In July 2024, ACER received a proposal from Transmission System Operators (TSOs) to amend the methodology for harmonising cross-zonal capacity allocation for the exchange of balancing capacity or sharing of reserves.
After consulting with stakeholders in the autumn of 2024, ACER revised the TSOs’ proposal. Today, with its Decision 01-2025, ACER has adopted the amended methodology.
The methodology (approved by ACER in 2023) harmonises the processes (i.e., market-based and co-optimisation) that compare the market value of cross-zonal capacity between balancing capacity and day-ahead electricity markets. These processes rely on an algorithm that optimises the allocation of available cross-zonal capacity in a way that maximises overall market welfare.
Why did ACER amend the methodology and what’s new?
The updated methodology:
clarifies the governance of the market-based process to ensure its efficient implementation and operation;
allows to establish rules for distributing congestion income resulting from cross-zonal capacity allocation among TSOs.
ACER’s Decision also grants TSOs more time to develop the harmonised market-based software and offers flexibility to those already operating regional market-based processes to adapt to the methodology’s new requirements.
What are the next steps?
TSOs are required to develop the harmonised market-based software by June 2026.
Full implementation of the harmonised market-based allocation process is not expected before September 2027, pending approval from the relevant National Regulatory Authorities (NRAs).
Brief
On July 2024, ACER received a proposal from Transmission System Operators (TSOs) to amend the methodology for harmonising cross-zonal capacity allocation. After consulting stakeholders, ACER revised and adopted the amended methodology in its Decision 01-2025. This updated methodology clarifies governance, allows for congestion income distribution among TSOs, and grants more time for software development, with full implementation expected by September 2027.
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Purpose
The purpose behind ACER’s Decision 01-2025 is to amend the methodology for harmonising cross-zonal capacity allocation, which was originally proposed by Transmission System Operators (TSOs) and revised after consulting with stakeholders. The updated methodology aims to clarify governance, establish rules for distributing congestion income, and provide flexibility for TSOs to adapt to new requirements.
The key objectives of this amendment are to ensure efficient implementation and operation of the market-based process, as well as to provide a more accurate allocation of cross-zonal capacity. By revising the existing methodology, ACER seeks to improve overall market welfare and create a more harmonized environment for TSOs to operate in.
Effects on Industry
The amended methodology is expected to have significant effects on the industry, particularly for Transmission System Operators (TSOs). The updated rules will require TSOs to develop the harmonised market-based software by June 2026, which may lead to increased investment and operational costs. Additionally, the new requirements will provide flexibility for TSOs that are already operating regional market-based processes, allowing them to adapt to the methodology’s new demands.
The full implementation of the harmonized market-based allocation process is not expected until September 2027, pending approval from National Regulatory Authorities (NRAs). This transition period may lead to some disruption and adjustments in the industry, but overall, it is expected to improve market efficiency and transparency.
Relevant Stakeholders
This update affects various stakeholders in the energy sector, including:
- Transmission System Operators (TSOs): They will be required to develop the harmonised market-based software and adapt to new requirements.
- National Regulatory Authorities (NRAs): They will need to approve the full implementation of the harmonized market-based allocation process by September 2027.
- Market participants: The updated methodology may impact market players, such as generators, retailers, and consumers, who rely on cross-zonal capacity allocation.
Next Steps
The next steps for stakeholders include:
- TSOs are required to develop the harmonised market-based software by June 2026.
- National Regulatory Authorities (NRAs) must approve the full implementation of the harmonized market-based allocation process by September 2027.
- Market participants should be prepared for potential changes in cross-zonal capacity allocation and associated costs.
Any Other Relevant Information
The updated methodology is part of a broader effort to improve market efficiency and transparency. ACER’s Decision 01-2025 builds on the existing framework approved in 2023, which harmonizes processes that compare the market value of cross-zonal capacity between balancing capacity and day-ahead electricity markets.
The transition period until September 2027 will allow stakeholders to adjust to the new requirements and develop the necessary infrastructure. Once implemented, the updated methodology is expected to improve overall market welfare and create a more level playing field for TSOs and market participants.
