Inefficiencies in European congestion management proposals

An efficient congestion management system is a necessary condition to remove obstacles to the cross-border trade of electricity in Europe and hence to move towards an internal electricity market. Locational marginal pricing (LMP) is progressively becoming the benchmark of congestion management in the United States. It is conceptually simple, compatible with basic economic theory and physical realities, and effective in practice. Proposals for congestion management in Europe depart in several ways from this benchmark. We discuss these proposals and illustrate some of their inefficiencies. A special emphasis is placed on the restrictions to trade implied by the implementation of zonal approaches.