Congestion Management in Coupled Electricity Markets

1. Introduction

Congestion management in coupled electricity markets refers to the legal, technical and economic methods used to manage transmission constraints when two or more electricity markets are connected to each other.

Market coupling allows electricity to move between different geographical or regional markets. For example, one market may have excess low-cost electricity while another has higher demand. Transmission interconnection allows electricity to flow from the lower-cost area to the higher-cost area. However, the interconnector has limited capacity. When that capacity is fully used, congestion occurs.

Therefore, congestion management is necessary to balance efficient electricity trading with the physical security of the transmission network.

2. Meaning of Coupled Electricity Markets

A coupled electricity market is a system in which separate electricity markets are coordinated through common or compatible trading arrangements.

Coupling can involve:

different provinces or regions;

neighbouring countries;

different transmission networks;

wholesale electricity markets; and

interconnected regional power pools.

The economic purpose is to allow electricity to flow towards areas where it has greater value while using available transmission capacity efficiently.

However, electricity markets cannot operate only according to economic demand. Physical laws require electricity flows to remain within technical network limits.

3. How Congestion Arises

Suppose Market A has electricity available at a lower price than Market B. Traders may attempt to export large quantities of electricity from A to B. If the transmission interconnector has sufficient capacity, electricity can flow normally.

If the interconnector becomes fully utilised, additional electricity cannot safely be transferred. The system operator must then manage the congestion.

Possible measures include:

reducing electricity transfers;

redispatching generators;

curtailing certain transactions;

allocating scarce transmission capacity;

using demand response;

increasing storage or flexible generation; and

expanding the transmission network.

4. Congestion Management and Market Prices

Congestion can produce different electricity prices in connected markets.

Where transmission capacity is unlimited, electricity prices in coupled markets may move closer together. When transmission capacity becomes constrained, prices can separate.

This price difference provides an economic signal that transmission capacity is scarce.

In a more advanced market-coupling model, electricity trades can be matched while simultaneously considering available interconnector capacity. This reduces the possibility that commercial trading decisions will create an unsafe physical condition on the grid.

5. South African Legal Framework

South African electricity law does not currently provide a fully developed cross-border market-coupling regime comparable to some mature international electricity markets. Nevertheless, the principles necessary for such a framework arise from the Electricity Regulation Act 4 of 2006 (ERA), NERSA regulation, electricity licences, Grid Codes and rules governing electricity trading and transmission.

In Eskom Holdings SOC Ltd v Lekwa Ratepayers Association; Eskom v Vaal River Development Association (2022), the Supreme Court of Appeal confirmed that generation, transmission and distribution are regulated by the ERA and that NERSA is the regulatory authority responsible for the statutory framework.

This is important because market coupling cannot be separated from regulated transmission access and system operation.

6. Relevant Case Laws

Eskom Holdings v Sonae Arauco (2024)

The Supreme Court of Appeal dealt with Eskom's responsibility to protect the electricity grid during circumstances threatening reliable operation. The Court explained that the Grid Code requires Eskom, as system operator, to take prompt remedial action and to reduce load where necessary to protect system integrity.

The case did not directly concern coupled electricity markets. However, it is highly relevant by analogy because it establishes that commercial or contractual electricity arrangements cannot override technical requirements necessary to protect the grid.

United Democratic Movement v Eskom (2023)

The High Court considered the legal framework surrounding load-shedding and the operation of the Grid Code. The judgment noted that Eskom's transmission and distribution licences require compliance with the Grid Code and the NRS 048-9 Code.

The case demonstrates the importance of maintaining minimum critical load and protecting the operational integrity of the electricity system. These principles would also apply when electricity is transferred between coupled markets.

Eskom Holdings v Lekwa Ratepayers Association (2022)

The SCA confirmed NERSA's regulatory role over electricity generation, transmission and distribution.

For market coupling, this means that inter-market electricity trading must operate within the statutory licensing and regulatory framework. Transmission capacity cannot simply be treated as an unrestricted commercial commodity.

7. Cross-Border and Regional Implications

Market coupling becomes particularly important for regional electricity trading. The Southern African Power Pool (SAPP), for example, provides a regional framework for electricity trading among participating countries.

Cross-border congestion can create disputes concerning:

priority access to interconnectors;

transmission charges;

allocation of limited capacity;

curtailment of imports or exports;

responsibility for network upgrades;

reliability standards; and

settlement of congestion-related costs.

A future South African framework could therefore require transparent rules for allocating interconnection capacity and determining which transactions must be curtailed during network emergencies.

8. Legal Principles for Congestion Management

A legally sound congestion-management system should satisfy several principles.

Transparency: Market participants should understand how transmission capacity is calculated and allocated.

Non-discrimination: Comparable market participants should receive equal treatment.

Technical reliability: Economic trading must never compromise grid security.

Accountability: System operators should provide reasons for significant congestion-management decisions.

Regulatory oversight: NERSA and other competent institutions should be able to review market rules and system-operator decisions.

Efficient investment: Persistent congestion should provide information supporting transmission expansion and storage investment.

Conclusion

Congestion management in coupled electricity markets connects electricity trading with physical grid management. Market coupling can improve electricity allocation by allowing power to move between connected markets, but limited transmission capacity can create congestion and price separation.

South African case law has not yet developed a specific doctrine concerning coupled-market congestion. However, Eskom v Sonae Arauco, United Democratic Movement v Eskom, and Eskom v Lekwa Ratepayers Association provide important principles concerning grid security, Grid Code obligations, regulatory authority and transmission-system governance.

A future South African regional-market framework would therefore need to combine market efficiency, transparent transmission-capacity allocation, non-discriminatory access, regulatory oversight and protection of grid reliability.