Congestion management in the Nordic power market - counter purchases and zonal pricing

In this paper, we investigate methods for managing congestion on the grid in the Nordic power market. Specifically, we have considered the differences between using counter purchases as opposed to pricing out the transmission constraints of the grid. We show that the specific method used for congestion management greatly affects prices and therefore the surplus of the various agents, including the system operator. This means that the market agents may have preferences for one method, and take actions in order to influence which method is to be used. Based on this, we have studied the incentives and possibilities of “moving†capacity constraints, and the effect this has on system performance. We have also looked into the differences between various pricing schemes, i.e. optimal nodal prices versus optimal zonal prices. The effects that are demonstrated by the examples in this paper are especially relevant when designing coordination mechanisms and regulation for integrated markets, like the (emerging) European electricity market.