To solve the problem of congestion, we have divided Norway into bidding areas. Each bidding area has its own electricity price. If there is enough transmission capacity, the price will be the same in both bidding areas. If capacity is limited, we can have a price difference between two bidding areas.
Price Differences Between Bidding Areas Create Congestion Revenues
The price difference between two bidding areas indicates that one area cannot buy enough power from the other. Production must then be increased in the first area, which will have a higher price.
The buyer of the electricity pays the price in the bidding area where the electricity is used, while the producer is paid the price in the bidding area where the electricity is produced.
The price difference between these areas, multiplied by the volume transported, is called congestion revenues. The owner of the power cable between the two areas receives these revenues. In Norway, Statnett manages these revenues. These revenues are used to build, strengthen, and maintain the power grid, resulting in lower grid tariffs for consumers.
Congestion Revenues from International Cables
The same principle applies to trade between bidding areas in Norway and abroad. Congestion revenues from the transmission of electricity between two countries are shared between the cable owners in each country. When we export or import electricity, Statnett receives half of the congestion revenues from the cable, while the owner of the foreign part receives the other half.
Congestion Provides Investment Signals
As a general rule, electricity flows from areas with low prices to areas with higher prices. This provides signals about where it is profitable to increase production or reduce consumption. Price signals also indicate where it is most advantageous to establish new industries, where there is a need for more grid capacity, or where more power production is needed. This ensures that electricity is used as efficiently as possible and supplied to the areas where it is most needed.