Paper: arXiv 2609.29108

Authors: Walter Kurz, Wojtek Stricker

Abstract

European electricity trading in the EU operates as a constrained multi-layer system in which legal design, exchange microstructure, and network physics are executed jointly across forward, day-ahead, intraday, and balancing horizons. This paper develops a functional architecture for AI-supported trading that is aligned with market-coupling mechanics, cross-zonal transfer constraints, and compliance obligations under REMIT, MiFID II, MiFIR, and EMIR. The contribution is a formal system specification composed of a decision-state vector, residual-exposure accounting, constrained optimization objective, executable-action permission gate, and fail-closed AI control logic with auditable records. The analysis maps major Nominated Electricity Market Operator (NEMO) venues and related exchange operators into an operational venue topology and identifies where cross-border coordination fails in practice: interface-level timing, permission heterogeneity, and balancing-layer coupling. The resulting framework proposes how AI can be deployed as a bounded decision component inside regulated market operation with explicit governance, rather than as an unconstrained prediction layer.

Complexity vs Empirical Score

  • Math Complexity: 3.0/10
  • Empirical Rigor: 4.0/10
  • Quadrant: Philosophers — conceptual discussion, limited math and data

Why this score: The paper presents a novel conceptual framework for AI in regulated electricity markets, focusing on architectural requirements rather than deep mathematical models or empirical validation. While well-written and thorough in its domain, it lacks the quantitative depth and empirical testing typically associated with high scores in math complexity and empirical rigor for quant finance.

Research Flowchart

  flowchart TD
    A[Research Goal: Functional Architecture for AI-supported Electricity Trading] --> B{Methodology: System Specification & Market Analysis};
    B --> C[Inputs: EU Regulatory Frameworks (REMIT, MiFID II, MiFIR, EMIR), Market-Coupling Mechanics, Cross-Zonal Transfer Constraints, NEMO Venues & Exchange Operators];
    C --> D[Computational Processes: Decision-State Vector, Residual-Exposure Accounting, Constrained Optimization Objective, Executable-Action Permission Gate, Fail-Closed AI Control Logic];
    D --> E[Key Findings: Formal System Specification, Operational Venue Topology, Cross-border Coordination Failure Points (Timing, Permission Heterogeneity, Balancing-Layer Coupling)];
    E --> F[Outcomes: Framework for Bounded AI Deployment in Regulated Markets with Explicit Governance];