TSO Congestion rent

How to calculate the congestion rent
The congestion rent is derived from the Elspot area prices and the Elspot trading flow between the areas.

The congestion rent on one area connection for a specific hour between bidding area A and B with planned flow in direction from area A to area B is found like this:
  (PB - PA) x FA->B

PA = Area price area A
PB = Area price area B
FA->B = Flow going from area A to area B

Example: Congestion rent for one hour on the FI-SE connection.
If the area prices in one specific hour is 38 EUR/MWh in Finland and 40 EUR/MWh in Sweden, and the Elspot flow from Finland to Sweden in this hour is 1300 MW the congestion rent for this hour is as follows:

(40 EUR – 38 EUR) x 1300 MW = 2600 EUR

The table below shows the accumulated congestion rent per Elspot connection per month.

How the congestion rent is created in the market
Price differences between bidding areas occur when the surplus volume at System price in one or more bidding area is greater than the total export capacity from this/these areas. The sales and purchase curves then have to be balanced taking the transmission capacity into account. This will lead to a relatively low price in the surplus area and a relatively high price in the deficit area – utilizing the maximum capacity between the areas.

These price differences generate an ownerless income on the spot market trading flow from the area with a lower price to the area with a higher price. In specific situations* the spot market flow on single connections may also flow from an area with a higher price towards an area with a lower price, thus generating an ownerless cost.

This income (or cost) is referred to as the congestion rent and is aggregated within NPS from the Elspot settlement. Within the Nordic region this income is allocated to the TSOs as owners of the transmission grid.

How the congestion rent is shared between the TSOs and how it is spent
The congestion rent from the internconnectors within the Nordic exchange area is shared among the four TSOs – Energinet.dk, Fingrid, Statnett and Svenska Kraftnät. How the congestion income is shared is regulated in a separate agreement between the TSOs. The current agreement came into force in September 2006 and runs until the end of year 2011.

In the congestion rent sharing agreement there are two sharing options which are both used during the agreement period. They are referred to as Formula 1 and Formula 2.

This system of sharing is based on cost estimation of the Five Prioritized Projects within Nordel to strengthen the Nordic grid. The estimated cost of each project was calculated and shared between the countries involved with that project. Then the share of each country was compared to the total cost of all five projects. Through that, the final per cent value each country will receive of the congestion rent was decided. 

Formula 2: The congestion rent per connection is divided in two equal shares between the two affected TSOs. The affected parties may agree on a different distribution on specific connections bilaterally, but shall then inform the other TSOs about these arrangements. 

In the agreement there is a stepwise changeover from Formula 1 to Formula 2.

Amount received by each TSO on internal Nordic connections:
Numbers in EUR 1000

How each TSO used the congestion income they received, year 2007 (Source: ERGEG, 2008)

Energinet.dk: 100 % to tariff reduction
Fingrid: 100 % to building of new lines
Statnett: 100 % to tariff reduction
Svenska Kraftnät: 100 % to building of new lines 

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*               If flow is forced in a given direction due to ramping restrictions given by TSOs or due to capacity optimisation  across a number of interconnections which can result in transit from a high price area via a lower priced area to another high(er) priced area. (For instance the connections south of Cut 2 in Sweden.) On the NO1-NO2 connection the flow sometimes goes from high price area to low price area due to fixing of flow based on day ahead flow prognosis by Statnett.