actual/reference trading results were made with the EuroMarket trading 
system that is used by the Italian and Slovenian electricity exchanges (Mercatoelettrico, 
n.d.). The trading results in the Slovenian electricity exchange market were calculated on 
an hourly basis for all hours of the leap year 2012 based on data from the common order 
book of the Slovenian and Italian electricity exchange markets, taking into account that 
the rights to use CZCs on the Slovenian-Italian border were allocated at implicit auctions.
7
 
7 As the Slovenian and Italian electricity exchange markets were coupled in 2011, the calculation of both 
the reference and the simulation scenario also needs to consider the Italian electricity exchange market (the 
northern zone).

ECONOMIC AND BUSINESS REVIEW  |  VOL. 19  |  No. 2  |  2017 140
In addition, the short-term CZCs on the Slovenian-Austrian border allocated at explicit 
auctions were also used in the reference scenario.  Results calculated on such bases are 
treated as the reference scenario. 
4.3. Simulation scenario
For the purposes of analysing the impact of using implicit auctions on the Slovenian-
Austrian border in the Slovenian electricity exchange market, the explicit auctions for 
allocating CZCs on the Slovenian-Austrian border are replaced by a simulation of the use 
of implicit auctions for allocating CZCs on that border. 
In the simulations for the Slovenian-Austrian border and the Slovenian-Italian border, the 
rights to use CZCs are granted at the same time as offers for the purchase or sale of electricity . 
The calculations of the trading results of the simulation scenario were conducted by a 
programmed calculation in Excel that simulates the operation of the EuroMarket trading 
system algorithm. The programmed calculation was based on the assumptions explained 
in section 4.3.1. The trading results in the Slovenian electricity exchange market were 
calculated on an hourly basis for all hours of the leap year 2012 based on data from the 
common order book of the Slovenian, Italian and Austrian electricity exchange markets, 
taking into account that the rights to use CZCs on the Slovenian-Italian border and on the 
Slovenian-Austrian border are allocated at implicit auctions. Results calculated on such 
bases and with such a simulation are treated as the simulation scenario.
4.3.1. Assumptions
In 2012, the Italian market price for the northern zone (P
GME_Nord
) was higher than the 
Slovenian market price (P
BSP
) for 6,962 hours, which means that Slovenia exported 
electricity with the utilisation of complete CZCs in the direction Slovenia-Italy. For 
1,800 hours, the Italian market price for the northern zone (P
GME_Nord
) was the same as 
the Slovenian market price (P
BSP
), where electricity was imported into Slovenia for 14 
hours with the utilisation of part of the CZCs in the direction Italy-Slovenia, and for 1,786 
hours electricity was exported from Slovenia with the utilisation of part of the CZCs in 
the direction Slovenia-Italy. For 22 hours, the Italian market price for the northern zone 
(P
GME_Nord
) was lower than the Slovenian market price (P
BSP
), which means that electricity 
was imported into Slovenia with the utilisation of complete CZCs in the direction Italy-
Slovenia (Table 1).

A. PREDOVNIK, M. ŠVIGELJ  |  THE IMPACT OF IMPLICIT ELECTRICITY MARKET COUPLING ... 141
Table 1: Imports and exports of electricity from/to the Italian exchange market in 2012
Total 
hours
Number of 
hours with 
IM and EX 
from/to IT
 Number of 
hours with 
one-way IM 
from IT
Number of 
hours with 
one-way EX 
to IT
Number of 
hours with full 
CZC utilisation 
from IT
Number of 
hours with full 
CZC utilisation 
to IT
P
BSP 
> P
GME_Nord
22 0 22 0 22 0
P
BSP
 < P
GME_Nord
6,962 0 0 6,962 0 6,962
P
BSP
 = P
GME_Nord
1,800 0 14 1,786 0 0
Total 8,784 0 36 8,748 22 6,962
Sources: GME, n.d.; BSP , n.d.; CAO, n.d.
To sum up, in 2012 Slovenia exported electricity to Italy for 8,748 hours, or 99.5% of the 
time. Consequently, CZCs for the direction Slovenia-Italy represented additional demand 
in the Slovenian electricity exchange market. For 36 hours, or 0.4% of the time, Slovenia 
imported electricity from Italy, which means that CZCs for the direction Italy-Slovenia 
represented additional supply in the Slovenian electricity exchange market (Table 1).
Due to the small quantities of CZCs between the countries, the cross-zonal demand or 
offer of the Slovenian electricity exchange market cannot influence the aggregate demand 
or aggregate supply in the Italian electricity exchange market to such an extent that would 
cause the price in the Italian electricity exchange market to change. For this reason, we 
assume that in the Italian electricity exchange market the Slovenian electricity exchange 
market appears as an additional buyer (buying electricity up to the extent of the maximum 
CZCs for the direction Italy-Slovenia) when the Italian electricity exchange price is lower 
than the Slovenian electricity exchange price. In addition, we also assume that in the 
Italian electricity exchange market the Slovenian electricity exchange market appears as 
an additional seller (selling electricity up to the extent of the maximum CZCs for the 
direction Slovenia-Italy) when the Italian electricity exchange price is higher than the 
Slovenian electricity exchange price.
Similarly as for the Italian electricity exchange market, we analyse the differences in 
electricity prices between the Slovenian and Austrian electricity exchange markets (Table 
2). In 2012, the Austrian electricity exchange price (P
EXAA
) was higher than Slovenian 
electricity exchange price (P
BSP
) for 2,107 hours (within these hours electricity was 
exported from Slovenia with the utilisation of complete CZCs in the direction Slovenia-
Austria in 38 hours), for 127 hours Austrian electricity exchange price (P
EXAA
) was the 
same as Slovenian electricity exchange price (P
BSP
) and for 6,550 hours Austrian electricity 
exchange price (P
EXAA
) was lower than the Slovenian electricity exchange price (P
BSP
) 
(within these hours electricity was imported from Austria with the utilisation of complete 
CZCs in the direction Austria-Slovenia in 2,180 hours).

ECONOMIC AND BUSINESS REVIEW  |  VOL. 19  |  No. 2  |  2017 142
Table 2: Imports and exports of electricity from/to the Austrian exchange market in 2012
Total 
hours
Number of 
hours with 
IM and EX 
from/to AT
Number of 
hours with 
one-way IM 
from AT
Number of 
hours with 
one-way EX 
to AT
Number of 
hours with full 
CZC utilisation 
from AT
Number of hours 
with full CZC 
utilisation 
to AT
P
BSP 
> P
EXAA
6,550 3,356 3,140  54 2,180 0
P
BSP
 < P
EXAA
2,107 1,930   103  74 38 0
P
BSP
 = P
EXAA
   127   110    17    0 0 0
Total 8,784 5,396 3,260 128 2,218 0
Sources: EXAA, n.d.; BSP , n.d.; CAO, n.d.
On the basis of the data shown in Table 2, we can determine the following: in 2012, for 
3,214 hours (3,140 hours + 74 hours), or 36.6% of the time, electricity was exchanged in 
the direction from the lower towards the higher price range; for 157 hours (103 hours + 54 
hours), or 1.8% of the time, from the higher towards the lower price range; for 17 hours, 
or 0.2% of the time, it was exchanged at equal prices between the two price ranges; and for 
5,396 hours (3,356 hours + 1,930 hours + 110 hours), or 61.4% of the time, it was exported 
from the lower to the higher price range, and at the same time imported from the higher 
to the lower price range. 
For the market participants which imported electricity from the higher to the lower price 
range in the above examples, we can assume that they had wrong expectations regarding 
in which of the neighbouring electricity markets a higher price would be formed and 
in which a lower one. This clearly shows the inefficiency of the explicit two-step CZCs 
allocation method in which market participants first have to participate in explicit auctions 
for allocating CZCs and then trade in electricity in two neighbouring markets on the basis 
of predictions made about the price differences between these two markets.
The Austrian electricity exchange market has great depth since this market is indefinitely 
connected to the German electricity exchange market (the CZCs between the two 
markets are in excess). Consequently, CZCs on the Slovenian-Austrian border and 
the cross-zonal demand or offer of the Slovenian electricity exchange market cannot 
influence the aggregate demand or aggregate supply in the Austrian electricity exchange 
market to such an extent that would cause the price in the Austrian electricity exchange 
market to change. 
When simulating the market coupling on the Slovenian-Austrian border, we assume that 
electricity would be exported from Slovenia to Austria (to the extent of the maximum 
CZCs for the direction Slovenia-Austria) when the Austrian electricity exchange price 
is higher than the Slovenian electricity exchange price, and that electricity would be 
imported from Austria to Slovenia (to the extent of the maximum CZCs for the direction 
Austria-Slovenia) when the Austrian electricity exchange price is lower than the Slovenian 
electricity exchange price. The CZCs that are assumed to be available for implicit allocation 

A. PREDOVNIK, M. ŠVIGELJ  |  THE IMPACT OF IMPLICIT ELECTRICITY MARKET COUPLING ... 143
via the electricity exchange market are calculated as the difference between the net transfer 
capacity (NTC)
 8
 and already allocated transfer capacity (AAC).
9
4.4. Social welfare calculation
10
 
4.4.1. The Slovenian electricity exchange market before the use of implicit auctions on 
the Slovenian-Austrian border
Before using implicit auctions on the Slovenian-Austrian border, the order books of the 
Slovenian and Austrian electricity exchange markets were not directly linked. On the 
Slovenian-Austrian border, CZCs are allocated through explicit auctions. The aggregate 
demand curve (P
d
=f
d
(Q
i
)) and aggregate supply curve (P
s
=f
s
(Q
i
)) in the Slovenian 
electricity exchange market are step functions. The two step functions are constructed 
from the historical buy and sell bids (which are ranked separately for the buy and sell 
curve accordingly to their type, taking into account their price level and time stamp) 
entered into the Slovenian electricity exchange market order book in 2012. Based on these 
data (bids), we calculate the consumer surplus (CS) and producer surplus (PS) for an 
individual hour in 2012 as follows:
 (1)
 (2)
where:
P
BSP
 is the price of electricity in the Slovenian electricity exchange market before 
implementing implicit auctions; 
Q
BSP
 is the quantity in the Slovenian electricity exchange market before implementing 
implicit auctions.
The congestion rent of the Slovenian TSO
11
 on the Slovenian-Austrian border (CR
SI-AT
) for 
an individual hour in 2012 before implementing implicit auctions on that border from the 
direction Slovenia-Austria is calculated as follows:
 (3)
8 Net transfer capacity is defined as the maximum total exchange program (MW) between two intercon-
nected power systems available for commercial purposes for a certain period and direction of active power 
flow (ETSO, 2001).
9 Already allocated capacity is the total amount of already allocated transmission rights, i.e. transmission 
capacity reserved by long-term contracts and the previously held transmission capacity reservation auctions 
(ETSO, 2001).
10 Social welfare is calculated on the theoretical basis described in section 3.  
11 Congestion rent of the Slovenian TSO accounts for half of the congestion rent acquired on the SI-AT and 
SI-IT border as regulated in agreement between the pertinent TSOs. 
Slovenian electricity exchange market are step functions. The two step functions are constructed from the 
historical buy and sell bids (which are ranked separately for the buy and sell curve accordingly to their type, taking 
into account their price level and time stamp) entered into the Slovenian electricity exchange market order book in 
2012. Based on these data (bids), we calculate the consumer surplus (CS) and producer surplus (PS) for an 
individual hour in 2012 as follows:
                   𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = ∑ ( 𝑓𝑓𝑓𝑓 𝑑𝑑𝑑𝑑 ( 𝑄𝑄𝑄𝑄 𝑖𝑖𝑖𝑖 ) −𝑃𝑃𝑃𝑃
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
)
𝑗𝑗𝑗𝑗 𝑗𝑗𝑗𝑗𝑗
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
𝑖𝑖𝑖𝑖 𝑗 𝑖
                             (1)
                  𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 = ∑ ( 𝑃𝑃𝑃𝑃 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
−𝑓𝑓𝑓𝑓
𝑠𝑠𝑠𝑠 ( 𝑄𝑄𝑄𝑄 𝑖𝑖𝑖𝑖 )
𝑗𝑗𝑗𝑗 𝑗𝑗𝑗𝑗𝑗
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
𝑖𝑖𝑖𝑖 𝑗 𝑖
)                         (2)
where:
P
BSP
is the price of electricity in the Slovenian electricity exchange market before implementing implicit auctions;
Q
BSP
is the quantity in the Slovenian electricity exchange market before implementing implicit auctions. 
The congestion rent of the Slovenian TSO
9
on the Slovenian-Austrian border (CR
SI-AT
) for an individual hour in
2012 before implementing implicit auctions on that border from the direction Slovenia-Austria is calculated as 
follows:
       𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆𝑆 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
=( 𝑃𝑃𝑃𝑃 𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆𝑆 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
 ∗𝑄𝑄𝑄𝑄
𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆𝑆 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
)/2                          (3)
where:
P
CZC, SI-AT
is the price of the CZCs allocated at an explicit auction in the direction Slovenia-Austria; 
Q
CZC.SI-AT
is the amount of the CZCs allocated at an explicit auction in the direction Slovenia-Austria.
The congestion rent of the Slovenian TSO on the Slovenian-Austrian border (CR
AT-SI
) for an individual hour in 
2012 before the implementing of implicit auctions on that border in the direction Austria-Slovenia is calculated as 
follows:
               𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑆 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 =( 𝑃𝑃𝑃𝑃 𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑆 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 ∗𝑄𝑄𝑄𝑄
𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑆 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 )/2                            (4)
where:
P
CZC, AT-SI
is the price of the CZCs allocated at an explicit auction in the direction Austria-Slovenia; 
Q
CZC, AT-SI
is the amount of the CZCs allocated at an explicit auction in the direction Austria-Slovenia.
The congestion rent of the Slovenian TSO on the Slovenian-Italian border (CR
SI,IT
), where capacities are allocated 
at implicit auctions, for an individual hour in 2012 before implementing implicit auctions on the Slovenian-
Austrian border, is calculated as follows:
               𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝑆𝑆𝑆𝑆𝐴𝐴𝐴𝐴
= ((| 𝑃𝑃𝑃𝑃 𝐺𝐺𝐺𝐺 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺 _𝑁𝑁𝑁𝑁 𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑑𝑑𝑑𝑑 −𝑃𝑃𝑃𝑃
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
|) ∗𝑄𝑄𝑄𝑄
𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 _ 𝑆𝑆𝑆𝑆𝐴𝐴𝐴𝐴
)/2                           (5)
where:
P
GME_Nord
is the price of electricity in the northern zone of the Italian electricity exchange market before 
implementing implicit auctions on the Slovenian-Austrian border; 
P
BSP
is the price of electricity in the Slovenian electricity exchange market before implementing implicit auctions 
on the Slovenian-Austrian border; 
Q
CZC, SI_IT
is the amount of CZCs allocated at implicit auctions on the Slovenian-Italian border.
4.4.2. Coupled electricity exchange markets on the Slovenian-Austrian border
After simulating the use of implicit auctions on the Slovenian-Austrian border, the Slovenian electricity exchange 
market is, for those hours when the Slovenian electricity exchange price was lower than the Austrian electricity 
exchange price, the market that exports electricity to the Austrian electricity exchange market, and otherwise the 
market that exports electricity from the Austrian electricity exchange market. The latter was considered for the 
calculation of the consumer surplus (CS*), producer surplus (PS*), and the acquired congestion rent on the 
Slovenian-Italian border (CR*
SI,IT
) in the simulations scenario.
                                                           
9
 Congestion rent of the Slovenian TSO accounts for half of the congestion rent acquired on the SI-AT and SI-IT border as regulated in 
agreement between the pertinent TSOs. 
Slovenian electricity exchange market are step functions. The two step functions are constructed from the 
historical buy and sell bids (which are ranked separately for the buy and sell curve accordingly to their type, taking 
into account their price level and time stamp) entered into the Slovenian electricity exchange market order book in 
2012. Based on these data (bids), we calculate the consumer surplus (CS) and producer surplus (PS) for an 
individual hour in 2012 as follows:
                   𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = ∑ ( 𝑓𝑓𝑓𝑓 𝑑𝑑𝑑𝑑 ( 𝑄𝑄𝑄𝑄 𝑖𝑖𝑖𝑖 ) −𝑃𝑃𝑃𝑃
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
)
𝑗𝑗𝑗𝑗 𝑗𝑗𝑗𝑗𝑗
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
𝑖𝑖𝑖𝑖 𝑗 𝑖
                             (1)
                  𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 = ∑ ( 𝑃𝑃𝑃𝑃 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
−𝑓𝑓𝑓𝑓
𝑠𝑠𝑠𝑠 ( 𝑄𝑄𝑄𝑄 𝑖𝑖𝑖𝑖 )
𝑗𝑗𝑗𝑗 𝑗𝑗𝑗𝑗𝑗
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
𝑖𝑖𝑖𝑖 𝑗 𝑖
)                         (2)
where:
P
BSP
is the price of electricity in the Slovenian electricity exchange market before implementing implicit auctions;
Q
BSP
is the quantity in the Slovenian electricity exchange market before implementing implicit auctions. 
The congestion rent of the Slovenian TSO
9
on the Slovenian-Austrian border (CR
SI-AT
) for an individual hour in
2012 before implementing implicit auctions on that border from the direction Slovenia-Austria is calculated as 
follows:
       𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆𝑆 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
=( 𝑃𝑃𝑃𝑃 𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆𝑆 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
 ∗𝑄𝑄𝑄𝑄
𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆𝑆 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
)/2                          (3)
where:
P
CZC, SI-AT
is the price of the CZCs allocated at an explicit auction in the direction Slovenia-Austria; 
Q
CZC.SI-AT
is the amount of the CZCs allocated at an explicit auction in the direction Slovenia-Austria.
The congestion rent of the Slovenian TSO on the Slovenian-Austrian border (CR
AT-SI
) for an individual hour in 
2012 before the implementing of implicit auctions on that border in the direction Austria-Slovenia is calculated as 
follows:
               𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑆 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 =( 𝑃𝑃𝑃𝑃 𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑆 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 ∗𝑄𝑄𝑄𝑄
𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑆 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 )/2                            (4)
where:
P
CZC, AT-SI
is the price of the CZCs allocated at an explicit auction in the direction Austria-Slovenia; 
Q
CZC, AT-SI
is the amount of the CZCs allocated at an explicit auction in the direction Austria-Slovenia.
The congestion rent of the Slovenian TSO on the Slovenian-Italian border (CR
SI,IT
), where capacities are allocated 
at implicit auctions, for an individual hour in 2012 before implementing implicit auctions on the Slovenian-
Austrian border, is calculated as follows:
               𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝑆𝑆𝑆𝑆𝐴𝐴𝐴𝐴
= ((| 𝑃𝑃𝑃𝑃 𝐺𝐺𝐺𝐺 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺 _𝑁𝑁𝑁𝑁 𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑑𝑑𝑑𝑑 −𝑃𝑃𝑃𝑃
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
|) ∗𝑄𝑄𝑄𝑄
𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 _ 𝑆𝑆𝑆𝑆𝐴𝐴𝐴𝐴
)/2                           (5)
where:
P
GME_Nord
is the price of electricity in the northern zone of the Italian electricity exchange market before 
implementing implicit auctions on the Slovenian-Austrian border; 
P
BSP
is the price of electricity in the Slovenian electricity exchange market before implementing implicit auctions 
on the Slovenian-Austrian border; 
Q
CZC, SI_IT
is the amount of CZCs allocated at implicit auctions on the Slovenian-Italian border.
4.4.2. Coupled electricity exchange markets on the Slovenian-Austrian border
After simulating the use of implicit auctions on the Slovenian-Austrian border, the Slovenian electricity exchange 
market is, for those hours when the Slovenian electricity exchange price was lower than the Austrian electricity 
exchange price, the market that exports electricity to the Austrian electricity exchange market, and otherwise the 
market that exports electricity from the Austrian electricity exchange market. The latter was considered for the 
calculation of the consumer surplus (CS*), producer surplus (PS*), and the acquired congestion rent on the 
Slovenian-Italian border (CR*
SI,IT
) in the simulations scenario.
                                                           
9
 Congestion rent of the Slovenian TSO accounts for half of the congestion rent acquired on the SI-AT and SI-IT border as regulated in 
agreement between the pertinent TSOs. 

ECONOMIC AND BUSINESS REVIEW  |  VOL. 19  |  No. 2  |  2017 144
where:
P
CZC, SI-AT
 is the price of the CZCs allocated at an explicit auction in the direction Slovenia-
Austria; 
Q
CZC.SI-AT
 is the amount of the CZCs allocated at an explicit auction in the direction 
Slovenia-Austria.
The congestion rent of the Slovenian TSO on the Slovenian-Austrian border (CR
AT-SI
)
 
for 
an individual hour in 2012 before the implementing of implicit auctions on that border in 
the direction Austria-Slovenia is calculated as follows:
 (4)
where:
P
CZC, AT-SI
 is the price of the CZCs allocated at an explicit auction in the direction Austria-
Slovenia; 
Q
CZC, AT-SI
 is the amount of the CZCs allocated at an explicit auction in the direction 
Austria-Slovenia.
The congestion rent of the Slovenian TSO on the Slovenian-Italian border (CR
SI,IT
), 
where capacities are allocated at implicit auctions, for an individual hour in 2012 before 
implementing implicit auctions on the Slovenian-Austrian border, is calculated as follows:
 (5)
where:
P
GME_Nord
 is the price of electricity in the northern zone of the Italian electricity exchange 
market before implementing implicit auctions on the Slovenian-Austrian border; 
P
BSP
 is the price of electricity in the Slovenian electricity exchange market before 
implementing implicit auctions on the Slovenian-Austrian border; 
Q
CZC, SI_IT
 is the amount of CZCs allocated at implicit auctions on the Slovenian-Italian 
border.
4.4.2. Coupled electricity exchange markets on the Slovenian-Austrian border
After simulating the use of implicit auctions on the Slovenian-Austrian border, the Slovenian 
electricity exchange market is, for those hours when the Slovenian electricity exchange price 
was lower than the Austrian electricity exchange price, the market that exports electricity to 
the Austrian electricity exchange market, and otherwise the market that exports electricity 
from the Austrian electricity exchange market. The latter was considered for the calculation 
of the consumer surplus (CS*), producer surplus (PS*), and the acquired congestion rent on 
the Slovenian-Italian border (CR*
SI,IT
) in the simulations scenario. 
In addition, the calculation of the congestion rent on the Slovenian-Austrian border () 
for an individual hour in 2012 after market coupling on the Slovenian-Austrian border 
In addition, the calculation of the congestion rent on the Slovenian-Austrian border ( 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
) for an individual 
hour in 2012 after market coupling on the Slovenian-Austrian border slightly changes and is calculated as follows:
     𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
= ((| 𝑃𝑃𝑃𝑃 𝐺𝐺𝐺𝐺 𝐸𝐸𝐸𝐸 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
−𝑃𝑃𝑃𝑃
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
∗
|) ∗𝑄𝑄𝑄𝑄
𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 _𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
)/2                        (6)
where:
𝑃𝑃𝑃𝑃 𝐺𝐺𝐺𝐺 𝐸𝐸𝐸𝐸 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
is the price of electricity in the Austrian electricity exchange market after implementing implicit auctions 
on the Slovenian-Austrian border;
𝑃𝑃𝑃𝑃 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
∗
is the price of electricity in the Slovenian electricity exchange market after implementing implicit auctions 
on the Slovenian-Austrian border; 
𝑄𝑄𝑄𝑄 𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 _𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
is the amount of CZCs allocated at implicit auctions on the Slovenian-Austrian border.
The change in Slovenian social welfare (ΔS W) after implementing implicit auctions on the Slovenian-Austrian 
border for an individual hour in 2012 is calculated as follows:
∆ 𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆 
= ∆ 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + ∆ 𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 + ∆ 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶               (7)
     
∆ 𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆 
= ( 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
∗
− 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 ) + ( 𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 ∗
− 𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 ) + ((𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
+ 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝑆𝑆𝑆𝑆𝐴𝐴𝐴𝐴
∗
) − ( 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 − 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 + 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆− 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
+ 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝑆𝑆𝑆𝑆𝐴𝐴𝐴𝐴
 ))  (8)
5. ANALYSIS OF THE SIMULATION RESULTS FOR MARKET COUPLING ON THE SLOVENIAN-
AUSTRIAN BORDER
5.1. Comparison of electricity prices between the Slovenian and Austrian electricity exchange markets 
before and after simulating implicit auctions on the Slovenian-Austrian border
The results of the price analysis show that the prices in the Slovenian and Austrian electricity exchange markets 
before implementing implicit auctions on the Slovenian-Austrian border were equal 127 times during  8,784 hours 
of the year, or 1.45% of the time, considering the results of the reference scenario. After implementing implicit 
auctions on that border, the prices in the Slovenian and Austrian electricity exchange markets would be equal 
6,746 times during 8,784 hours of the year, or 76.81% of the time. 
The price equalisation for a greater number of hours is not surprising since the price in the Slovenian electricity 
exchange market is historically dependant on the price in the Austrian/German electricity exchange market, 
regardless of which mechanism is applied for allocating CZCs on this border (Orešič, 2012). 
The use of implicit auctions on the Slovenian-Austrian border would reduce the price differences between the 
Slovenian electricity exchange market (BSP) and the Austrian electricity exchange market (EXAA). Figure 3 
shows that before using implicit auctions the differences between the Slovenian electricity exchange price (P
BSP
)
and Austrian electricity exchange price (P
EXAA
) are bigger in comparison to the difference in the Austrian 
electricity exchange price (P
EXAA
) and the Slovenian electricity exchange price (P
BSP
∗
) after implementing implicit 
auctions. 
Based on the results of the analysis, we may conclude that after introducing implicit auctions on the Slovenian-
Austrian border the Austrian and Slovenian electricity exchange prices would be brought closer together or even 
equalise, thereby confirming our first hypothesis (H1).  
Further, we may also conclude that, after the implementation of implicit auctions on the Slovenian-Austrian 
border, the average electricity price in the Slovenian electricity exchange market would decrease by €6.84/MWh 
(13%) annually, thereby confirming our second hypothesis (H2). 
Figure 3: Price comparison between Slovenian and Austrian electricity exchange markets before and after the 
simulation of implicit auctions on the SI-AT border
In addition, the calculation of the congestion rent on the Slovenian-Austrian border ( 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
) for an individual 
hour in 2012 after market coupling on the Slovenian-Austrian border slightly changes and is calculated as follows:
     𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
= ((| 𝑃𝑃𝑃𝑃 𝐺𝐺𝐺𝐺 𝐸𝐸𝐸𝐸 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
−𝑃𝑃𝑃𝑃
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
∗
|) ∗𝑄𝑄𝑄𝑄
𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 _𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
)/2                        (6)
where:
𝑃𝑃𝑃𝑃 𝐺𝐺𝐺𝐺 𝐸𝐸𝐸𝐸 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
is the price of electricity in the Austrian electricity exchange market after implementing implicit auctions 
on the Slovenian-Austrian border;
𝑃𝑃𝑃𝑃 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
∗
is the price of electricity in the Slovenian electricity exchange market after implementing implicit auctions 
on the Slovenian-Austrian border; 
𝑄𝑄𝑄𝑄 𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 _𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
is the amount of CZCs allocated at implicit auctions on the Slovenian-Austrian border.
The change in Slovenian social welfare (ΔS W) after implementing implicit auctions on the Slovenian-Austrian 
border for an individual hour in 2012 is calculated as follows:
∆ 𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆 
= ∆ 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + ∆ 𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 + ∆ 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶               (7)
     
∆ 𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆 
= ( 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
∗
− 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 ) + ( 𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 ∗
− 𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 ) + ((𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
+ 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝑆𝑆𝑆𝑆𝐴𝐴𝐴𝐴
∗
) − ( 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 − 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 + 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆− 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
+ 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝑆𝑆𝑆𝑆𝐴𝐴𝐴𝐴
 ))  (8)
5. ANALYSIS OF THE SIMULATION RESULTS FOR MARKET COUPLING ON THE SLOVENIAN-
AUSTRIAN BORDER
5.1. Comparison of electricity prices between the Slovenian and Austrian electricity exchange markets 
before and after simulating implicit auctions on the Slovenian-Austrian border
The results of the price analysis show that the prices in the Slovenian and Austrian electricity exchange markets 
before implementing implicit auctions on the Slovenian-Austrian border were equal 127 times during  8,784 hours 
of the year, or 1.45% of the time, considering the results of the reference scenario. After implementing implicit 
auctions on that border, the prices in the Slovenian and Austrian electricity exchange markets would be equal 
6,746 times during 8,784 hours of the year, or 76.81% of the time. 
The price equalisation for a greater number of hours is not surprising since the price in the Slovenian electricity 
exchange market is historically dependant on the price in the Austrian/German electricity exchange market, 
regardless of which mechanism is applied for allocating CZCs on this border (Orešič, 2012). 
The use of implicit auctions on the Slovenian-Austrian border would reduce the price differences between the 
Slovenian electricity exchange market (BSP) and the Austrian electricity exchange market (EXAA). Figure 3 
shows that before using implicit auctions the differences between the Slovenian electricity exchange price (P
BSP
)
and Austrian electricity exchange price (P
EXAA
) are bigger in comparison to the difference in the Austrian 
electricity exchange price (P
EXAA
) and the Slovenian electricity exchange price (P
BSP
∗
) after implementing implicit 
auctions. 
Based on the results of the analysis, we may conclude that after introducing implicit auctions on the Slovenian-
Austrian border the Austrian and Slovenian electricity exchange prices would be brought closer together or even 
equalise, thereby confirming our first hypothesis (H1).  
Further, we may also conclude that, after the implementation of implicit auctions on the Slovenian-Austrian 
border, the average electricity price in the Slovenian electricity exchange market would decrease by €6.84/MWh 
(13%) annually, thereby confirming our second hypothesis (H2). 
Figure 3: Price comparison between Slovenian and Austrian electricity exchange markets before and after the 
simulation of implicit auctions on the SI-AT border
In addition, the calculation of the congestion rent on the Slovenian-Austrian border ( 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
) for an individual 
hour in 2012 after market coupling on the Slovenian-Austrian border slightly changes and is calculated as follows:
     𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
= ((| 𝑃𝑃𝑃𝑃 𝐺𝐺𝐺𝐺 𝐸𝐸𝐸𝐸 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
−𝑃𝑃𝑃𝑃
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
∗
|) ∗𝑄𝑄𝑄𝑄
𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 _𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
)/2                        (6)
where:
𝑃𝑃𝑃𝑃 𝐺𝐺𝐺𝐺 𝐸𝐸𝐸𝐸 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
is the price of electricity in the Austrian electricity exchange market after implementing implicit auctions 
on the Slovenian-Austrian border;
𝑃𝑃𝑃𝑃 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
∗
is the price of electricity in the Slovenian electricity exchange market after implementing implicit auctions 
on the Slovenian-Austrian border; 
𝑄𝑄𝑄𝑄 𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 _𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
is the amount of CZCs allocated at implicit auctions on the Slovenian-Austrian border.
The change in Slovenian social welfare (ΔS W) after implementing implicit auctions on the Slovenian-Austrian 
border for an individual hour in 2012 is calculated as follows:
∆ 𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆 
= ∆ 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + ∆ 𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 + ∆ 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶               (7)
     
∆ 𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆 
= ( 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
∗
− 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 ) + ( 𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 ∗
− 𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 ) + ((𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
+ 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝑆𝑆𝑆𝑆𝐴𝐴𝐴𝐴
∗
) − ( 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 − 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 + 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆− 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
+ 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝑆𝑆𝑆𝑆𝐴𝐴𝐴𝐴
 ))  (8)
5. ANALYSIS OF THE SIMULATION RESULTS FOR MARKET COUPLING ON THE SLOVENIAN-
AUSTRIAN BORDER
5.1. Comparison of electricity prices between the Slovenian and Austrian electricity exchange markets 
before and after simulating implicit auctions on the Slovenian-Austrian border
The results of the price analysis show that the prices in the Slovenian and Austrian electricity exchange markets 
before implementing implicit auctions on the Slovenian-Austrian border were equal 127 times during  8,784 hours 
of the year, or 1.45% of the time, considering the results of the reference scenario. After implementing implicit 
auctions on that border, the prices in the Slovenian and Austrian electricity exchange markets would be equal 
6,746 times during 8,784 hours of the year, or 76.81% of the time. 
The price equalisation for a greater number of hours is not surprising since the price in the Slovenian electricity 
exchange market is historically dependant on the price in the Austrian/German electricity exchange market, 
regardless of which mechanism is applied for allocating CZCs on this border (Orešič, 2012). 
The use of implicit auctions on the Slovenian-Austrian border would reduce the price differences between the 
Slovenian electricity exchange market (BSP) and the Austrian electricity exchange market (EXAA). Figure 3 
shows that before using implicit auctions the differences between the Slovenian electricity exchange price (P
BSP
)
and Austrian electricity exchange price (P
EXAA
) are bigger in comparison to the difference in the Austrian 
electricity exchange price (P
EXAA
) and the Slovenian electricity exchange price (P
BSP
∗
) after implementing implicit 
auctions. 
Based on the results of the analysis, we may conclude that after introducing implicit auctions on the Slovenian-
Austrian border the Austrian and Slovenian electricity exchange prices would be brought closer together or even 
equalise, thereby confirming our first hypothesis (H1).  
Further, we may also conclude that, after the implementation of implicit auctions on the Slovenian-Austrian 
border, the average electricity price in the Slovenian electricity exchange market would decrease by €6.84/MWh 
(13%) annually, thereby confirming our second hypothesis (H2). 
Figure 3: Price comparison between Slovenian and Austrian electricity exchange markets before and after the 
simulation of implicit auctions on the SI-AT border
Slovenian electricity exchange market are step functions. The two step functions are constructed from the 
historical buy and sell bids (which are ranked separately for the buy and sell curve accordingly to their type, taking 
into account their price level and time stamp) entered into the Slovenian electricity exchange market order book in 
2012. Based on these data (bids), we calculate the consumer surplus (CS) and producer surplus (PS) for an 
individual hour in 2012 as follows:
                   𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = ∑ ( 𝑓𝑓𝑓𝑓 𝑑𝑑𝑑𝑑 ( 𝑄𝑄𝑄𝑄 𝑖𝑖𝑖𝑖 ) −𝑃𝑃𝑃𝑃
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
)
𝑗𝑗𝑗𝑗 𝑗𝑗𝑗𝑗𝑗
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
𝑖𝑖𝑖𝑖 𝑗 𝑖
                             (1)
                  𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 = ∑ ( 𝑃𝑃𝑃𝑃 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
−𝑓𝑓𝑓𝑓
𝑠𝑠𝑠𝑠 ( 𝑄𝑄𝑄𝑄 𝑖𝑖𝑖𝑖 )
𝑗𝑗𝑗𝑗 𝑗𝑗𝑗𝑗𝑗
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
𝑖𝑖𝑖𝑖 𝑗 𝑖
)                         (2)
where:
P
BSP
is the price of electricity in the Slovenian electricity exchange market before implementing implicit auctions;
Q
BSP
is the quantity in the Slovenian electricity exchange market before implementing implicit auctions. 
The congestion rent of the Slovenian TSO
9
on the Slovenian-Austrian border (CR
SI-AT
) for an individual hour in
2012 before implementing implicit auctions on that border from the direction Slovenia-Austria is calculated as 
follows:
       𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆𝑆 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
=( 𝑃𝑃𝑃𝑃 𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆𝑆 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
 ∗𝑄𝑄𝑄𝑄
𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆𝑆 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
)/2                          (3)
where:
P
CZC, SI-AT
is the price of the CZCs allocated at an explicit auction in the direction Slovenia-Austria; 
Q
CZC.SI-AT
is the amount of the CZCs allocated at an explicit auction in the direction Slovenia-Austria.
The congestion rent of the Slovenian TSO on the Slovenian-Austrian border (CR
AT-SI
) for an individual hour in 
2012 before the implementing of implicit auctions on that border in the direction Austria-Slovenia is calculated as 
follows:
               𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑆 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 =( 𝑃𝑃𝑃𝑃 𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑆 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 ∗𝑄𝑄𝑄𝑄
𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑆 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 )/2                            (4)
where:
P
CZC, AT-SI
is the price of the CZCs allocated at an explicit auction in the direction Austria-Slovenia; 
Q
CZC, AT-SI
is the amount of the CZCs allocated at an explicit auction in the direction Austria-Slovenia.
The congestion rent of the Slovenian TSO on the Slovenian-Italian border (CR
SI,IT
), where capacities are allocated 
at implicit auctions, for an individual hour in 2012 before implementing implicit auctions on the Slovenian-
Austrian border, is calculated as follows:
               𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝑆𝑆𝑆𝑆𝐴𝐴𝐴𝐴
= ((| 𝑃𝑃𝑃𝑃 𝐺𝐺𝐺𝐺 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺 _𝑁𝑁𝑁𝑁 𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑑𝑑𝑑𝑑 −𝑃𝑃𝑃𝑃
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
|) ∗𝑄𝑄𝑄𝑄
𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 _ 𝑆𝑆𝑆𝑆𝐴𝐴𝐴𝐴
)/2                           (5)
where:
P
GME_Nord
is the price of electricity in the northern zone of the Italian electricity exchange market before 
implementing implicit auctions on the Slovenian-Austrian border; 
P
BSP
is the price of electricity in the Slovenian electricity exchange market before implementing implicit auctions 
on the Slovenian-Austrian border; 
Q
CZC, SI_IT
is the amount of CZCs allocated at implicit auctions on the Slovenian-Italian border.
4.4.2. Coupled electricity exchange markets on the Slovenian-Austrian border
After simulating the use of implicit auctions on the Slovenian-Austrian border, the Slovenian electricity exchange 
market is, for those hours when the Slovenian electricity exchange price was lower than the Austrian electricity 
exchange price, the market that exports electricity to the Austrian electricity exchange market, and otherwise the 
market that exports electricity from the Austrian electricity exchange market. The latter was considered for the 
calculation of the consumer surplus (CS*), producer surplus (PS*), and the acquired congestion rent on the 
Slovenian-Italian border (CR*
SI,IT
) in the simulations scenario.
                                                           
9
 Congestion rent of the Slovenian TSO accounts for half of the congestion rent acquired on the SI-AT and SI-IT border as regulated in 
agreement between the pertinent TSOs. 
Slovenian electricity exchange market are step functions. The two step functions are constructed from the 
historical buy and sell bids (which are ranked separately for the buy and sell curve accordingly to their type, taking 
into account their price level and time stamp) entered into the Slovenian electricity exchange market order book in 
2012. Based on these data (bids), we calculate the consumer surplus (CS) and producer surplus (PS) for an 
individual hour in 2012 as follows:
                   𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 = ∑ ( 𝑓𝑓𝑓𝑓 𝑑𝑑𝑑𝑑 ( 𝑄𝑄𝑄𝑄 𝑖𝑖𝑖𝑖 ) −𝑃𝑃𝑃𝑃
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
)
𝑗𝑗𝑗𝑗 𝑗𝑗𝑗𝑗𝑗
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
𝑖𝑖𝑖𝑖 𝑗 𝑖
                             (1)
                  𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 = ∑ ( 𝑃𝑃𝑃𝑃 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
−𝑓𝑓𝑓𝑓
𝑠𝑠𝑠𝑠 ( 𝑄𝑄𝑄𝑄 𝑖𝑖𝑖𝑖 )
𝑗𝑗𝑗𝑗 𝑗𝑗𝑗𝑗𝑗
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
𝑖𝑖𝑖𝑖 𝑗 𝑖
)                         (2)
where:
P
BSP
is the price of electricity in the Slovenian electricity exchange market before implementing implicit auctions;
Q
BSP
is the quantity in the Slovenian electricity exchange market before implementing implicit auctions. 
The congestion rent of the Slovenian TSO
9
on the Slovenian-Austrian border (CR
SI-AT
) for an individual hour in
2012 before implementing implicit auctions on that border from the direction Slovenia-Austria is calculated as 
follows:
       𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆𝑆 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
=( 𝑃𝑃𝑃𝑃 𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆𝑆 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
 ∗𝑄𝑄𝑄𝑄
𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆𝑆 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
)/2                          (3)
where:
P
CZC, SI-AT
is the price of the CZCs allocated at an explicit auction in the direction Slovenia-Austria; 
Q
CZC.SI-AT
is the amount of the CZCs allocated at an explicit auction in the direction Slovenia-Austria.
The congestion rent of the Slovenian TSO on the Slovenian-Austrian border (CR
AT-SI
) for an individual hour in 
2012 before the implementing of implicit auctions on that border in the direction Austria-Slovenia is calculated as 
follows:
               𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑆 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 =( 𝑃𝑃𝑃𝑃 𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑆 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 ∗𝑄𝑄𝑄𝑄
𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 𝑆 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 )/2                            (4)
where:
P
CZC, AT-SI
is the price of the CZCs allocated at an explicit auction in the direction Austria-Slovenia; 
Q
CZC, AT-SI
is the amount of the CZCs allocated at an explicit auction in the direction Austria-Slovenia.
The congestion rent of the Slovenian TSO on the Slovenian-Italian border (CR
SI,IT
), where capacities are allocated 
at implicit auctions, for an individual hour in 2012 before implementing implicit auctions on the Slovenian-
Austrian border, is calculated as follows:
               𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝑆𝑆𝑆𝑆𝐴𝐴𝐴𝐴
= ((| 𝑃𝑃𝑃𝑃 𝐺𝐺𝐺𝐺 𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺 _𝑁𝑁𝑁𝑁 𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑁𝑑𝑑𝑑𝑑 −𝑃𝑃𝑃𝑃
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
|) ∗𝑄𝑄𝑄𝑄
𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 _ 𝑆𝑆𝑆𝑆𝐴𝐴𝐴𝐴
)/2                           (5)
where:
P
GME_Nord
is the price of electricity in the northern zone of the Italian electricity exchange market before 
implementing implicit auctions on the Slovenian-Austrian border; 
P
BSP
is the price of electricity in the Slovenian electricity exchange market before implementing implicit auctions 
on the Slovenian-Austrian border; 
Q
CZC, SI_IT
is the amount of CZCs allocated at implicit auctions on the Slovenian-Italian border.
4.4.2. Coupled electricity exchange markets on the Slovenian-Austrian border
After simulating the use of implicit auctions on the Slovenian-Austrian border, the Slovenian electricity exchange 
market is, for those hours when the Slovenian electricity exchange price was lower than the Austrian electricity 
exchange price, the market that exports electricity to the Austrian electricity exchange market, and otherwise the 
market that exports electricity from the Austrian electricity exchange market. The latter was considered for the 
calculation of the consumer surplus (CS*), producer surplus (PS*), and the acquired congestion rent on the 
Slovenian-Italian border (CR*
SI,IT
) in the simulations scenario.
                                                           
9
 Congestion rent of the Slovenian TSO accounts for half of the congestion rent acquired on the SI-AT and SI-IT border as regulated in 
agreement between the pertinent TSOs. 

A. PREDOVNIK, M. ŠVIGELJ  |  THE IMPACT OF IMPLICIT ELECTRICITY MARKET COUPLING ... 145
slightly changes and is calculated as follows:
 (6)
where:
P*
EXAA
 is the price of electricity in the Austrian electricity exchange market after 
implementing implicit auctions on the Slovenian-Austrian border;
P*
BSP
 is the price of electricity in the Slovenian electricity exchange market after 
implementing implicit auctions on the Slovenian-Austrian border; 
P*
CZC, SI_AT
 is the amount of CZCs allocated at implicit auctions on the Slovenian-Austrian 
border.
The change in Slovenian social welfare (ΔSW) after implementing implicit auctions on the 
Slovenian-Austrian border for an individual hour in 2012 is calculated as follows:
(7)
(8)
5.  ANALYSIS OF THE SIMULATION RESULTS FOR MARKET COUPLING ON 
THE SLOVENIAN-AUSTRIAN BORDER
5.1. Comparison of electricity prices between the Slovenian and Austrian electricity 
exchange markets before and after simulating implicit auctions on the Slovenian-
Austrian border
The results of the price analysis show that the prices in the Slovenian and Austrian 
electricity exchange markets before implementing implicit auctions on the Slovenian-
Austrian border were equal 127 times during  8,784 hours of the year, or 1.45% of the time, 
considering the results of the reference scenario. After implementing implicit auctions on 
that border, the prices in the Slovenian and Austrian electricity exchange markets would 
be equal 6,746 times during 8,784 hours of the year, or 76.81% of the time. 
The price equalisation for a greater number of hours is not surprising since the price in 
the Slovenian electricity exchange market is historically dependant on the price in the 
Austrian/German electricity exchange market, regardless of which mechanism is applied 
for allocating CZCs on this border (Orešič, 2012). 
The use of implicit auctions on the Slovenian-Austrian border would reduce the price 
differences between the Slovenian electricity exchange market (BSP) and the Austrian 
electricity exchange market (EXAA). Figure 3 shows that before using implicit auctions 
the differences between the Slovenian electricity exchange price (P
BSP
) and Austrian 
electricity exchange price (P
EXAA
) are bigger in comparison to the difference in the Austrian 
In addition, the calculation of the congestion rent on the Slovenian-Austrian border ( 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
) for an individual 
hour in 2012 after market coupling on the Slovenian-Austrian border slightly changes and is calculated as follows:
     𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
= ((| 𝑃𝑃𝑃𝑃 𝐺𝐺𝐺𝐺 𝐸𝐸𝐸𝐸 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
−𝑃𝑃𝑃𝑃
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
∗
|) ∗𝑄𝑄𝑄𝑄
𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 _𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
)/2                        (6)
where:
𝑃𝑃𝑃𝑃 𝐺𝐺𝐺𝐺 𝐸𝐸𝐸𝐸 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
is the price of electricity in the Austrian electricity exchange market after implementing implicit auctions 
on the Slovenian-Austrian border;
𝑃𝑃𝑃𝑃 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
∗
is the price of electricity in the Slovenian electricity exchange market after implementing implicit auctions 
on the Slovenian-Austrian border; 
𝑄𝑄𝑄𝑄 𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 _𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
is the amount of CZCs allocated at implicit auctions on the Slovenian-Austrian border.
The change in Slovenian social welfare (ΔS W) after implementing implicit auctions on the Slovenian-Austrian 
border for an individual hour in 2012 is calculated as follows:
∆ 𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆 
= ∆ 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + ∆ 𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 + ∆ 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶               (7)
     
∆ 𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆 
= ( 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
∗
− 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 ) + ( 𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 ∗
− 𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 ) + ((𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
+ 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝑆𝑆𝑆𝑆𝐴𝐴𝐴𝐴
∗
) − ( 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 − 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 + 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆− 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
+ 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝑆𝑆𝑆𝑆𝐴𝐴𝐴𝐴
 ))  (8)
5. ANALYSIS OF THE SIMULATION RESULTS FOR MARKET COUPLING ON THE SLOVENIAN-
AUSTRIAN BORDER
5.1. Comparison of electricity prices between the Slovenian and Austrian electricity exchange markets 
before and after simulating implicit auctions on the Slovenian-Austrian border
The results of the price analysis show that the prices in the Slovenian and Austrian electricity exchange markets 
before implementing implicit auctions on the Slovenian-Austrian border were equal 127 times during  8,784 hours 
of the year, or 1.45% of the time, considering the results of the reference scenario. After implementing implicit 
auctions on that border, the prices in the Slovenian and Austrian electricity exchange markets would be equal 
6,746 times during 8,784 hours of the year, or 76.81% of the time. 
The price equalisation for a greater number of hours is not surprising since the price in the Slovenian electricity 
exchange market is historically dependant on the price in the Austrian/German electricity exchange market, 
regardless of which mechanism is applied for allocating CZCs on this border (Orešič, 2012). 
The use of implicit auctions on the Slovenian-Austrian border would reduce the price differences between the 
Slovenian electricity exchange market (BSP) and the Austrian electricity exchange market (EXAA). Figure 3 
shows that before using implicit auctions the differences between the Slovenian electricity exchange price (P
BSP
)
and Austrian electricity exchange price (P
EXAA
) are bigger in comparison to the difference in the Austrian 
electricity exchange price (P
EXAA
) and the Slovenian electricity exchange price (P
BSP
∗
) after implementing implicit 
auctions. 
Based on the results of the analysis, we may conclude that after introducing implicit auctions on the Slovenian-
Austrian border the Austrian and Slovenian electricity exchange prices would be brought closer together or even 
equalise, thereby confirming our first hypothesis (H1).  
Further, we may also conclude that, after the implementation of implicit auctions on the Slovenian-Austrian 
border, the average electricity price in the Slovenian electricity exchange market would decrease by €6.84/MWh 
(13%) annually, thereby confirming our second hypothesis (H2). 
Figure 3: Price comparison between Slovenian and Austrian electricity exchange markets before and after the 
simulation of implicit auctions on the SI-AT border
In addition, the calculation of the congestion rent on the Slovenian-Austrian border ( 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
) for an individual 
hour in 2012 after market coupling on the Slovenian-Austrian border slightly changes and is calculated as follows:
     𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
= ((| 𝑃𝑃𝑃𝑃 𝐺𝐺𝐺𝐺 𝐸𝐸𝐸𝐸 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
−𝑃𝑃𝑃𝑃
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
∗
|) ∗𝑄𝑄𝑄𝑄
𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 _𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
)/2                        (6)
where:
𝑃𝑃𝑃𝑃 𝐺𝐺𝐺𝐺 𝐸𝐸𝐸𝐸 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
is the price of electricity in the Austrian electricity exchange market after implementing implicit auctions 
on the Slovenian-Austrian border;
𝑃𝑃𝑃𝑃 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
∗
is the price of electricity in the Slovenian electricity exchange market after implementing implicit auctions 
on the Slovenian-Austrian border; 
𝑄𝑄𝑄𝑄 𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 _𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
is the amount of CZCs allocated at implicit auctions on the Slovenian-Austrian border.
The change in Slovenian social welfare (ΔS W) after implementing implicit auctions on the Slovenian-Austrian 
border for an individual hour in 2012 is calculated as follows:
∆ 𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆 
= ∆ 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + ∆ 𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 + ∆ 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶               (7)
     
∆ 𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆 
= ( 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
∗
− 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 ) + ( 𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 ∗
− 𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 ) + ((𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
+ 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝑆𝑆𝑆𝑆𝐴𝐴𝐴𝐴
∗
) − ( 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 − 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 + 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆− 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
+ 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝑆𝑆𝑆𝑆𝐴𝐴𝐴𝐴
 ))  (8)
5. ANALYSIS OF THE SIMULATION RESULTS FOR MARKET COUPLING ON THE SLOVENIAN-
AUSTRIAN BORDER
5.1. Comparison of electricity prices between the Slovenian and Austrian electricity exchange markets 
before and after simulating implicit auctions on the Slovenian-Austrian border
The results of the price analysis show that the prices in the Slovenian and Austrian electricity exchange markets 
before implementing implicit auctions on the Slovenian-Austrian border were equal 127 times during  8,784 hours 
of the year, or 1.45% of the time, considering the results of the reference scenario. After implementing implicit 
auctions on that border, the prices in the Slovenian and Austrian electricity exchange markets would be equal 
6,746 times during 8,784 hours of the year, or 76.81% of the time. 
The price equalisation for a greater number of hours is not surprising since the price in the Slovenian electricity 
exchange market is historically dependant on the price in the Austrian/German electricity exchange market, 
regardless of which mechanism is applied for allocating CZCs on this border (Orešič, 2012). 
The use of implicit auctions on the Slovenian-Austrian border would reduce the price differences between the 
Slovenian electricity exchange market (BSP) and the Austrian electricity exchange market (EXAA). Figure 3 
shows that before using implicit auctions the differences between the Slovenian electricity exchange price (P
BSP
)
and Austrian electricity exchange price (P
EXAA
) are bigger in comparison to the difference in the Austrian 
electricity exchange price (P
EXAA
) and the Slovenian electricity exchange price (P
BSP
∗
) after implementing implicit 
auctions. 
Based on the results of the analysis, we may conclude that after introducing implicit auctions on the Slovenian-
Austrian border the Austrian and Slovenian electricity exchange prices would be brought closer together or even 
equalise, thereby confirming our first hypothesis (H1).  
Further, we may also conclude that, after the implementation of implicit auctions on the Slovenian-Austrian 
border, the average electricity price in the Slovenian electricity exchange market would decrease by €6.84/MWh 
(13%) annually, thereby confirming our second hypothesis (H2). 
Figure 3: Price comparison between Slovenian and Austrian electricity exchange markets before and after the 
simulation of implicit auctions on the SI-AT border
In addition, the calculation of the congestion rent on the Slovenian-Austrian border ( 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
) for an individual 
hour in 2012 after market coupling on the Slovenian-Austrian border slightly changes and is calculated as follows:
     𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
= ((| 𝑃𝑃𝑃𝑃 𝐺𝐺𝐺𝐺 𝐸𝐸𝐸𝐸 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
−𝑃𝑃𝑃𝑃
𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
∗
|) ∗𝑄𝑄𝑄𝑄
𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 _𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
)/2                        (6)
where:
𝑃𝑃𝑃𝑃 𝐺𝐺𝐺𝐺 𝐸𝐸𝐸𝐸 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
is the price of electricity in the Austrian electricity exchange market after implementing implicit auctions 
on the Slovenian-Austrian border;
𝑃𝑃𝑃𝑃 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵 𝐵𝐵𝐵𝐵
∗
is the price of electricity in the Slovenian electricity exchange market after implementing implicit auctions 
on the Slovenian-Austrian border; 
𝑄𝑄𝑄𝑄 𝐶𝐶𝐶𝐶 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 , 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 _𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
is the amount of CZCs allocated at implicit auctions on the Slovenian-Austrian border.
The change in Slovenian social welfare (ΔS W) after implementing implicit auctions on the Slovenian-Austrian 
border for an individual hour in 2012 is calculated as follows:
∆ 𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆 
= ∆ 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 + ∆ 𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 + ∆ 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶               (7)
     
∆ 𝐶𝐶𝐶𝐶 𝑆𝑆𝑆𝑆 
= ( 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
∗
− 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 ) + ( 𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 ∗
− 𝑃𝑃𝑃𝑃𝐶𝐶𝐶𝐶 ) + ((𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
∗
+ 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝑆𝑆𝑆𝑆𝐴𝐴𝐴𝐴
∗
) − ( 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴 − 𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 + 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆− 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴
+ 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶
𝐵𝐵𝐵𝐵 𝑆𝑆𝑆𝑆 , 𝑆𝑆𝑆𝑆𝐴𝐴𝐴𝐴
 ))  (8)
5. ANALYSIS OF THE SIMULATION RESULTS FOR MARKET COUPLING ON THE SLOVENIAN-
AUSTRIAN BORDER
5.1. Comparison of electricity prices between the Slovenian and Austrian electricity exchange markets 
before and after simulating implicit auctions on the Slovenian-Austrian border
The results of the price analysis show that the prices in the Slovenian and Austrian electricity exchange markets 
before implementing implicit auctions on the Slovenian-Austrian border were equal 127 times during  8,784 hours 
of the year, or 1.45% of the time, considering the results of the reference scenario. After implementing implicit 
auctions on that border, the prices in the Slovenian and Austrian electricity exchange markets would be equal 
6,746 times during 8,784 hours of the year, or 76.81% of the time. 
The price equalisation for a greater number of hours is not surprising since the price in the Slovenian electricity 
exchange market is historically dependant on the price in the Austrian/German electricity exchange market, 
regardless of which mechanism is applied for allocating CZCs on this border (Orešič, 2012). 
The use of implicit auctions on the Slovenian-Austrian border would reduce the price differences between the 
Slovenian electricity exchange market (BSP) and the Austrian electricity exchange market (EXAA). Figure 3 
shows that before using implicit auctions the differences between the Slovenian electricity exchange price (P
BSP
)
and Austrian electricity exchange price (P
EXAA
) are bigger in comparison to the difference in the Austrian 
electricity exchange price (P
EXAA
) and the Slovenian electricity exchange price (P
BSP
∗
) after implementing implicit 
auctions. 
Based on the results of the analysis, we may conclude that after introducing implicit auctions on the Slovenian-
Austrian border the Austrian and Slovenian electricity exchange prices would be brought closer together or even 
equalise, thereby confirming our first hypothesis (H1).  
Further, we may also conclude that, after the implementation of implicit auctions on the Slovenian-Austrian 
border, the average electricity price in the Slovenian electricity exchange market would decrease by €6.84/MWh 
(13%) annually, thereby confirming our second hypothesis (H2). 
Figure 3: Price comparison between Slovenian and Austrian electricity exchange markets before and after the 
simulation of implicit auctions on the SI-AT border

ECONOMIC AND BUSINESS REVIEW  |  VOL. 19  |  No. 2  |  2017 146
electricity exchange price (P
EXAA
) and the Slovenian electricity exchange price (P*
BSP
) after 
implementing implicit auctions.
Based on the results of the analysis, we may conclude that after introducing implicit 
auctions on the Slovenian-Austrian border the Austrian and Slovenian electricity 
exchange prices would be brought closer together or even equalise, thereby confirming 
our first hypothesis (H1). 
Further, we may also conclude that, after the implementation of implicit auctions on 
the Slovenian-Austrian border, the average electricity price in the Slovenian electricity 
exchange market would decrease by €6.84/MWh (13%) annually, thereby confirming our 
second hypothesis (H2).
Figure 3: Price comparison between Slovenian and Austrian electricity exchange markets 
before and after the simulation of implicit auctions on the SI-AT border
Sources: BSP , n.d.; EXAA, n.d.
5.2. Comparison of the utilisation of allocated day-ahead capacities before and after 
simulating implicit auctions on the Slovenian-Austrian border
According to the actual explicit auction results of the Central Allocation Office, Slovenia 
imported from Austria 2,108,228 MWh of 2,930,554 MWh of available CZCs and exported 
to Austria 684,649 MWh of 12,096,955 MWh of available CZCs in 2012 (CAO, n.d.). 
CZC utilisation in the direction Austria-Slovenia was 71.94%, and 5.66% in the Slovenia-
Austria direction. 
                      Sources: BSP, n.d.; EXAA, n.d. 
5.2. Comparison of the utilisation of allocated day-ahead capacities before and after simulating implicit 
auctions on the Slovenian-Austrian border
According to the actual explicit auction results of the Central Allocation Office, Slovenia imported from Austria 
2,108,228 MWh of 2,930,554 MWh of available CZCs and exported to Austria 684,649 MWh of 12,096,955 
MWh of available CZCs in 2012 (CAO, n.d.). CZC utilisation in the direction Austria-Slovenia was 71.94%, and 
5.66% in the Slovenia-Austria direction. 
CZC utilisation in implicit auctions is one of the measures showing the greater efficiency of implicit auctions in 
comparison to explicit auctions (Jullien et al., 2012). Namely, from the efficiency viewpoint, it may be useful to 
utilise CZCs according to the demand that flows from the higher to the lower price market. Otherwise, part of the 
CZCs remains unutilised even though it would be wise to use it.
Figure 4: Inefficiency of explicit auctions on the SI-AT border
Note: Net transit nominations of CZCs on the Slovenian-Austrian border are calculated as the difference between the used quantities of 
exported CZCs and the used quantities of imported CZCs.
Figure 4 shows the CZC utilisation between two markets at an explicit auction. Efficiently utilised CZCs are 
represented by the points on the y-axis and in the marked area on the left and right sides of the y-axis. The area of 
less efficiently utilised CZCs is represented by the points in the upper-left and lower-right fields. The area of 
inefficiently utilised CZCs is represented by the points in the upper-right and lower-left fields. 
When allocating CZCs at explicit auctions and subsequently trading on two unconnected electricity exchange 
markets, inefficiencies in CZC utilisation and even adverse flows appear. Adverse flows are a consequence of 

A. PREDOVNIK, M. ŠVIGELJ  |  THE IMPACT OF IMPLICIT ELECTRICITY MARKET COUPLING ... 147
CZC utilisation in implicit auctions is one of the measures showing the greater efficiency 
of implicit auctions in comparison to explicit auctions (Jullien et al., 2012). Namely, from 
the efficiency viewpoint, it may be useful to utilise CZCs according to the demand that 
flows from the higher to the lower price market. Otherwise, part of the CZCs remains 
unutilised even though it would be wise to use it.
Figure 4: Inefficiency of explicit auctions on the SI-AT border
Note: Net transit nominations of CZCs on the Slovenian-Austrian border are calculated 
as the difference between the used quantities of exported CZCs and the used quantities of 
imported CZCs.
Figure 4 shows the CZC utilisation between two markets at an explicit auction. Efficiently 
utilised CZCs are represented by the points on the y-axis and in the marked area on the 
left and right sides of the y-axis. The area of less efficiently utilised CZCs is represented by 
the points in the upper-left and lower-right fields. The area of inefficiently utilised CZCs is 
represented by the points in the upper-right and lower-left fields. 
When allocating CZCs at explicit auctions and subsequently trading on two unconnected 
electricity exchange markets, inefficiencies in CZC utilisation and even adverse flows 
appear. Adverse flows are a consequence of inaccurate predictions made by market 
participants as regards the price differences between the domestic and foreign markets. 
APX et al. (2008) note that, at implicit auctions where CZCs are allocated together with 
electricity, markets with a lower electricity price always export to markets with a higher 
electricity price. Consequently, adverse flows cannot emerge. Better CZC utilisation 
efficiency on the Slovenian-Austrian border after the implementing of implicit auctions is 
shown in Figure 5. All points representing efficiently used CZCs are on the y-axis and in 
the marked area on the left and right sides of the y-axis. 
                      Sources: BSP, n.d.; EXAA, n.d. 
5.2. Comparison of the utilisation of allocated day-ahead capacities before and after simulating implicit 
auctions on the Slovenian-Austrian border
According to the actual explicit auction results of the Central Allocation Office, Slovenia imported from Austria 
2,108,228 MWh of 2,930,554 MWh of available CZCs and exported to Austria 684,649 MWh of 12,096,955 
MWh of available CZCs in 2012 (CAO, n.d.). CZC utilisation in the direction Austria-Slovenia was 71.94%, and 
5.66% in the Slovenia-Austria direction. 
CZC utilisation in implicit auctions is one of the measures showing the greater efficiency of implicit auctions in 
comparison to explicit auctions (Jullien et al., 2012). Namely, from the efficiency viewpoint, it may be useful to 
utilise CZCs according to the demand that flows from the higher to the lower price market. Otherwise, part of the 
CZCs remains unutilised even though it would be wise to use it.
Figure 4: Inefficiency of explicit auctions on the SI-AT border
Note: Net transit nominations of CZCs on the Slovenian-Austrian border are calculated as the difference between the used quantities of 
exported CZCs and the used quantities of imported CZCs.
Figure 4 shows the CZC utilisation between two markets at an explicit auction. Efficiently utilised CZCs are 
represented by the points on the y-axis and in the marked area on the left and right sides of the y-axis. The area of 
less efficiently utilised CZCs is represented by the points in the upper-left and lower-right fields. The area of 
inefficiently utilised CZCs is represented by the points in the upper-right and lower-left fields. 
When allocating CZCs at explicit auctions and subsequently trading on two unconnected electricity exchange 
markets, inefficiencies in CZC utilisation and even adverse flows appear. Adverse flows are a consequence of 

ECONOMIC AND BUSINESS REVIEW  |  VOL. 19  |  No. 2  |  2017 148
Figure 5: Efficiency of implicit auctions on the SI-AT border
Following the implementation of implicit auctions on the Slovenian-Austrian border, 
Slovenia would import from Austria 1,241,481 MWh of 2,930,554 MWh of available 
CZCs and export to Austria 349,180 MWh of 12,096,955 MWh of available CZCs.
12
 CZC 
utilisation in the direction Austria-Slovenia would be 42.36%, and 2.89% in the direction 
Slovenia-Austria. 
According to the explicit auction results, on the Austrian-Slovenian border CZCs would 
be allocated more efficiently at implicit auctions, confirming the third hypothesis (H3). 
Namely, the results show that this CZC allocation method relieves their non-optimised 
utilisation and eliminates adverse flows, which also corresponds to the findings of APX et 
al. (2008) with regard to the elimination of adverse flows by using implicit auctions. 
5.3. Comparison of the trading volume in the Slovenian electricity exchange market 
before and after the simulation of implicit auctions on the Slovenian-Austrian 
border
Due to the lowest hydrology level in recent history, Slovenia imported a great amount of 
energy during the last quarter of 2011 and first quarter of 2012 (Orešič, 2012). In such 
circumstances, efficient CZC allocation, which in the case of implicit auctions is reflected 
in a larger amount of exchange market transactions, is of great importance (Jullien et al., 
2012). The latter is also confirmed by the simulation scenario results for the first quarter 
12 The substantial difference in the quantity of available CZCs in the direction Austria-Slovenia compared to 
their quantity in the opposite direction is the result of the higher usage of the available quantity of long-term 
CZCs in the direction Austria-Slovenia than in the direction Slovenia-Austria. Hence there is a smaller lefto-
ver of available CZCs in the direction Austria-Slovenia compared to the direction Slovenia-Austria.
inaccurate predictions made by market participants as regards the price differences between the domestic and 
foreign markets. APX et al. (2008) note that, at implicit auctions where CZCs are allocated together with 
electricity, markets with a lower electricity price always export to markets with a higher electricity price. 
Consequently, adverse flows cannot emerge. Better CZC utilisation efficiency on the Slovenian-Austrian border 
after the implementing of implicit auctions is shown in Figure 5. All points representing efficiently used CZCs are 
on the y-axis and in the marked area on the left and right sides of the y-axis.  
Figure 5: Efficiency of implicit auctions on the SI-AT border
Following the implementation of implicit auctions on the Slovenian-Austrian border, Slovenia would import from 
Austria 1,241,481 MWh of 2,930,554 MWh of available CZCs and export to Austria 349,180 MWh of 12,096,955 
MWh of available CZCs.
10
CZC utilisation in the direction Austria-Slovenia would be 42.36%, and 2.89% in the 
direction Slovenia-Austria. 
According to the explicit auction results, on the Austrian-Slovenian border CZCs would be allocated more 
efficiently at implicit auctions, confirming the third hypothesis (H3). Namely, the results show that this CZC 
allocation method relieves their non-optimised utilisation and eliminates adverse flows, which also corresponds to 
the findings of APX et al. (2008) with regard to the elimination of adverse flows by using implicit auctions.
5.3. Comparison of the trading volume in the Slovenian electricity exchange market before and after the 
simulation of implicit auctions on the Slovenian-Austrian border
Due to the lowest hydrology level in recent history, Slovenia imported a great amount of energy during the last 
quarter of 2011 and first quarter of 2012 (Orešič, 2012). In such circumstances, efficient CZC allocation, which in 
the case of implicit auctions is reflected in a larger amount of exchange market transactions, is of great importance 
(Jullien et al., 2012). The latter is also confirmed by the simulation scenario results for the first quarter of 2012 
which reveal that if, during that period, implicit auctions had been used on the Slovenian-Austrian border, a larger 
number of transactions would have been made in the Slovenian electricity exchange market (up to 30% more) than 
in the case of the reference scenario. After stabilisation, in all subsequent months a higher number of transactions 
would still have been made in the Slovenian electricity exchange market than in the reference scenario. However, 
the difference between both is no longer so noticeable. After implementing implicit auctions on the Slovenian-
Austrian border, the volume of trading in the Slovenian electricity exchange market would rise by 715,633 MWh 
(16%) on the annual level, which confirms our fourth hypothesis (H4).
5.4. Comparison of social welfare in Slovenia before and after the simulation of implicit auctions on the 
Slovenian-Austrian border
The influence of implicit auctions on the Slovenian-Austrian border on social welfare in Slovenia is described in 
Table 3. 
                                                           
10
The substantial difference in the quantity of available CZCs in the direction Austria-Slovenia compared to their quantity in the opposite 
direction is the result of the higher usage of the available quantity of long-term CZCs in the direction Austria-Slovenia than in the direction 
Slovenia-Austria. Hence there is a smaller leftover of available CZCs in the direction Austria-Slovenia compared to the direction Slovenia-
Austria.

A. PREDOVNIK, M. ŠVIGELJ  |  THE IMPACT OF IMPLICIT ELECTRICITY MARKET COUPLING ... 149
of 2012 which reveal that if, during that period, implicit auctions had been used on the 
Slovenian-Austrian border, a larger number of transactions would have been made in the 
Slovenian electricity exchange market (up to 30% more) than in the case of the reference 
scenario. After stabilisation, in all subsequent months a higher number of transactions 
would still have been made in the Slovenian electricity exchange market than in the 
reference scenario. However, the difference between both is no longer so noticeable. After 
implementing implicit auctions on the Slovenian-Austrian border, the volume of trading 
in the Slovenian electricity exchange market would rise by 715,633 MWh (16%) on the 
annual level, which confirms our fourth hypothesis (H4).
5.4. Comparison of social welfare in Slovenia before and after the simulation of 
implicit auctions on the Slovenian-Austrian border
The influence of implicit auctions on the Slovenian-Austrian border on social welfare in 
Slovenia is described in Table 3. 
Table 3: Change in social welfare after simulation of implicit auctions on the SI-AT border
Before implicit  
auctions (€)
After implicit  
auctions (€)
Producer surplus 146,318,029 119,998,678
Consumer surplus 855,105,950 890,547,561
Total producer and consumer surplus 1,001,423,979 1,010,546,239
Net benefits due to increased import from Austria / 8,326,379
Net benefits due to increased export to Austria / 795,881
Total net benefits due to exchange with Austria / 9,122,260
Congestion rent on the SI-AT border 10,317,924 2,290,102
Congestion rent on the SI-IT border 34,886,765 50,163,851
Total congestion rent 45,204,689 52,453,953
Change in collected congestion rent / 7,249,264
Change in social welfare in Slovenia / 16,371,524
Note: Congestion rent accounts for half of the congestion rent acquired annually on the SI-
AT and SI-IT border – the other half belongs to the Austrian or Italian TSO.
The results of the analysis show that due to the use of implicit auctions on the Slovenian-
Austrian border and the increased imports of cheaper electricity from the Austrian 
electricity exchange market and the resulting drop in the price in the Slovenian electricity 
exchange market the net benefits for Slovenia amount to €8,326,379. Due to the use of 
implicit auctions on the Slovenian-Austrian border and the increased exports of electricity 
to the Austrian electricity exchange market and the consequential rise in the price in the 
Slovenian electricity exchange market, the net benefits for Slovenia amount to €795,881. 

ECONOMIC AND BUSINESS REVIEW  |  VOL. 19  |  No. 2  |  2017 150
For Slovenia, the total net benefits from trading between the two markets amount to 
€9,122,260.
The Slovenian TSO income from the congestion rent after implementing implicit auctions 
decreased to €2,290,102. The smaller amount of congestion rent on that border is expected 
when considering all inefficiencies of the explicit CZC allocation due to which the amount 
of congestion rent from the explicit CZC allocation is too high and does not reflect the real 
economic value of CZCs.
On the other hand, the Slovenian TSO’s income from the congestion rent on the 
Slovenian-Italian border increased to €50,163,851 after implementing implicit auctions 
on the Slovenian-Austrian border. The increased congestion rent is expected since the 
price in the Slovenian electricity exchange market decreased, which results in an increase 
in the price difference in the northern zone of the Italian electricity exchange market and 
the acquired congestion rent on that border.
Summarising the net benefits of the Slovenian electricity exchange market from the exports 
to the Austrian electricity exchange market (in hours, when the Slovenian electricity 
exchange price was lower than the Austrian electricity exchange price), the net benefits 
of the Slovenian electricity exchange market from the imports to the Austrian electricity 
exchange market (in hours, when the Slovenian electricity exchange price was higher than 
the Austrian electricity exchange price) and the additional congestion rent gained by the 
Slovenian TSO shows that social welfare increased by €16,371,524 in Slovenia. This also 
confirms our fifth hypothesis (H5), which states that the use of implicit auctions on the 
Slovenian-Austrian border would increase social welfare in Slovenia. The benefits of the 
implementation amount to €7.91 per capita. This is in line with a recently published study 
which estimated that the benefits of allocating CZC at implicit auctions within market 
couplings, once fully implemented across the EU, would be between €2.5 and €4 billion 
per year, or about €5 to €8 per capita per year (Booz & Company, Newbery, Strbac, Noël 
& LeighFisher, 2013). 
6. CONCLUSION
Due to the benefits of implicit auctions and the positive influence of this CZC allocation 
method on social welfare, the European Commission has been trying to legally unify 
the existing CZC allocation practices throughout Europe. In the last few years we have 
witnessed considerable progress since implicit auctions within market couplings have 
already been established on numerous borders of energy systems within the EU. On the 
Slovenian-Austrian border, CZCs are currently allocated by means of explicit auctions. 
However, in compliance with the European Target Electricity Model we can expect the 
implementation of implicit auctions within market couplings in the future. 
By simulating trading on the Slovenian electricity exchange market and the allocation of 
CZCs following the implementation of implicit auctions within market coupling on the 

A. PREDOVNIK, M. ŠVIGELJ  |  THE IMPACT OF IMPLICIT ELECTRICITY MARKET COUPLING ... 151
Slovenian-Austrian border for 2012, we demonstrated that in the Slovenian electricity 
exchange market the electricity price would be brought closer together or even equalise 
with Austrian electricity exchange market by an average decrease of €6.84/MWh, leading 
to a 16% increase in the volume of trading in the Slovenian electricity exchange market. 
The efficiency of CZC utilisation would increase as well. In addition, market coupling on 
the Slovenian-Austrian border would increase social welfare in Slovenia by €16,371,524. 
By implementing implicit auctions within the market coupling on the Slovenian-
Austrian border, Slovenia will fulfil its obligations imposed by the pan-European, day-
ahead, market-forming process. The Slovenian electricity exchange market will be partly 
reformed and enable exchange market members to trade in a liquid exchange market that 
is connected to the Austrian-German and Italian electricity exchange markets.
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