Capacity allocation in a restructured electricity market: technical and economic evaluation of congestion management methods on interconnectors

This paper describes and analyses five market based methods to manage congestion on the European interconnectors: explicit auctioning, implicit auctioning, market splitting, redispatching and counter trading. After a description of the relationship of congestion management to transmission tariffs and the difference between market-based methods and other methods to manage congestion, the five methods are introduced. The following analysis considers both short and long term economic effects, as well as some more technical and practical aspects. The main conclusion is that there are two types of congestion management methods, namely congestion pricing methods and remedial methods, which have opposite long-term effects. The first group provides efficient incentives to market parties but not to network managers, whereas the second group does the opposite