Evaluation of congestion management methods for cross-border transmission

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Table of contents

I. A. B. C. II. A.

GENERAL FRAMEWORK.......................................................................................................... 3 CONTEXT ............................................................................................................................. 3 SCOPE OF THE DOCUMENT ...................................................................................................... 3 GENERAL PRINCIPLES ............................................................................................................. 4 ASSESSMENT OF METHODS FOR CONGESTION MANAGEMENT ................................................ 6 CURTAILMENT BASED ON PUBLISHED NTCS................................................................................ 6 Definition .......................................................................................................................... 6 Analysis ............................................................................................................................ 6 B. A UCTIONING METHOD ............................................................................................................ 7 1. Definition .......................................................................................................................... 7 2. Analysis ............................................................................................................................ 7 C. M ARKET SPLITTING ............................................................................................................... 8 1. Definition .......................................................................................................................... 8 2. Analysis ............................................................................................................................ 9 D. REDISPATCHING..................................................................................................................... 9 1. Definition .......................................................................................................................... 9 2. Analysis ............................................................................................................................ 9 E. CROSS-BORDER CO-ORDINATED REDISPATCHING (CCR) ............................................................... 10 1. Definition ........................................................................................................................ 10 2. Analysis .......................................................................................................................... 11 1. 2.

III. A. B. C. D. IV.

ELEMENTARY PRIORITY RULES .......................................................................................... 12 FIRST COME, FIRST SERVED METHOD ....................................................................................... 12 RANKING ACCORDING TO POWER MARKET BIDS ........................................................................ 13 PRO RATA RATIONING........................................................................................................... 13 PHYSICAL POWER FLOW RELATIVE CONTRIBUTION ................................................................... 13 CONCLUSION .................................................................................................................... 14

REFERENCES ............................................................................................................................... 16 APPENDIX 1 - COMPLIANCE OF EACH METHOD WITH IMPORTANT REQUIRED CRITERIA. ........................ 17 APPENDIX 2 - INFORMATION EXCHANGE REQUIREMENTS FOR EACH METHOD....................................... 18 APPENDIX 3 BASIC SIMPLIFIED EXAMPLES TO ILLUSTRATE CONGESTION MANAGEMENT METHODS....... 19 APPENDIX 4 DEFINITION OF TRANSFER CAPACITIES. ..................................................................... 21

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I. GENERAL FRAMEWORK

A. Context The European electric power system, initially interconnected for reliability reasons, then used also for commercial purposes through well-defined exchange contracts (mostly long term contracts), is now the theatre for a more comple x European market: traditionally integrated companies, which handled the reins of exchanges, have to make room to new actors, traders or IPPs, willing not only to sell in national market but also to the European market, for example through new institutions such as Power Exchanges. Apart from legal matters, both technical requirements and regulation mechanisms will have to be defined. As in any market, physical boundaries will have to be handled, in order to avoid as much as possible that they hinder the liquidity of energy exchanges. Boundaries to electricity exchanges are mostly due to transmission capacity limits. Transmission congestion occurs when the transmission system cannot be operated securely in light of a requested pattern of generation, demand and transmission. As an absolute minimum, procedures must relieve congestion before physical or security limits are breached. Further to this, economic efficiency is achieved when generation, demand and transmission operators behave in a way that minimises overall costs. This behaviour can be ensured through legislation, regulatory frameworks or market mechanisms. TSOs understand the physical realities of their networks. Traders understand the financial realities of their trades and the underlying physical realities of the associated generation and demand. Economically efficient resolution of congestion is unlikely to be achieved without combining these pieces of information. Overly simple solutions, although attractive, may not be effective. This is particularly true given the meshed nature of the European network. A generators effect on a given constraint can be described by a participation factor 1. In many cases, generators within the same country will have significantly different participation factors for a constraint at that countrys border. A simple procedure that equates projected physical flows at borders with generator output may not be effective or economically efficient. Another important issue is the effect of loop flows on congested borders: a transaction between two areas through a non-congested interface (i.e. there is still some free capacity to be allocated on this interconnection) may create important loop flows that induce security problems on another border somewhere else in Europe. For example, a transaction between Northern Germany and the Netherlands may generate severe congestion between France and Belgium, which is always difficult to be understood by the involved market players.

B. Scope of the document The scope of this document is to describe the main methods for resolving congestion, and to describe their advantages and disadvantages from an economical and technical point of view. Five basic

For example, a participation factor of 0.5 would mean that for every reduction in output by a generator of 1MW, the constraint would be relieved by 0.5MW. The participation factor arises both because of losses and network power flows.

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methods will be examined : curtailment based on published NTCs, auctioning, market splitting, internal redispatching, and cross-border co-ordinated redispatching. The criteria used in this paper to assess a method for resolving congestion are that the approach could be : fair and non-discriminatory (for the same service, two users should pay the same price and should be treated equally), economically efficient (individual behaviours of generation, demand and transmission operators should lead to the system optimum through relevant incentives). Appropriate incentives are likely to involve cost-reflective charges, transparent and non-ambiguous (the method and its implementation should be clear for every participant and should be robust against gaming). Moreover, simplicity is essential if market players are to understand the rules, feasible ; congestion management must always be possible, because it is being a key issue for the system reliability, compatible with different types of trade and contracts (bids on a spot market or on a real time market, short-term bilateral contracts, longer term bilateral contracts).

To achieve economic efficiency, a given method must provide incentives to the TSOs to enlarge transfer capacities appropriately either by using different dynamic mechanisms to increase trade possibilities, or by investing in new network equipment or reinforcing cross-border tie-lines. The extent to which each one of these criteria is fulfilled will be the focus of the analysis performed for each method. A comparative table is provided as appendix 1, containing an appraisal of the assessment of the different methods in terms of all listed criteria. At this point, information exchanges among TSOs and between TSOs and market players seem to be one of crucial issues as far as making the implementation of any of the reviewed methods feasible. In this respect, appendix 2 lists information exchange requirements for each one of the methods 2. Appendix 3 provides an example that illustrates each one of the methods.

C. General principles There are several principles to which congestion management methods should be in line with.
1. 2.

TSOs must be managed independently from producers, distributors, traders and end-users. TSOs are not in competition with each other. They should have mutual benefit as an ultimate goal. In this framework, the need for close co-operation or extensive data exchange should not be a reason for discarding any congestion management method. The market organisation is developing differently in different parts of ETSO-area. Areas already having centralised solutions, like the Pool and Power Exchanges in UK, Spain and Scandinavia, must be able to co-operate immediately with more bilateral trade based markets like Germany, France and others. This co-operation will set the prerequisites for electricity exchanges within and between the different areas. Then, even if this document sets some basis for five distinct basic methods, it should be assumed that there is not only one solution to congestion management in each area. Achieving the best overall efficiency might require methods for managing congestion

3.

See the ETSO document : Data Exchange between TSOs for handling cross-border exchanges

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resulting from centralised solutions, to be combined with methods resulting from bilateral contracts. A combination of the strong features of different methods could also give the best results (for instance, the Nordic countries combine efficiently market splitting day ahead, with coordinated redispatching [that they call counter-trade] in the operating phase).
4.

As stated before, feasibility of a given method for congestion management is an absolute prerequisite for its implementation. But the optimal solution is not always the best in terms of feasibility, which may be dependent on the market structure implemented in the different countries (and even on the exchange of the necessary information and its transparency). It must be recognised that different approaches might coexist. Moreover, there are power system structural differences, which mean that some methods could be applied in some parts of the system whereas in some others they would not lead to an effective solution. This also implies that some approaches, less demanding in terms of harmonisation and information exchanges, might initially be favoured in some countries as a first step in the implementation of a more trade oriented overall approach. Every market participant should be involved, directly or indirectly 3 in congestion management, and not only the TSOs or the generators. Hence, they should all receive relevant incentives for promoting the trade by increasing the exchange capacities between control areas and for guaranteeing the market liquidity without jeopardising the reliability of supply. This is why apart from promoting trade possibilities, all actors and TSOs must co-operate for a secure and optimal use of the network, and the system as a whole. After the near-incident of August 1997 in Belgium and the critical situations recorded on June 3 and July 14, 1999, it has been agreed that the modelling of physical flows should be developed, and contract paths modelling be abandoned. Physical power flow modelling allows to take into account loop flows and to evaluate more precisely the constraints that could threaten system reliability. For traders, it is desirable that charges for cross-border transmission services should be nontransaction based, except perhaps for congestion management on interconnections where restricted capacities are identified and where demand for network access often exceeds actual capacity. Therefore it is appropriate that economic signals are given to market participants depending on the consequences their actions could cause to the network of control area, and that the required information should be given to the TSOs : location, net injections, time and duration. Of course this information depends on the mechanism of congestion management to be adopted, and may be reduced or expanded if required. Existing contracts must receive special attention when congestion is considered. Although the European Commission has stated that they should not involve any blocking of the market, their existence was formally recognised as an established fact. At this stage, it is left to subsidiarity for each member state to decide whether long-term contracts are still to be considered valid. Moreover, the existence of power exchange contracts for which important investments were launched well before the application of rules for cross-border congestion management is recognised. The recovery of those investments is an important issue for these parties. In order to ensure market liquidity, it is essential that, for any reservation made before day ahead, a confirmation by the concerned market player is made for capacity use. If not confirmed, the capacity should be left to the short-term market. concerned TSOs. In the meshed European transmission system, a cross-border exchange may have significant effects on the physical flows between other areas. In this case, congestion management cannot be done on a bilateral way but needs a co-ordinated procedure between all involved TSOs, e.g. a cross border exchange may be rejected because of the congestion caused

5.

6.

7.

8.

9.

10. Final approval or refusal of a cross-border exchange must be the sole responsibility of the

there can be players who act on behalf of several other players

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in a third party area. The procedures for the necessary co-ordination between all concerned TSOs when important loop flows on a third party border are induced by cross-border exchanges are still to be figured out.

II.ASSESSMENT MANAGEMENT

OF

METHODS

FOR

CONGESTION

A. Curtailment based on published NTCs 1. Definition The operation of the European power system requires a sufficient knowledge about generation and load programs (day-ahead and real-time) within each control area as well as between them. Without this information, TSOs are not able to inform market participants of the precise probability of constraints, to prevent constraints or to apply curative actions. Several levels of data exchange are possible and recommended between partners. The publication of NTCs which relate to the capacity of exchanges between two areas is the minimum information which is required to be used as an indicator to allow market actors to evaluate the risks of seeing their transaction curtailed (and take adequate measures such as: swap, back-up contracts, hedging, etc.). Formally, the Net Transfer Capacity (NTC) represents the best estimate limit for physical electricity transfer between two control areas. NTC is defined by the total transfer capacity (TTC) of an interconnector or more often by several interconnectors that link two control areas, reduced by a transmission security margin (TRM). Appendix 4 provides a full definition of those factors. Irrespective of any mechanism for congestion management, NTC knowledge for a given interface between two TSOs (or more in some cases) is recognised as a practical indicator of actual trading possibilities at a given time 4. As stated by the European Commission, this NTC publication as open market information must be freely and periodically published by TSOs and it has to be provided to market participants so that they can constantly evaluate the market opportunities throughout Europe. To this regard, co-ordination between TSOs is very important, especially considering that NTC assessment is non-trivial. NTCs summarise a complex information, and in some regions an over-simplified use of this concept could be misleading to market participants. Anyway, no better notion could be worked out by TSOs, simple enough to be used by non-specialists. It should be stressed that, though NTCs are based on a formal definition acknowledged by all, in many cases they may be a somewhat ambiguous information, due to the underlying over-simplifications of the Power System physical laws. Market players will have to learn using this concept. Furthermore, to help market agents in managing the risk of transaction curtailment, NTC publication could include indications on upper or lower bounds, statistical uncertainty of published values and dependencies on numerous factors such as others cross-border exchanges in other directions. Finally, it is clear that the assessment of NTC depends on the information exchanged, between both the TSOs and the market actors, and between the TSOs themselves. 2. Analysis When NTCs are used as an upper limit of the available transmission capacity, no further capacity can be allocated by TSOs once the limit is reached. Then the method requires that a mechanism to define

even if it is time dependent, very sensitive to numerous factors and then needs to be continuously updated.

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the priority for using NTCs be implemented. Paragraph III describes the principal priority rules, their advantages and disadvantages. When transmission is limited to NTC values, one advantage is that no additional costs are incurred, and thus there is no allocation or cost allocation mechanism. Values for NTCs are published, transmission service customers give their demands to the TSOs, and transactions that would cause overloads are rejected according to a predefined priority rule. The main drawback is that curtailment of transactions based on NTCs publication does not convey any economic incentive. It does not provide incentives to TSOs, generators, distributors, traders or endusers and therefore does not promote efficient trade. The possibility of giving binding NTCs before day-ahead has been abandoned due to the inherent inaccuracy of such values : networks are dynamic and no NTC value could be guaranteed year, month or week ahead, given the existence of loop flows, uncertainties of generation or network outages. Even on a day-ahead basis, NTC values are subject to changes. Market participants will have to include the risk of curtailment due to insufficient capacity for their contracts. This raises the question of the firmness of access to the European transmission grid. Some market players may wish to have such firmness granted by TSOs, which is not compatible with some curtailment methods, as well as with some other congestion management mechanisms.

B. Auctioning method 1. Definition Auctions may be the base mechanism for several congestion management methods. In all cases, each market participant offers a price for use of the NTCs. The bids of the participants are stacked, highest bids first, until NTC is completely used. Often, a transmission market clearing price is calculated and each participant pays this. Several methods to fix both the clearing price and the volume of capacity allocated exist. Once the NTC is completely used, either the process is stopped, or there is some redispatching, according to the level of the clearing price (see D below) and the process may go on with the extra trade possibilities. It is sometimes suggested that counterflowing transactions should be paid but care should be taken that they are only paid to the extent that the counterflow actually occurs (which means it is firm and guaranteed). 2. Analysis The auctioning method is efficient regarding competition : the bids reflect exactly the real market value as perceived by the participants, the highest priority for access being granted to the one who is ready to pay the highest price. The auctioning system allows TSOs to handle constraints for cross-border trading, without providing any physical information except NTC. To the extent that congestion only exists across borders, its resolution lies in the hands of market participants. For auctioning to be economically relevant, a minimum number of market players should be in position to bid for transmission capacities. The method allows integrating long-term contracts with bilateral trade or even spot market. It is also possible to adopt such model for a limited time period between a market-based area and a bilateral trading area (as applied for instance at the Danish-German border at present). Auctioning raises a transmission risk on long or mid-term bilateral contracts (there is no guarantee that they will be accepted every day).
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Like any other method, auctioning implies supplementary complexity whenever a transaction is involved in several congestions or when loop flows are important. In such cases, the transmission service customers will have to make bids for each bi- or multilateral transaction5. Methods have been developed to handle this situation. As an example, transactions could be handled through an optimal power flow algorithm which authorises the transaction or not (or partially authorises the transaction, e.g. in the case of multilateral transactions) and compute its transmission market clearing price. This needs a strong co-ordination between the TSOs involved. While it is simplest to envisage an auction across a single boundary, as the most general case, auctions can be postulated across many boundaries. This will be necessarily more complex for both traders and TSOs. Auction does not necessarily intend to recover any costs for maintaining and operating interconnection lines if these costs are covered by the transmission tariff. The question of addressing the income generated by auctions such that it constitutes an efficient signal for the development of the interconnection network depends on the regulation of, and probably of the agreements between neighbouring TSOs. Although auction do not, by themselves, provide appropriate incentives to the TSOs to increase transfer capacity or to invest in new transmission equipment, it is possible to design an appropriate incentive scheme, especially if the capacity to be auctioned is carefully chosen taking into account opportunities for redispatch.

C. Market splitting 1. Definition This method consists of splitting a power exchange (PEX) into geographical bid areas with limited capacities of exchange ; a power pool price is set according to amounts of demand and generation offered in the whole market area. Then the TSO computes a load flow and identifies constrained lines. It should be pointed out that the same data is needed for the evaluation of NTC. Geographical areas, composed of one or more bid areas, are defined on either side of the bottlenecks. In each geographical area, a new price Sale pool price is defined, flows across areas being limited to the capacity of the interconnection lines. Then each area has its own pool price : areas downstream of a congestion will have a higher pool price, areas upstream of a congestion will have Purchase a lower pool price. When the price-demand effect is MW observed (demand decreases as price increases cf. figure beside), the congestion is relieved through the market mechanism : demand decreases in high-priced areas, and increases in low-priced areas. Obviously, the opposite effect is seen at the generation side. This congestion management method is used in the Nordic market, consisting of Norway, Sweden, Finland and Western Denmark : a spot-market price is settled for the whole market and there are different price areas according to the actual congestion. Consumers downstream of a congestion will pay the highest prices, and generators upstream of a congestion will be paid the lowest prices. The congestion charge is the difference between the price in downstream area and the price in upstream

TSOs could organise themselves so as to provide such a service to the market participants

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area ; it is collected by the system operator and is used to lower the tariff for generation and load within each system6. 2. Analysis In this method, congestion relief relies partly on the market forces, being based on the sale-price and purchase-price curves. Trade will be maintained if the price in the corresponding price area ensures profitability for the market actors. The market-splitting concept thus encourages trading as far as market actors receive ex-ante information about the probability of congestion between some areas. The model should also be beneficial with regard to a better long run use of the network. An advantage about the market splitting method is that on a long-term basis, customers may react to high prices in congested areas by substituting other forms of energy to electricity. New generators may also decide to connect to these zones of shortage, attracted by high sale prices, and thus introduce more competition and cause overall prices to decrease. An other advantage of market splitting is that a price signal is available to all market participants, particularly for generators who can base their production on this price signal : then all generation with a marginal cost lower than the market price will run, while all others will stop. The main problem with market splitting is its feasibility on a large scale. The system will work best if there is a common market structure and organisation (an electricity Power Exchange) on both side of a constrained border. The Nordic experience is however that, to some extent, this system can work well together with other models.

D. Redispatching 1. Definition In the first part of this section, NTC was referred to as total transfer capacity minus transmission reliability margin. When transactions exceed NTC, transaction based methods require the curtailment of transactions, and physical boundaries then become a limit to trade. In this situation, the redispatching of generation in the constrained TSOs own control area may help to relieve part of the congestion. To redispatch, the TSO requires information on prices to modulate generators up and down. Redispatching generally creates additional costs for the TSO, which could be allocated to the responsible parties (i.e. market players involved in extra cross-border transactions), in the sake of economic efficiently. The additional costs may also be shared equally among all traders. However, this may increase congestion problems due to the lack of price signal. It may be helpful for TSOs to calculate and publish some non-binding costs of congestion in advance7, in addition to the NTC at each cross-border. It should be pointed out that the provision of this information requires slightly more data from the market participants than the evaluation of NTC. 2. Analysis Based on physical power flows, managing congestion by internal redispatch potentially promotes more trade than solely limiting the transmission to the NTC limits. Redispatch effectively allows extending

The TSOs may use the surplus to found new investments. However, care is required to provide the TSOs with appropriate incentives.
7

these costs becoming binding prices in D-1

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trade through re-optimisation despite physical boundaries, till there is no generation possibilities left to redispatch (limit shown as LRP (limit of redispatching possibility) on the figure below).
Redispatching cost

Price of the last generator that helps relieving congestion 0 NTC LRP (limit of redispatching possibility)

Trade across bottleneck

In the Nordic system the cost for redispatching (or counter-trade, see below) are in first hand paid by the TSOs. The cost is however recovered through the transmission tariff. In other words all customers pay some of the redispatching costs. Redispatch costs may also be allocated directly to the appropriate market participant to preserve the economic incentive. This means that a priority mechanism allows ranking the transactions. Of course market participants have to know all the potential for redispatch costs, and must have the choice, either to alter their plans if they consider the likely costs too high, or to continue with their clients. If the redispatching costs are allocated this way, the redispatching method is fair to all market participants. Furthermore, except in the case of a control area where a market organisation dominates, the advantage of publishing likely congestion costs in advance is that it allows good visibility of these issues to all participants and is fully compatible with their hedging and risk management analysis. On the other hand, preparing the above cost curve places significant computational difficulties on the TSOs, and requires that they have detailed knowledge of additional generation possibilities in different units, including the relevant expected prices at which such additional generation is available. The redispatching method is feasible, has the advantage of remaining within current practices but remains limited as it uses only internal generation means in each Member State. A further service that TSOs could provide is the Cross-border Co-ordinated Redispatching (CCR, see E below).

E. Cross-border co-ordinated redispatching (CCR) 1. Definition The principle of CCR is an extension to several TSOs of the internal redispatching method . In case of a congestion, the TSOs co-ordinate their redispatching, and may call to some generators located out of their own control area through the action of neighbouring TSOs (as long as those generators are able from their location to impact the constrained interconnection). The way TSOs should purchase and manage their resources may be left to subsidiarity, as there is no compatibility problem between neighbouring TSOs. The generators called for the redispatching may have bid into a dedicated market, or have signed long term reserve-type contracts with their TSO. The dedicated market solution is more transparent but it may also give to the generators located downstream of a recurring bottleneck a high market power. The long term contracts solution gives more guarantee to the TSO but may become intricate as soon as new generators will enter the market

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in importing control area and offer more possibilities, maybe cheaper, or if the congestion is relieved due to network development in other countries. The costs of CCR should be allocated to the market participant responsible for the bottlenecks. As in the internal redispatching method, customers must have the choice between changing their behaviour or paying the price of redispatch. CCR is not a market business for the profit of TSOs. It is an advanced service organised by TSOs to provide more market liquidity. It is a regulated service that does not give special income to TSOs (they charge congestion costs corresponding to what they have paid to redispatch). 2. Analysis This method requires strong co-ordination between TSOs, and the preservation of the confidentiality of price information for generators located within surrounding control areas. This is the main challenge of the method but it will disappear as the TSOs have to work more closely together, and in an increasingly neutral and impartial fashion. CCR has many advantages, the most important being that it makes electricity trade easier, creating possible additional room with a financial counterpart. TSOs carry out this activity so as to ensure transparency, neutrality to improve the liquidity of the European market and to allow a safer and more optimal use of the system8. The effect of extending the area for redispatching generators - compared with the internal redispatching solution - is obvious : the limits for exchanging capacity will be reached when there is no more influencing generation resources available for TSOs (i.e. generation which, by its location, may have a positive contribution to the congestion) or if price for congestion relief makes some transactions no more attractive to market participants ; such situation should anyhow be extremely rare since the price for the congestion relief is cheaper given the larger portfolio of generators available to the concerned TSOs. The method is fair to all market participants, as the rule is almost the same for internal and cross-border bottleneck management. The following figure shows the difference between trade extension with internal redispatching and CCR.
Extension of trade possibilities with the CCR method

Redispatching costs LRP NTC

(limit of redispatching possibility)

Redispatching

CCR Trade across bottleneck

it is important to note that TSOs do not buy from a market participant outside their control area (if they need to, they should do it through the action of the neighbouring TSOs)

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Methods based on CCR extend the limit for trade exchanges and ensure the maximum liquidity to the market as long as adequate economic signals are provided to the market participants. Nevertheless, the extension of trade possibilities is limited by the availability to TSOs of adequate generation resources: CCR cannot turn the congested areas into a copper plate CCR may be compared to market splitting insofar as both solutions try to overcome physical boundaries to trade. They both take advantage of downstream generation, and reach the willingness to pay of market participants. The principles of these methods are similar but market splitting requires that the European network is covered by bid areas, while CCR is based on a co-ordination of neighbouring TSOs, which is compatible with any organisation chosen by the Member States. The implementation of the CCR could re-use some principles used within Sweden, Finland and partly in Norway under the name of counter-trading . There are two different ways to proceed. If the constrained line connects two areas well differentiated, it is easy to relieve the constraint through co-ordinated redispatching as explained above, according to the merit order of prices bid by generators. If the network is meshed, more sophisticated information sharing will be required, and in some cases may require information system and procedures to be developed. As with the single-TSO redispatch, preparing the above cost curve places significant computational and co-ordination difficulties on the TSOs, and requires that they have detailed knowledge of additional generation possibilities in different units, including the relevant expected prices at which such additional generation is available.

III. ELEMENTARY PRIORITY RULES

Priority rules are the basis of the curtailment based on NTC publication method. They may also be necessary for all the others methods when curtailment is required under some emergency conditions. They can also serve as a basis for marginal congestion cost allocation in the case or redispatching or cross-border co-ordinated redispatching. The following paragraph describes the most common rules, and identifies their advantages and disadvantages. A. First come, first served method The first reservation made for a given period of time has priority over the following reservations. Once the interconnection capacity is reached, the transactions are not accepted by the TSO anymore. Each reservation has to be confirmed at least on day D-1. Any change of schedule has to be notified to the TSO and penalties should be paid for last-minute changes. The method encourages participants to make longer forecasts. Thus, it allows better and sooner security assessment for TSOs who know accurately the volume of exchanges in advance. One drawback is that in some cases, the method may not leave enough room for short-term trading, which is a requirement to ensure the success of a market dynamics. Long term reservations may block transmission capacities for long periods, during which little short term market activity would take place. Several solutions are available to avoid this : penalties could be charged to the users who do not use the requested capacity ; as applied in some countries, some capacity could be set aside for short-time trading ; also, the capacity can be released under a use-it or lose-it principle. This method is well suited for bilateral trade. On the other hand, it fails to provide an efficient priority mechanism for transactions to a daily or real time Power Exchange, as, in such a case, all the transmission service requests are submitted almost at the same time, just before market closing time.

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B. Ranking according to power market bids This method can be used only for trade on an organised power market like those existing in Spain, the Netherlands, Scandinavia In order to give priority to the most economically efficient market participants, the rule is that priority ranking is established according to the bid prices as follows: For sales to the market, the highest priority is for the lower bid price, For purchases from the market, the highest priority is for the highest price.

This method gives strong economic incentives to efficient market players. In the absence of regulatory mechanism, it may lead to gaming (e.g. extremely low bid prices for generation to have priority, if paid at the market clearing price without special regulation). This method may also be seen as a kind of implicit auction mechanism. C. Pro rata rationing In this case no real priority is defined. All transactions are carried out but the TSO curtails them in case of congestion according to the ratio : existing capacity / requested capacity. The method is transparent to the users, but brings the participants to an economically inefficient use of the system : everyone being curtailed relatively to the amount submitted to the TSOs, no incentive is given to reduce congestion either to the participants, or to the TSOs. In the absence of regulatory mechanism, it may also lead to artificially over-evaluated amounts of transactions (leading to gaming by offering inconsistent volume of transaction). Bilateral transactions are partly served, which may lead to the need for increased hedging.

D. Physical power flow relative contribution The TSO computes the contribution of each transaction to the congestion, to define its priority. The relative contribution to a transaction is the ratio between the flow induced by the transaction on the congested line and the volume of the transaction. This is sometime known as the participation factor. One method to compute the contribution of a transaction to a congestion is to examine the physical flows caused by the transaction, independently of the others. If the sum of the physical flows exceeds the capacity on a line, the transactions responsible for the flows are given a priority rank according to their relative contribution to the total flow. The transactions are curtailed according to this rank till the congestion disappears. In cases of networks with unilateral flows, this method would not be effective because all transactions would have almost the same contribution to the congestion. This method is transparent, because the physical flows are computed for each transaction independently : the reasons for a curtailment are clear to any regulator, but the real understanding (by market participants) of a decision requires excellent mastering of power engineering concepts. It remains simple to implement as long as the number of transactions is reasonable. Long term efficiency is not ensured : transactions responsible for congestion are curtailed according to their level of responsibility, so small generators far away from the interconnection are favoured. This does not correspond to an optimal use of the system.

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IV.CONCLUSION
The aim of market opening is to increase the overall efficiency in the electricity sector. In this sector, congestion in the network could set limits to the degree of competition whenever transmission capacity is lacking. Congestion management is an instrument to manage scarcity either through limitations or by creation of additional room for trade, knowing that the last one has a price. Additional room does not mean that congestion management is able to emulate a copper plate. It is clearly vital that TSOs should develop effective and economically efficient congestion management procedures. Congestion is a physical reality. Different patterns of generation and demand will give rise to different patterns of congestion and any congestion management procedure must recognise the impacts of generators and demands at different locations and at different times. It is absolutely essential that the procedures adopted provide the appropriate economic signals to generation, demand and TSOs, both in terms of short-term operational actions and longer-term investment decisions. For these last ones, additional mechanism are likely to be necessary, either through conventional transmission pricing (harmonisation of the G term) or through regulator action. Existing transmission bottlenecks in Europe are different in nature according to the congestion probability, the market organisation of the concerned areas etc. The sophistication level of congestion management methods must correspond to the risk level and the wishes of market players. For example, it would be counter-productive to implement transmission capacity auctioning on an interface where actual congestion happens only a dozen times a year. As new transmission bottlenecks are likely to appear (and existing ones may disappear) due to changes in market organisation, congestion management mechanisms cannot be decided once for all. It is normal that they change according to market development and market players preferences. The advantages and disadvantages that have been discussed for the different possible basic methods show that some mechanisms are not well suited to certain forms of trade. For example: curtailment according to NTC with a first come, first served priority rule is not suited to process bids on a daily market; when transactions cross multiple bottlenecks, or when loop flows are involved, the methods such as auctioning or large scale CCR imply some complex co-ordination mechanisms between all concerned TSOs or control areas. The feasibility of these mechanisms still has to be proven in the European context; cross-border co-ordinated redispatching has proven to be an efficient mechanism to increase trade possibilities, but, up to now, only for relatively small congestion problems. The best solution will almost always be a combination of several of the basic methods described in this document. For example, in many cases, the overall congestion management process can be split into three major steps: (a) Transmission capacity allocation (typically during the morning of day D-1 at the latest): during this step, TSOs calculate the best estimate for the available capacities between control areas and use an allocation mechanism when transmission requests by market participants exceed these capacities;

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(b) Forecasted load-flow management (typically in the afternoon of day D-1): at this time of the day, sources and sinks are known by TSOs with a rather good precision; updated loadflow studies can be carried out to forecast congestion problems that may remain due to the inaccuracies in the computation of transmission capacities used in the previous step; in case of congestion, further decisions must be taken; (c) Real-time security management: even after the two previous steps, real-time congestion problems may occur, due to differences between the forecasted and actual situations (outages, changes in generation pattern corresponding to opportunities on intra-day markets or to compensation for load / generation imbalances ). In such cases, the key point is the speed of implementation of the congestion management mechanism, in order to relieve constraints before they jeopardise power system security. These three different steps may be managed by using different mechanisms [e.g. auctioning, or ranking according to market bids, or market splitting for step (a), cross-border co-ordinated redispatching for step (b), elementary priority rules for step (c)]. Even for a single step, different basic methods may also be combined. For example the overall transmission capacity may be separately allocated to different types of trade, with different rules (e.g. in Spain, auctioning is used for bilateral contracts, and ranking according to power market bids is used for operations on the electricity market). Today, it is neither necessary nor feasible to have a single solution for Europe, due to the large differences in geographical and electrical situations, as well as due to different market organisations. But TSOs must do their best to keep different congestion management procedures compatible , especia lly on a regional basis, when a single bottleneck has an impact on several control areas. It is of special importance that TSOs agree on a common rule for managing loop flows, in order to avoid that transmission service for a transaction is accepted by some TSOs, while loop flows generated by this transaction have a direct impact on the congestion on a third TSOs grid. ETSO has recently published a statement that sets up common principles in this field. To define the best combination of congestion management mechanisms for European bottlenecks, TSOs should start a consultation process with the main market players and Power Exchanges. They should also evaluate the actual need for firmness of transmission services. This task might start on a regional basis, then be achieved under the leadership of ETSO structures.

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References
Liberalisation of the energy sector in the Nordic countries - Nils Flatab (EFI-Norwegian Electric Power Research Institute, Norway), Peter sell (Swedish Power Association, Sweden), Knut Fossdal (NordPool ASA, Norway), Mikael Surakka (ImatranVoima OY, Finland) Study on Cross-Border Electricity Transmission Tariffs - Dr Hans-Jrgen Haubrich, Dr Wolfgang Fritz, Hendrik Vennegeerts Annual report on Market Issues and Performance - prepared by the Market Surveillance Unit, California Independent System Operator International exchanges of electricity. Rules proposed by the European Transmission Systems Operators. April 23, 1999. ETSO paper Data Exchange between TSOs for handling cross-border exchanges, November 17, 1999. Transmission Congestion Management in an Electricity Market. R.S. Fang and A.K. David. IEEE Transaction on Power System. Vol. 14, N3, August 1999

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APPENDIX 1 - Compliance of each method with important required criteria.

The following table presents an evaluation of the five previously described basic methods, in terms of the criteria listed in the paragraph I-B. This information aims at roughly comparing each individual method with regard to any one of those criteria, knowing that as stated before, a mix of different methods might bring more possibilities to comply with several of the criteria.

Curtailment based on published NTCs Fair and non discriminatory Economically efficient Transparent and non ambiguous Feasible Incentives to TSOs for enlarging NTC Depends on allocation rule No

Auctioning

Market splitting

Redispatching

Cross-border co-ordinated redispatching Yes Yes

Yes Yes

Yes Yes

Yes Yes

Yes

Yes Needs strong TSO coordination Potentially

Yes

Yes Existing practice in many countries Potentially

Yes Needs strong TSO coordination Potentially

Yes

Difficult (requires a spot market)

None

Potentially

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APPENDIX 2 - Information exchange requirements for each method.

Information exchanges among TSOs and between TSOs and market players is certainly one of the crucial issues as far as making the implementation of any of the reviewed methods feasible. In this respect the requirements in terms of information exchange is given as a statement in the following table, for each one of the reviewed methods.

Information exchange requirements between TSOs and market users Curtailment based on published NTCs Auctioning Provided by market actors : location, net injections, time and duration Provided by TSOs : NTCs Provided by market actors : location, net injections, time and duration + bids for capacity Provided by TSOs : NTCs + auction results, clearing and imbalance prices Provided by market actors : bids for each market areas Market splitting Provided by TSOs and all market operators : general schedules and prices Provided by market actors : location, net injections, time and duration + bids Redispatching Provided by TSOs to market actors: general schedules (after redispatch) and ex-ante congestion prices Provided by market actors : location, net injections, time and duration + bids Provided by TSOs to TSOs and market actors : general schedules (after redispatch) and ex-ante congestion prices

Cross-border co-ordinated redispatching

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APPENDIX 3 Basic simplified examples to illustrate congestion management methods

The following examples provide very simple illustration of the mechanism of all considered methods. We assume the very simple situation of three control areas (or countries). In addition, Capacity between B and A and between B and C is limited to 40 MW Capacity between A and C is unlimited All generators have a maximal output of 200 MW All demands are 100 MW G1 fuel cost = 40 /MW G2 fuel cost = 10 /MW G3 fuel cost = 20 /MW G4 fuel cost = 30 /MW G5 fuel cost = 50 /MW

A
G2

B
~
G1 D1

~
NTC = 40 MW

G3

D2

~
D3 NTC = 40 MW No NTC limitation G4

~
G5 D4 D5

C
Curtailment based on published NTCs It is assumed that the market knows market limits (NTCs published by TSOs). This situation could be supported by any number of contracts, but G2, G3 and G4 between them can only contract up to 280 MW (2 x 100 MW + 2 x 40 MW NTC). The access to B-A and B-C interconnectors is allocated according to chosen priority rules. Auctioning method An efficient market is assumed (the market has enough information as to adjust generation with respect of NTCs) with :
G1 200 MW G2 200 MW G3 80 MW G4 0 MW G5 20 MW

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This situation could be supported by any number of contracts. Assuming that G2 has contracted with D2 and D3, G3 and G4 could be competing in the auction for capacity between B and A, and between B and C. G3 could obtain 80 MW of capacity in this auction. Market splitting An efficient market is assumed (the market has enough information as to adjust generation dispatch with respect of NTCs) with :
G1 200 MW G2 200 MW G3 80 MW G4 0 MW G5 20 MW

The market splits into 2 price zones B, and A+C (zone with capacity shortages) with location marginal prices. The financial accounting of marginal prices is as follows :
Payments to generators Money collected from demand G1 : 200 MW at 50 /MW 10000 D1 : 100 MW at 50 /MW 5000 G2 : 200 MW at 20 /MW 4000 D2 : 100 MW at 20 /MW 2000 G3 : 80 MW at 20 /MW 1600 D3 : 100 MW at 20 /MW 2000 G4 : 0 MW at 20 /MW 0 D4 : 100 MW at 50 /MW 5000 G5 : 20 MW at 50 /MW 1000 D5 : 100 MW at 50 /MW 5000 Total out : 16 600 Total in : 19 000 Total cost surplus : 2400 (80 MW flowing from 50 /MW to 20 /MW)

Location marginal prices B market prices 20 /MW A market prices 50 /MW C market prices 50 /MW

Cross-border co-ordinated redispatching (CCR) Because it can be transposed to one internal area or country A, B or C, internal redispatching is not specifically treated. An efficient market is not assumed : market actors do not have any constraint information.
Unconstrained merit order G1 0 MW G2 200 MW G3 200 MW G4 100 MW Congestion G5 0 MW All contracts clear at 30 /MW Schedule after redispatch G1 200 MW G2 200 MW G3 80 MW G4 0 MW G5 20 MW Congestion costs G1 by 200 MW at 40 /MW -8000 G2 : No change G3 by 120 MW at 20 /MW +2400 G4 by 100 MW at 30 /MW +3000 G5 by 20 MW at 50 /MW -1000 TSO charges : -3600

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APPENDIX 4 Definition of transfer capacities.

1. General aspects
Net Transfer Capacity (NTC) represents the best estimate limit for physical electricity transfer between two areas. It is also the most useful information regarding transfer capacity to be published to the Market Players. Available Transfer Capacity (ATC) is the transfer capacity remaining between two interconnected areas for further commercial activity over and above already committed uses of the transmission networks.

NTC and ATC can be calculated between two countries, two regions, two power pools etc. They may be considered in a different manner depending of the structure of the transmission system concerned. For highly meshed interconnected transmission networks, each commercial activity is strongly interdependent with the resulting power flow conditions over the whole system. NTC and ATC are therefore extremely difficult to assess in advance without accurate information exchanges between involved TSO's and trading parties. They should not be considered as binding values unless explicitly stated otherwise. The aim of displaying NTC and ATC is however to give to the market participants the widest information possible on possible further commercial activities. For a simpler transmission networks structure - e. g. only two interconnected areas NTC and ATC are easier to assess and can also be directly used as indicators for congestion management.

2. Definitions
Both transfer capacities are defined by the following equations :

NTC = TTC TRM ATC = NTC NTF where : TTC (Total Transfer Capacity) is the total amount of power that can be exchanged continuously between two areas while ensuring the safe operation of both interconnected electricity systems. TTC is set by physical and electrical realities that may impede to operate the system according to security rules : thermal limits, voltage limits and stability limits. It takes account of N-1 robustness or other applied security rules which are defined by each countrys grid code. TTC is always considered for a best estimate of fixed generation and load pattern. Possible further re-dispatching of the generation pattern must not be considered as to enlarge TTC value. TTC is calculated from extensive systems modelling which are to be available over large areas. This calculation requires an extended data and information exchange between the different TSOs. Moreover, since the European network is widely interconnected, TTCs at each cross-border are dependent of each transfers between adjacent countries. Thus, when investigating TTC to/from a given direction, all known production plans must be

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considered and included, as to make allowance of all parallel path flows throughout the European cross borders. TRM (Transmission Reliability Margin) is a transmission transfer capacity margin. It is necessary for the following two main purposes. It allows taking into account the necessary security margins for regulations between TSOs regarding ancillary services (load-frequency control for instance). It also allows taking account of the uncertainties on system conditions and the uncertainties involved in the selection of hypotheses and the precision of the data and calculation models. With regard to this, the amount of TRM is time dependent with the transfer capacity investigation time frame since the accuracy on all required component decreases as time projections become longer. NTF (Notified Transmission Flow) is the physical flow resulting from the sum of the firm transfer contracts planned at the studied time frame and actually confirmed at the day ahead time frame. All firm reserved and confirmed transmission commitments as well as common emergency reserve should be included in NTF.

NTC and ATC values are generally assessed for a specific time frame and for a specific set of system conditions. It is clear that the accuracy of those conditions are better assessed as time horizon stretches towards real time operating horizon.

The definitions regarding NTC and ATC are summarised in the following figure :

P (MW)

TTC TRM

NTC

ATC

NTF

T (hours)

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