Flow-based market coupling and bidding zone delimitation: Key ingredients for an efficient capacity allocation in a zonal system

The European energy market is based on the zonal system. This implies that only exchanges between the bidding zones are subject to an allocation mechanism. The key question in bidding zone delimitation is which exchanges need to be subject to an allocation mechanism, and which exchanges can be left outside the allocation mechanism. In the recent years, tremendous progress has been made by CWE and CEE TSOs to develop the flow-based (FB) capacity calculation methodology. The resulting FB capacity constraints represent the TSO´s constraints in the allocation mechanism. With a flow-based approach, a true competition between all relevant exchanges for the scarce capacity can be established. As such, bidding zone delimitation and FB capacity calculation and allocation are two key ingredients that are at hand to establish an efficient allocation mechanism for the European integrated electricity market.