The European electricity wholesale market consists of several price areas connected by transmission links. The purpose of the electricity market is to match the demand for electricity with supply at the lowest possible price at each given moment throughout Europe. If the need for electricity transmission between areas exceeds the physical capacity of the transmission lines, a price difference arises between the areas. This is known as congestion in the electricity market.
Congestion income arises in the electricity market when the transmission capacity between bidding zones is too low to even out the difference between supply and demand in the market areas. The market areas become separate price areas, and a buyer in one area pays a different price than someone in another area. The congestion income is obtained by multiplying the amount of electricity to be transmitted between the price area by the price difference:
Congestion income [€/hr] = Transmission in the day-ahead market [MW] * Price difference between areas [€/MWh].
The power exchange accrues the price difference in the form of congestion income, which the power exchange pays to the transmission system operators on both sides of the price area.
Division of congestion income in the Baltic Sea region
Nordic congestion income is divided among the four Nordic transmission system operators (Energinet.dk, Statnett, Svenska Kraftnät and Fingrid) according to a separate agreement. The agreement calls for the congestion income to be divided evenly between the transmission system operators whose cross-border lines caused the income to accrue. The countries entitled to collect congestion income at the cross-border line in question may also agree to deviate from this arrangement.
The congestion income accruing from the connections between Fingrid and Estonia is divided evenly between Fingrid and Elering, the Estonian transmission system operator.
Use of congestion income
Fingrid primarily uses the congestion income it receives to boost transmission capacity and for maintenance in accordance with EU legislation. After this, congestion income may be used to offset the grid service fees charged to customers. In Finland, the Energy Authority is responsible for supervising congestion income in accordance with legislation.
In 2016, Fingrid transitioned to new reporting methodologies in accordance with the Energy Authority’s decision in relation to congestion income, investments to increase and maintain capacity, and expenses. Fingrid reports on its use of congestion income in conjunction with its quarterly financial review.
The congestion income accrued since 2015 is published on ENTSO-E’s electricity market data platform at https://transparency.entsoe.eu/ > Transmission > All Data Views > Daily Implicit Allocations – Congestion income.
In the European Union, the methodology for using congestion income is regulated in more detail in the procedure approved by the Agency for the Cooperation of Energy Regulators (ACER).
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