The “APE – Appunti di Energia” series continues with a focus on the Euphemia algorithm, the core of the European day-ahead electricity market (DAM). Andrea Alberizzi, with contributions from Federica Davò, guides us through the functioning of this tool, which enables the integration of national markets and the simultaneous calculation of prices and exchanges across Europe.

The Price Coupling of Regions (PCR) initiative led to the creation of a single algorithm for the day-ahead market: Euphemia collects and processes buy and sell orders from the various European power exchanges (including GME, OMIE, Nord Pool, and EPEX SPOT), defining optimal prices and volumes for each bidding zone. The goal is to maximize social welfare, that is, the overall benefit resulting from consumer surplus, producer surplus, and congestion rents.

The document describes the different types of orders managed by Euphemia: from the simplest ones, aggregated into demand and supply curves, to block orders (regular, profile, flexible, exclusive, or linked) and complex orders, which introduce advanced conditions and make the computational problem highly challenging. In addition, it examines concepts such as the merit order, the phasing out of the Unique National Price (“Prezzo Unico Nazionale” – PUN) from 2025 in favor of zonal prices, and the role of grid information provided by TSOs, modeled through ATC, flow-based, or hybrid approaches.

To address this complexity, Euphemia applies combinatorial optimization techniques, solving a main problem of welfare maximization along with subproblems related to prices and volumes. The final outputs serve as a crucial benchmark for energy price formation in Europe and for the harmonized functioning of the internal market.

Finally, the issue highlights how Euphemia is not just a technical algorithm, but a strategic tool for building an integrated European electricity market, fostering efficiency, transparency and security of supply.