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Countries can only trade as much electricity as the grid can transport.
A congestion management scheme at the border between Germany and Austria was introduced on 1 October 2018. Up until then, Austria was part of a single bidding zone with Germany and Luxembourg, so electricity trading between these countries was unrestricted. The border with Luxembourg is Germany's last border without a congestion management scheme and where electricity trading remains unrestricted.
Since the congestion management scheme was introduced at the border with Austria, traders in Austria can only buy as much electricity as the lines can transport, in other words only as much as the capacity of the grid allows.
The minimum amount that can be traded both long-term and short-term is 4.9 gigawatts (GW). Trade is only restricted if the amount of electricity traded is larger than the physical capacity of the grid. If this happens, the Wholesale prices in Germany and Austria are different. At any other time, the prices are usually identical because of market coupling.
The single bidding zone with Germany, Luxembourg and Austria had an advantage for trading: an unlimited amount of electricity could be traded between the three countries on the wholesale market at the same prices. Wind power from Schleswig-Holstein or conventional electricity from North Rhine-Westphalia cost just as much for an Austrian consumer as for an industrial company in Hamburg.
But this also brought challenges for the electricity grid because the physical transport capacity of the German grid and the interconnectors – the lines connecting the electricity grids in neighbouring countries – is limited. Congestion occurs when more electricity is traded than a line can transport. System operators then have to use redispatching to ease congestion on the line. Redispatching is when changes are made to the amount of electricity fed into the grid but not to trading. More precisely, the transmission system operator tells power plants in front of the congestion to reduce the amount of electricity they feed into the grid and tells plants behind the congestion to increase it.
This is similar to a dense network of water pipes: if the pipes at one point have reached their capacity, the water can find another way through free pipes and get to its destination that way.
The adjustments to feed-in are financed through network charges and so ultimately by the electricity customers. In the past, the lack of restrictions on trading between Germany and Austria led to overloading and made redispatching necessary to maintain system security so frequently that a congestion management scheme had to be introduced.
The laws of physics governing the flow of electricity mean that some of the electricity traded between Germany and Austria always travels through grids in neighbouring countries like Poland and Czechia.
The path of least resistance is not necessarily the shortest path. Some of the electricity always travels in loop flows through grids in neighbouring countries before it reaches its actual destination, Austria, even though these other countries are not actually involved in the trading. These loop flows also took up some of the interconnector capacity.
This had repeatedly led to restrictions on trading with other neighbouring countries that did not benefit from the transaction themselves. The congestion management scheme was therefore also introduced with the aim of relieving the pressure on grids in neighbouring countries as well, avoiding congestion and reducing the associated costs.