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Glossary · Energy industry & energy transition

Cross-Zonal Capacity

Cross-zonal capacity Cross-border electricity trading bidding zone Interconnector Capacity calculation electricity market EU Electricity Market

Cross-zonal capacity, in German "zonenübergreifende Kapazität", is the transmission capacity available for electricity trading between bidding zones for a given period. The EU Electricity Market Regulation describes it in abstract terms as the ability of the interconnected system to accommodate energy transfer between bidding zones. In practice, it does not mean all physically existing line capacity. It means the share of grid capacity that transmission system operators (TSOs) release for cross-zonal trading without endangering operational security.

The quantity is expressed as power in megawatts. It applies in each case to one market time unit and one trading direction. In European day-ahead market coupling (SDAC), the market time unit has been one quarter of an hour since the delivery day of 1 October 2025; before that it was one hour. An example: 1,000 megawatts of capacity between two bidding zones does not mean that exactly this power flows over a particular line. It means that the market may schedule an exchange of up to this amount in that direction, as long as the security assumptions of the calculation hold. In the flow-based approach there is no single value per border. There, capacity is expressed as a set of constraints (more on this below).

The term combines grid physics and market design. Electricity does not follow the trade contract but the electrical properties of the meshed grid. When a trader sells electricity from one bidding zone into another, the electricity does not flow in isolation along the border. It is distributed across many lines, depending on impedances, grid topology and the current situation of generation and consumption. Cross-zonal capacity translates these physical limits into a quantity the market can work with.

Distinction from line capacity, interconnector and trading volume

Cross-zonal capacity is often confused with the rated capacity of an interconnector. An interconnector is a specific link between two grids, such as an alternating current line or a direct current connection. Its technical transmission capability is an important starting point. However, it alone does not determine how much capacity can be offered to the market.

In alternating current grids, lines within a bidding zone can also limit exchange across a zonal border. The EU Electricity Market Regulation therefore refers to critical network elements. These are network elements within a bidding zone or between bidding zones that are taken into account in capacity calculation. Trade between two zones can also load lines in a third zone. Such flows, which do not follow the agreed trading path, are often referred to as loop flows.

The volume actually traded is also something different. Capacity is an upper limit for market-based exchange. Whether it is used depends on price differences, bids, demand and generation. High capacity does not automatically lead to a lot of trade if prices in both zones are similar. Scarce capacity, on the other hand, can become price-setting even at moderate volumes if it prevents an economically sensible exchange.

The bidding zone is the legal frame of reference. It is the largest area within which market participants can exchange energy without capacity allocation. Within the zone, the market therefore behaves as if there were no congestion. Only between zones does grid congestion become visible through limited capacities. How much cross-zonal capacity there is therefore depends closely on where the zonal borders run and which congestion remains hidden within a zone.

How capacity is calculated

TSOs calculate capacity in a coordinated manner in so-called capacity calculation regions. The basis is common grid models and the Guideline on Capacity Allocation and Congestion Management (Regulation (EU) 2015/1222, CACM for short). Under it, TSOs must calculate capacity at least for the day-ahead and intraday timeframes. Further guidelines apply to forward trading and balancing energy. The calculation takes into account forecasts of generation, consumption, switching states, planned maintenance and expected exchanges. It determines which additional flows across zonal borders are possible without overloading critical network elements.

Part of the physical capacity remains reserved as a safety margin. The grid must be able to withstand the outage of a single element, such as a line or a transformer (n-1 criterion). In addition, reliability margins cover forecast uncertainties. Cross-zonal capacity is therefore always capacity under security conditions and not the maximum thermal loading capability of a line.

In Europe there are two basic approaches. In the coordinated net transfer capacity approach, each border and direction is assigned a fixed value. This is easy to understand, but it represents the interactions in the meshed grid only roughly. In the flow-based approach, flow-based market coupling, capacity is described via critical network elements. For each of these elements there is an available margin and distribution factors that indicate how strongly a trading position loads the element. The market algorithm then selects the combination of exchanges that respects all elements simultaneously. The method is more complex, but it can allocate grid capacity more efficiently among competing trading directions. In the Core region, which includes Germany, and in the Nordic region, it is currently applied in the day-ahead market.

For market participants, this often looks like a black box. Capacity can fluctuate considerably from day to day even though no line has been built or decommissioned. The reason is the respective grid situation: wind and solar generation, power plant dispatch, consumption, maintenance and forecast uncertainties change how much is usable. Cross-zonal capacity is thus not a fixed property of a border but a value that is recalculated for each operating period.

Significance for prices, congestion and security of supply

In the day-ahead market, a common algorithm optimises the bids of all coupled bidding zones in a single calculation run. Cross-zonal capacity serves as a constraint in this process. If it remains unused at a border, the prices of the zones involved converge. If it is fully used, different prices arise. The price difference shows that cheaper electricity cannot fully reach the more expensive zone.

These price differences give rise to congestion income, which the TSOs collect. Its use is laid down in Article 19 of Regulation (EU) 2019/943. It is primarily used to guarantee the actual availability of the allocated capacity and to maintain or expand cross-zonal capacities. Subject to conditions and with the approval of the regulatory authority, remaining amounts may also be used to reduce network tariffs. Capacity thus helps determine where scarcity becomes visible, which arbitrage is possible and what revenues arise from congestion.

For security of supply, the value needs to be viewed in a differentiated way. High capacity facilitates mutual assistance, for example when power plants fail in one zone or the residual load rises sharply. According to assessments by the agency ACER, more available capacity in summer 2024 could have prevented numerous extreme price spikes in South-East Europe. However, it does not replace firm capacity if several regions are tight at the same time or if the congestion lies precisely in the required direction. It is also important for renewable energy: if capacity is scarce, cheap wind or solar power may be curtailed while more expensive power plants run elsewhere.

The EU 70 percent requirement

Article 16(8) of Regulation (EU) 2019/943 prescribes minimum values. TSOs may not limit capacity in order to resolve congestion within their own bidding zone. In addition, a minimum capacity applies: at borders with a coordinated NTC approach, 70 percent of transmission capacity is required, after deduction of contingencies and while respecting security limits. In the flow-based approach, 70 percent of the capacity of each relevant internal and cross-zonal critical network element must remain available for flows resulting from cross-zonal exchange. Security limits and contingencies also apply here. The requirement therefore does not mean that 70 percent of every line is freely tradable at all times.

The minimum requirement has in principle applied since 2020. However, Member States with structural congestion could adopt action plans under Article 15. In that case, capacity was allowed to rise along a linear trajectory until 70 percent is reached by the end of 2025 at the latest. In addition, temporary exemptions (derogations) are possible. According to ACER monitoring, implementation remained behind the target in several regions through 2025. ACER quantified a forgone welfare gain of around 580 million euros for the Core region alone in 2024. The 2026 report also finds that implementation continues to lag behind and that exemptions limit the available capacity.

Typical misinterpretations

  • Low capacity is not automatically market closure. Perverse incentives do exist: limited export capacity can mask internal congestion, and this is precisely what the 70 percent rule aims to prevent. Often, however, a reduction is due to grid conditions, safety margins or maintenance. Whether it is justified only becomes clear from a look at the calculation rules: which network elements are considered critical, which outages are assumed and which minimum values are prescribed?

  • High import capacity does not mean import dependence. It initially only means that the market can balance price differences through exchange. Whether a zone imports or exports results from supply and demand and can change from one quarter of an hour to the next.

  • More capacity does not lower prices everywhere. It couples markets more closely. In an expensive importing zone this has a price-dampening effect; in a cheap exporting zone it can raise prices. Overall, costs tend to fall, but the distributional effects between regions, consumers and producers remain.

  • Capacity cannot be assessed in isolation from the configuration of bidding zones. Large zones mask internal congestion, which grid operators then have to resolve through redispatch. Because the same lines serve internal and cross-zonal transport, both compete for the same margin.

Classification

Cross-zonal capacity arises within a European regulatory framework involving TSOs, regulatory authorities, power exchanges and market participants. Long-term transmission rights, day-ahead trading, intraday trading and balancing energy each have their own procedures and deadlines. There is a permanent trade-off here. The market is supposed to allow as much exchange as possible so that generation, consumption, storage and flexibility are used efficiently. At the same time, grid operation must prevent the market's schedules from putting the grid into an unsafe state. Regulatory authorities examine whether scarce capacities are technically justified. Strictly speaking, the term therefore denotes the tradable cross-zonal grid capacity under security conditions. It describes neither the mere existence of lines nor the political willingness to trade electricity.

Sources

Related glossary entries

Edited by eCMS on 11.11.2026 18:20

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