If the contractual flow of power between bidding areas at System Price exceeds the trading capacity; area prices are calculated. In the area price calculation the price mechanism itself is actually relieving grid congestions.

By increasing the price in the deficit area the participants in this area will sell more and purchase less while in the surplus area a lower price will lead to more purchase and less sale. The area price calculation is iterated so that the capacity between the high price area and the low price area is utilized to the maximum. (See also Area Price Calculation). In this situation the flow of power will always go from the lower price (surplus) area  to the higher price (deficit) area.

Each price area may contain one or more bidding area depending on where grid congestions are from hour to hour, thus the constellation of price areas may change every hour.

Area Price Calculation

Whenever there are grid congestions, the Nordic Exchange area is divided into two or more price areas. The participants bids in the bidding areas on each side of the congestion is aggregated into supply and demand curves in the same fashion as in the system price calculation. A volume corresponding to the trading capacity on the constrained connection is added as a price independent purchase in the surplus area and a price independent sale in the deficit area. In the deficit area the sale will give a parallell shift of the supply curve while in the surplus area the additional purchase will give a paralell shift of the demand curve.       

           Surplus area/low price      Deficit area/high price

The area price in the surplus area and the deficit area is found in the new equilibrium points given after the addition of the flow between the areas as purchase and sale respectively. The price is relatively lower in the surplus area and relatively higher in the deficit area.

If the contractual flow of power between the bidding areas are within the limits set by the transmission system operators then the System Price is the only price for that specific hour throughout the entire market area. In this situation the System price is identical to the area prices and also the settlement price for all power traded in that hour.