Cross-border electricity trade

European Union Regulation 1719/2016 (FCA) provides for instruments for long-term allocation of transmission capacity, the aim of which is to mitigate price risk between regions arising from transmission capacity shortages. The system operator is obligated to offer instruments if the national regulatory authorities (in Estonia, the Competition Authority) have assessed their necessity by their decision.

The Competition Authority, in cooperation with the Finnish and Latvian regulators, has decided that risk hedging instruments must be offered on both the Estonian-Latvian and Finnish-Estonian borders. While the FTR has been offered on the Latvian border since 2014, the Finland-Estonia FTR is offered from 2023. 

Baseload FTR option instruments are offered from Finland to Estonia in annual and monthly auctions and from Estonia to Latvia in annual, quarterly and monthly auctions. Documents regarding the regional design of the region’s long-term transmission capacities are included in the attachments. 

FTR auctions are organised by a pan-European Single Allocation Platform (SAP), operated by JAO. The pan-European harmonised rules for long-term capacity provision (Harmonized Allocation Rules, HAR) and other additional information on the auction conditions, calendar and results are available on the JAO website (www.jao.eu). 

Principles of cross-border capacity allocation (in estonian)

Attachments (in estonian):

• Article 17 of Regulation 2016/1719 FCA GLDPM: Methodology for providing generation and load data for long-term time frames (7 January 2020)
• Article 18 of Regulation 2016/1719 CGMM v2plus: Common grid model methodology for long-term time frames (7 January 2020)
• Articles 42 and 51 of Regulation 2016/1719 FCA GLDPM: Harmonised allocation rules for long-term transmission rights (from December 2023) (28 December 2023)
• Articles 42 and 51 of Regulation 2016/1719 FCA GLDPM: Harmonised allocation rules for long-term transmission rights (from December 2019 to December 2023) (7 January 2020)
• Article 31 of Regulation 2016/1719 Baltic CCR LTTR: Baltic Capacity Calculation Region’s regional design of long-term transmission rights (15 September 2022)
• Article 52 of Regulation 2016/1719 Baltic Regional HAR Annex: Baltic Capacity Calculation Region’s regionals specific annex to the harmonised
allocation rules for long-term transmission rights (15 September 2022)
• Article 10(1) of the Commission Regulation (EU) 2016/1719: All Baltic CCR TSOs’ Common Capacity Calculation Methodology for Long-term Time Frames (June 2025)
• Article 10 of Regulation 2016/1719 Baltic LT CCM: ACER’s decision rejecting the methodology for calculating cross-zonal capacity in the forward market (18 November 2020)
• Article 16 of Regulation 2016/1719 Baltic LT CCM Split: Methodology for splitting forward market cross-zonal capacity (4 January 2020)
• Bilateral methodology for FTR capacity allocation between Elering and Fingrid prepared on the basis of Article 16 of Regulation 2016/1719 (15 September 2022)
• Articles 49 and 59 of Regulation 2016/1719, supplemented SAP: Updated requirements and cost sharing methodology for the single long-term transmission capacity allocation environment (March 2023) (23 March 2023)

Elering, as the system operator, is responsible for the allocation of cross-border transmission capacities and does so in accordance with European Union regulations (in particular Regulation 2015/1222/CACM) and the Estonian Electricity Market Act. The more market participants, the more competitive prices, better security of supply and efficiency. The system operator is responsible for ensuring the security of supply of the system when allocating transmission capacities. According to the Estonian Grid Code, the system operator allows the import of electricity from and export to other power systems as well as transit through the electricity network of the transmission system operator, to such an extent and under conditions that do not directly damage the national power system, do not create additional restrictions on domestic electricity consumption, or deteriorate the security of supply and quality of electricity for consumers of the national power system. 

Since power systems are also connected to the systems of other countries, to achieve the best results, system operators must cooperate in preparing long-term plans both regionally and across Europe. In the summer of 2022, an organisation owned by system operators but legally separate from system operators was established in cooperation with the system operators of Latvia and Lithuania – the Baltic RCC. According to the memorandum, the legal seat of the Baltic RCC is Estonia. 

The calculation of cross-border capacity is based on the physical characteristics of the network. In Europe, the coordinated net transmission capacity (CNTC) method and the flow-based method are used to calculate transmission capacities between price zones. In the CNTC method, the maximum possible transmission capacity between adjacent bidding zones is defined in advance. In the flow-based method, the data for each network element is considered as a matrix. Energy transmission between bidding zones is limited by critical network elements and electricity transmission factors (i.e. over which lines the physical electricity flow is allocated).

The Baltic States use the CNTC method, but in the future, a flow-based calculation method will be considered in accordance with the CACM regulation. With the CNTC method, the calculation of transmission capacity allowed for cross-border trade is carried out in stages: 

• First, the total transfer capacity (TTC) of cross-border lines is calculated, which is derived based on the technical parameters of the network, taking into account the reliability requirements set out in the Grid Code (sections 3, 6, 10, 11, 12, 13 et seq. of the Grid Code). Of these requirements, the most important are the so-called N-1 and N-2 criteria. According to them, when calculating transmission capacity, the possibility of one or two of the most influential elements of the power system being out of service must be taken into account. Following that, the maximum transmission capacity is found at which the thermal capacity of the lines is not exceeded and the static or dynamic stability of the system is not compromised. 
• The transmission reliability margin (TRM) is then calculated, taking into account unforeseen circumstances such as unplanned loop currents, measurement errors in the metering system, and emergency deliveries between system operators. Information from system administrators of neighbouring systems and previous planning experience are important when finding a reserve. Taking the above into account, specific transmission reserve amounts are agreed upon on a daily basis with the system operators of neighbouring systems. 
• The transmission capacity reserve is subtracted from the total transmission capacity, resulting in the net transmission capacity (NTC). 

The calculated transmission capacities are approved by the neighbouring system operator, and the lower calculated value is always given to the market. Approved net transmission capacity is the capacity that is made available to market participants for cross-border energy trade. 

The above principles are also taken into account by system operators in the Baltic Capacity Calculation Region (Estonia, Latvia, Lithuania, Poland, Sweden, and Finland).

In the event of changes in cross-border transmission capacities (for example, as a result of a network disruption), the system operator is obligated to inform market participants within one hour of receiving the relevant information. Market participants are notified in accordance with the rules established by the power exchange operator through urgent market messages (UMMs). 

Documents regarding the calculation of transmission capacity are provided below.