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Glossary · Energy industry & energy transition

Congestion rent, congestion income

congestion rent Congestion income electricity market Interconnector bidding zone congestion management Cross-zonal capacity EU Electricity Market

Congestion rent, usually called congestion income in the European electricity market, refers to the revenue from the allocation of scarce transmission capacity between two or more bidding zones. In the German-language EU legal texts it is called congestion income (Engpasserlöse). The CACM Regulation defines it succinctly as revenue arising from capacity allocation. Economically, the point is this: if trade between two market areas is limited by the grid, a price difference persists. Electricity is bought in the cheap zone at the low price and sold in the expensive zone at the high price. The difference does not go to the generators but to the entities that provide the transmission capacity. These are generally transmission system operators or certified interconnector operators.

Congestion rent is not a payment for generated electricity and not a premium for a special electricity quality. It requires two conditions at the same time: a price difference between market areas and a binding transmission limit. Where there is no congestion, the wholesale prices of the connected areas largely converge, and little or no congestion income arises. Regulation (EU) 2019/943 describes congestion as a situation in which not all requests for trade between network areas can be met, because the network elements concerned could not cope with the resulting physical flows.

Origin in market coupling

In the European day-ahead market and in intraday trading, cross-border capacity is now predominantly allocated implicitly. Market participants bid only in their bidding zone, and the coupling algorithm determines prices and cross-border exchanges simultaneously. Electricity and transmission capacity are thus acquired together. Traders do not pay a separate capacity price. Congestion rent instead results from the price difference that the algorithm cannot close because of the limited cross-zonal capacity. For long-term transmission rights there are in addition explicit auctions. There, the revenue consists of the auction proceeds, minus the remuneration for rights that are returned.

A simple example with one border and fixed trading capacity (NTC approach): 1,000 MW are available between zone A and zone B. In one hour electricity costs €40/MWh in A and €90/MWh in B, and the 1,000 MW are fully used from A to B. The congestion rent is then €50/MWh × 1,000 MW × 1 h = €50,000. For a market period of a quarter of an hour, with the same values, it would be a quarter of that. The formula is thus: price difference in €/MWh times allocated power in MW times duration in hours. In flow-based capacity calculation regions the idea is generalised. There, trade is not limited by individual limit values but by critical network elements, i.e. lines or equipment within a zone or between zones. The sum of all congestion income then corresponds in essence to the difference between what the importing zones pay at their prices and what the exporting zones receive at their prices. Price differences can therefore also arise between zones that are not directly connected by a line.

How the revenue is shared among the network operators is specifically regulated. The CACM Regulation requires a distribution methodology for this, the Congestion Income Distribution Methodology. ACER most recently amended it with Decision No 16/2023. According to it, the revenue is first determined for each capacity calculation region and then distributed among the bidding zone borders and the network operators involved. ACER notes there that congestion income shows how highly market participants value the possibility of cross-zonal exchange.

Distinction from electricity price, redispatch costs and scarcity rents of generation

The electricity price of a bidding zone is the market-clearing price for electrical energy in a market period. It does not say who receives the revenue from cross-border price differences. Congestion rent does not arise within a zone but at the interface between market areas. This is because a bidding zone is, legally, the largest area within which trading can take place without capacity allocation.

Congestion rent must be clearly distinguished from redispatch costs. Redispatch means that network operators subsequently change generation or load patterns in order to relieve physical congestion. This costs the network operators money. Congestion income, by contrast, is revenue from the market-based allocation of scarce capacity between zones. Both quantities can point to the same network congestion, but they arise at different places and follow different rules. Economically, congestion rent is a scarcity rent of the transmission network. An Advocate General at the European Court of Justice also described it this way. It differs, however, from the scarcity rents of a power plant that achieves prices far above its variable costs in hours of scarce generation. In one rent the grid is scarce, in the other generation.

Regulated use instead of free profit

In the EU, congestion income is not freely usable profit. The basis is Article 19 of Regulation (EU) 2019/943, which, as a regulation, applies directly in all Member States. New interconnectors with an exemption, for example under Article 63, are excluded. Under Article 19(2), the revenue is to be used with priority for two objectives:

  • to guarantee the actual availability of the allocated capacity, including compensation payments where committed capacity cannot be delivered, and

  • to maintain or increase cross-zonal capacities. This can be done through better use of existing interconnectors with coordinated remedial measures or through network investments that reduce congestion on interconnectors.

Where these objectives have been adequately met, regulatory authorities may, under Article 19(3), take the revenue into account as income when they set the network charges or approve the methodology for doing so. Whatever remains is placed in a separate internal account until it can be spent on the priority purposes. Network operators must also determine in advance how they intend to use the revenue and report to the regulatory authorities on the actual use (paragraph 5). The details are governed by a Europe-wide methodology under paragraph 4, which ACER approved with Decision No 38/2020. With the electricity market reform by Regulation (EU) 2024/1747, a further purpose was added: operators of offshore renewable energy installations in offshore bidding zones can receive compensation where transmission system operators reduce capacity. This compensation is paid from congestion income and must not exceed, per year, the total amount of congestion income on the interconnectors between the zones concerned.

The amounts can be considerable. According to the report of the Bundesnetzagentur, the German transmission system operators received around €1,110.79 million in congestion income in calendar year 2024. The Bundesnetzagentur checks whether the use complies with the ACER methodology. In Germany, the Energy Industry Act (Energiewirtschaftsgesetz) additionally governs the cases in which independent operators of cross-border interconnectors must hand over congestion income.

Capacity calculation helps determine the amount

How high the congestion rent turns out to be depends not only on whether an interconnector exists. What matters is how much capacity is actually offered to the market. Cross-zonal capacity is, legally, the ability of the interconnected system as a whole to transfer energy between bidding zones, and not the thermal limit of an individual line. The capacity calculation takes into account load flow forecasts, contingencies, safety margins and internal congestion. A line can therefore exist and nevertheless be released for trading only in part. Conversely, a better coordinated calculation can create additional trading capacity without new lines being built. This tends to reduce price differences and can thereby also reduce the congestion rent.

Significance for grid expansion and bidding zones

Persistently high congestion rents at a border show that additional transmission there would have a high market value. They are therefore an important indicator in the assessment of interconnectors and grid expansion. An investment is not automatically sensible for that reason, however. Investment costs, environmental impacts, security of supply and alternatives such as storage, load shifting or other flexibility must be weighed against it. A new line reduces the price differences and thus precisely the revenue that indicates its benefit.

The concept is also important for the configuration of bidding zones. Under Article 14 of Regulation (EU) 2019/943, bidding zone borders are to be based on long-term, structural congestion. Congestion within a large zone produces no price differences and no congestion rent. It shows up instead as a need for redispatch, in Germany since October 2021 including the curtailment of renewable installations formerly referred to as feed-in management (Einspeisemanagement). At zone borders, by contrast, scarcity becomes directly visible as a price difference. Whether zones are split or retained is therefore not a purely market question. It also affects grid operation, regional prices, investment signals and political responsibilities.

What the concept shows and what it does not

Congestion rents measure spatial scarcity in electricity trading in euros. They show that a common internal electricity market does not mean that the same price applies everywhere at all times. They do not, however, explain the cause of congestion. Possible causes include missing lines, unfavourable zone borders, outages, safety margins, large amounts of wind or solar power, or changed consumption patterns. With the energy transition, generation and consumption become more uneven in space and time, and the grids come under greater strain. Congestion rents reflect part of this strain. They do not replace an analysis of the physical flows or an assessment of system costs.

Sources

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Edited by eCMS on 11.11.2026 19:47

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