20.10.2025
On October 9th in Vienna, the Energy Club forum “Balancing Europe’s Energy System: Challenges, Solutions, and Prospects” took place, where leading European experts, regulators, investors, and technology companies discussed how digitalization, flexibility, and consumer participation are shaping the new architecture of energy markets.
During the second panel discussion, “The Future of Balancing: Digitalization, Flexibility Markets, and Consumer Integration,” Dr. Michael Merz, Managing Director and Co-founder of PONTON GmbH (Hamburg)—a software development company for energy markets—delivered a speech.
About the Speaker
Michael Merz is one of the pioneers of digital solutions for Europe’s energy markets. He has over 35 years of experience in IT, a doctoral degree in computer science from the University of Hamburg, and has been managing PONTON GmbH for over two decades, developing innovative platforms for energy trading, clearing, and data exchange between transmission system operators (TSOs) and suppliers. He participated in the creation of European standards for over-the-counter (OTC) energy trading and the development of the market communication system in Austria.
Key Theses of the Speech
1. The main problem is system congestion and the lack of a unified market design
“For me, the main problem is congestion. And the question is how we solve it in different markets—day-ahead, intraday, balancing, or redispatch. In none of them are we solving the congestion problem systemically,” noted Dr. Merz.
He pointed out that the current market mechanisms are not aligned with each other—the day-ahead, intraday, balancing, and redispatch markets operate separately, which leads to duplication of problems and inefficiency. According to the expert, a “theory of everything” in market design is needed, one that combines the requirements of all segments and takes into account the physics of the grids.
2. We need to think beyond X-Bid—centralized systems do not solve the problems
“I wrote a study for a German TSO on how to improve X-Bid. But we have to think 15–20 years ahead. And that is far beyond X-Bid. We must design a new world—from a blank slate.” According to Michael Merz, centralized platforms like X-Bid (Single Intraday Coupling), while fostering the integration of European markets, create a monoculture where competition between exchanges disappears, and technological loads become critical.
“When X-Bid dominates all of Europe, every exchange becomes just a gateway to a central order book. Where is the room for innovation and competition between trading venues then?” he stressed.
3. The system is approaching its technological limits
Trading volumes on European markets are growing rapidly:
Reducing the minimum trading time unit (MTU) from 15 to 5 minutes will further increase the number of trades. “We will reach a technological limit. Modern trading systems will not be able to handle such loads,” predicted Dr. Merz.
4. Battery systems create new challenges for the grids
“In Germany, operators received applications for 430 GW of battery capacity in just six months. This is colossal. But it is also a technological nightmare for grid operators.” Michael Merz explained that battery storage systems can switch from production to consumption in minutes, changing the balance of the system, which creates new challenges for dispatching.
5. We need to incorporate the physical requirements of the grids into trading mechanisms
“Physics has its own requirements that trading operators do not take into account. We need a market design that integrates these parameters from the very beginning.” According to the speaker, today’s “after-the-fact” approach to balancing must be replaced by a proactive mechanism that considers the geography and congestion of the grids at the order submission stage.
6. The concept of “network-supportive trading”
“If we can account for the location of generation and consumption during trading, we can avoid trades that increase congestion.” Dr. Merz proposed the concept of “network-supportive trading”—trading that incentivizes transactions that reduce grid load and discourages those that increase it.
This involves dynamic locational pricing: a selling price in northern Germany should appear more expensive to a buyer in the south if the transaction will increase congestion. “This way, we will get a short-term effect—fewer trades that worsen the situation—and a long-term effect—a more rational distribution of generation,” the expert noted.
7. Balancing markets and the risks of abuse
“We are seeing increasing interaction between intraday trading and balancing. But this creates risks—those with access to the balancing market have more information and can manipulate prices.” Michael Merz believes that regulatory synchronization and transparency between segments are necessary to avoid information asymmetry and market abuse.
Dr. Michael Merz called for a reassessment of the entire architecture of Europe’s balancing market and energy trading—not just to improve existing tools, but to create a new design that integrates grid physics, digitalization, and true flexibility. His vision is a market that inherently promotes system stability, rather than just reacting to its imbalances.
