Congestion Management in European Power Networks

The paper identifies five criteria for effective congestion management in Europe: integrated national and international approaches, joint allocation of transmission rights, and integration with day-ahead, intraday, and balancing markets, alongside transparency. It argues that current European systems suffer from inefficiencies in domestic redispatch, international capacity allocation, and dynamic management. While zonal pricing is used in some regions, the authors contend that locational marginal pricing (nodal pricing)—already implemented in six US ISO markets—is the superior candidate for addressing these weaknesses. To mitigate political opposition and financial risks associated with nodal pricing, the document suggests using Financial Transmission Rights (FTRs) to compensate affected stakeholders and hedge price volatility.

• The authors identify five essential criteria for an effective European congestion management scheme: an integrated approach to national and international management, joint allocation of international transmission rights, integration with day-ahead energy markets, integration with intraday and balancing markets, and transparency to inform investment choices.
• Current European congestion management is hindered by three primary weaknesses: domestic inefficiencies leading to gaming and inefficient dispatch, international inefficiencies causing underutilization of the network, and dynamic management inefficiencies that limit flexibility in response to intermittent energy sources.
• Locational marginal pricing (nodal pricing) is presented as the only market design capable of satisfying all five identified criteria for integration, whereas other options like bilateral auctions or zonal pricing only meet a few or none.
• Zonal pricing is deemed unsuitable for the complex, meshed network topology of continental Europe, as it is difficult to define zones that avoid internal congestion, a problem observed in both the Nordic countries and the US.
• Financial Transmission Rights (FTRs) are proposed as a critical tool to mitigate the political and economic risks of nodal pricing, such as the reallocation of economic rents and price volatility for generators and loads.
• The transition to a nodal pricing system in Europe is urged due to the 2020 renewable energy targets, as improved market design can facilitate the connection of intermittent sources and reduce the cost of network expansion.
• The document warns that a 'bottom-up' approach to market design among EU member states risks an inefficient 'design lock-in,' suggesting instead that European institutions provide clear, high-level guidance to avoid the fragmentation seen in the US experience.

APA

Neuhoff, K., Hobbs, B. F., & Newbery, D. (2011). Congestion Management in European Power Networks. Climate Policy Initiative. https://www.climatepolicyinitiative.org/wp-content/uploads/2011/12/Congestion-Management-Paper.pdf

Chicago

Neuhoff, Karsten, Benjamin F. Hobbs, and David Newbery. Congestion Management in European Power Networks. Climate Policy Initiative, 2011. https://www.climatepolicyinitiative.org/wp-content/uploads/2011/12/Congestion-Management-Paper.pdf.

Wikipedia

{{cite report |last1=Neuhoff |first1=Karsten |last2=Hobbs |first2=Benjamin F. |last3=Newbery |first3=David |title=Congestion Management in European Power Networks |publisher=Climate Policy Initiative |date=January 2011 |url=https://www.climatepolicyinitiative.org/wp-content/uploads/2011/12/Congestion-Management-Paper.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{neuhoff2011congestion, author = {Neuhoff, Karsten and Hobbs, Benjamin F. and Newbery, David}, title = {{Congestion Management in European Power Networks}}, institution = {Climate Policy Initiative}, year = {2011}, month = jan, url = {https://www.climatepolicyinitiative.org/wp-content/uploads/2011/12/Congestion-Management-Paper.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }