f97.beERIK SCHMIDT’S WORKSHOP
← All terms

Glossary · Energy industry & energy transition

Congestion income

congestion revenues Interconnector bidding zone market coupling electricity market Cross-border interconnector capacity grid congestion

Congestion income (German: Engpasserlöse) is income generated when scarce transmission capacity between two price zones is allocated. In the EU, these zones are legally referred to as bidding zones. Congestion income arises when the prices of two zones diverge because the capacity between them is not sufficient to equalise them. For a simple border between two zones, the following applies: congestion income equals the price difference multiplied by the quantity of electricity allocated across the border. It is therefore not a technical grid variable but a monetary amount in euros. It results from a technical scarcity and from price formation in the market.

A worked example: in zone A the day-ahead price is 50 euros per megawatt hour, in zone B it is 80 euros per megawatt hour. Each megawatt hour flowing from A to B then has a scarcity value of 30 euros. If 1,000 megawatt hours are allocated across the border in that hour, congestion income of 30,000 euros arises. One can think of it as a fully utilised bridge between two markets: the price difference shows how much an additional unit of transport would be worth. That unit, however, is not available for technical or operational reasons. If the prices are equal because the capacity is sufficient, congestion income is zero.

How congestion income arises

Today, a large part of congestion income arises in the European day-ahead market coupling. In market coupling, bids, demand and the available cross-zonal capacity are optimised jointly. Capacity is thus not auctioned separately but allocated implicitly together with the energy. In addition, there are explicit auctions for long-term transmission rights, for example for months or years. There, market participants pay a price directly for the right to transmission capacity. These auction revenues also count as revenues from cross-border congestion management. Under EU law, congestion management procedures may generate revenues for a given time frame only if there is actually congestion in that time frame. An exception applies to new interconnectors that have been granted an exemption.

In large parts of continental Europe, capacity is now calculated using flow-based market coupling. In this approach, trade is no longer limited by individual limit values but by the physical limits of many critical network elements. This makes attribution more complicated. The price difference at a border may be caused by a bottleneck at a completely different location in the meshed grid. Individual borders may even show flows from the more expensive to the cheaper zone that are nevertheless optimal for the system as a whole. The formula of price difference multiplied by quantity is therefore only a simplification for a single border. How the revenues are distributed among the transmission system operators involved is governed by separate European methodologies.

Distinction from trading profits, network charges and redispatch

Congestion income is not arbitrage profit of individual traders. In implicit market coupling, nobody buys transmission capacity in order to capture a scarcity rent privately. The price difference accrues to the network operators involved. Its use is bound by regulation.

Congestion income should not be equated with network charges either. Network users pay network charges on an ongoing basis to cover the costs of infrastructure, network operation and certain system services. Congestion income, by contrast, depends on the situation at hand: it fluctuates with the price differences at zone borders. It can reduce network charges only on a subordinate basis and is not a reliable basis for financing the grid.

Congestion income must likewise be kept separate from the costs of redispatch. Redispatch means that network operators change the operation of power plants, storage units or controllable loads in order to manage congestion, above all within a zone. Redispatch thus shows the costs of grid operation. Congestion income shows the economic value of scarce trading capacity between zones.

Why the zone configuration is decisive

Within a bidding zone, a uniform wholesale price applies even if physical congestion exists there. Only between zones may prices diverge. One example is the bottleneck between generation centres in the north and consumption centres in the south of Germany. It does not lead to separate prices as long as Germany forms a common bidding zone with Luxembourg. Its costs arise mainly in redispatch. Since Redispatch 2.0 in 2021, this also includes the former curtailment of renewable installations, known as feed-in management (Einspeisemanagement). These costs ultimately flow into network charges. Under EU law, bidding zone borders are supposed to reflect long-term, structural congestion. The configuration of the zones therefore also influences where scarcity becomes visible as a price difference and thus as congestion income.

How high congestion income turns out to be therefore depends on many factors: the condition of lines and interconnectors, the rules of capacity calculation, safety margins and maintenance, the generation mix and demand, fuel and CO₂ prices, and unplanned loop flows in the alternating current grid.

Use and regulation in the EU

The key provision in the EU is Article 19 of Regulation (EU) 2019/943 on the internal market for electricity. The regulation applies directly. Regulation (EU) 2024/1747 recast paragraph 2 with effect from 16 July 2024. Under it, congestion income is to be used with priority for the following purposes:

  • Guaranteeing the actual availability of the allocated capacity, including firmness compensation: network operators compensate market participants when capacity that has already been allocated is curtailed.

  • Maintaining or increasing cross-zonal capacity: either through better use of existing interconnectors, where appropriate with coordinated remedial actions, or by covering investment costs that reduce congestion on interconnectors.

  • Since the 2024 electricity market reform: compensation payments to offshore generators in offshore bidding zones when their grid access is restricted. These payments are limited annually to the congestion income of the interconnectors concerned.

Only once these objectives have been adequately met may the regulatory authorities take congestion income into account, when setting network charges or their calculation methodology, as revenue that reduces charges. Remaining amounts go to a separate internal account until they can be used for the priority purposes. Transmission system operators must determine in advance how they intend to use the revenues. They report to the regulatory authorities on the actual use. For the priority purposes, an ACER methodology (Decision No 38/2020) additionally applies. The regulatory authorities publish annual reports on the amount and use of the revenues.

As to order of magnitude: according to the Bundesnetzagentur, the German transmission system operators together received around 1,110.79 million euros in congestion income in calendar year 2024. Such figures fluctuate strongly from year to year, for example with fuel prices. In the 2022 energy crisis, price differences were particularly high.

The earmarking is intended to prevent perverse incentives: if network operators were allowed to keep high scarcity rents freely, scarcity would pay off for them. However, congestion income does not automatically solve the financing of grid expansion either. A new interconnector reduces price differences and thus often also the revenues it can generate itself. Investments therefore require grid planning, cost-benefit analyses and regulatory approval.

Typical misinterpretations

Congestion income is not proof that network operators profit from artificial scarcity. The price difference arises because cheaper electricity cannot flow without limit into a more expensive zone. The revenues are regulated and earmarked. This does not mean that every rule works optimally. However, well-founded criticism targets capacity calculation, zone configuration, grid expansion, cost allocation or governance, not the mere existence of the revenues.

High congestion income also does not automatically mean that lines are missing. Frequent price differences may point to structurally scarce cross-border interconnection capacity. However, they may also result from power plant outages, weather conditions, maintenance, safety margins or the calculation methodology.

Nor does congestion income disappear with more renewable energy. In windy hours, the price in one zone can fall sharply while the neighbouring zone remains more expensive. The revenues may then even rise. More generation does not eliminate transport scarcity.

Significance for the power system and market design

Congestion income links the technical reality of the grid with price formation in the market. It is a useful but limited indicator: it makes scarcity at zone borders visible. However, it says nothing about whether zones are configured correctly, how intra-zonal congestion is priced, or whether expansion is worthwhile from an economic perspective. With growing electrification and more weather-dependent generation, price differences become more strongly shaped by time and location. Congestion income then shows where transport capacity, flexibility or storage may have economic value. In it, market, grid operation and regulation interlock: the market values scarce transport, grid operation limits it for safety reasons, and regulation determines what the revenue may be used for.

Sources

Related glossary entries

Edited by eCMS on 11.11.2026 19:47

© 2026 Erik Schmidt. All rights reserved. Quotations with a link to the source are welcome.