Nordic CCM Phenomena Report (2022)

Full citation: Nordic RSC (Regional Security Coordinator). Nordic CCM – Phenomena Report. 2022-05-05. Internal technical documentation supporting the Nordic Capacity Calculation Methodology (CCM) parallel-run market reports.

Access: Internal Nordic RSC technical report, published to support the weekly market reports issued during the flow-based parallel-run phase (before the October 2024 go-live). Referenced via Nordic RSC’s simulation-results page.

Summary

A technical explainer written during the multi-year parallel-run phase of the Nordic flow-based transition (flow-based results run alongside NTC results for comparison before go-live). Its purpose: give market-report readers a rigorous explanation for a phenomenon that recurred in the flow-based simulations — non-intuitive flows, where market coupling sends power from a higher-priced bidding zone to a lower-priced one. The report derives the welfare-economics theory behind this from first principles (utility/profit maximization → Lagrangian welfare optimization for both NTC and flow-based market clearing) and then validates the theory against a real case study.

Key claims

Why non-intuitive flows happen

Standard intuition says power should flow from cheap to expensive areas (arbitrage). Non-intuitive flows occur when the welfare loss from the “wrong-way” flow is smaller than the welfare gain from relieving a binding constraint elsewhere in the mesh. The market-clearing algorithm (Euphemia) maximizes total pan-European welfare, not per-border arbitrage, so it will accept a locally counterintuitive flow if the system-wide result is better.

The NTC case: constraints are border-level

In NTC, Critical Network Elements (CNEs) are translated into per-border export/import limits. The welfare-maximization Lagrangian for NTC gives the classic result: an unconstrained zone’s price equals the slack-zone price; a zone constrained by import limits sees higher prices; a zone constrained by export limits sees lower prices (Eq. 10). Because NTC constraints are purely border-level, the algorithm cannot “see” internal-grid congestion that isn’t captured in a border figure.

The flow-based case: constraints are CNE-level, tied by PTDFs

In flow-based, CNE capacity (Remaining Available Margin, RAM) enters the optimization directly, linked to each bidding zone’s net position by a Power Transfer Distribution Factor (PTDF) — the fraction of a zone-to-slack MW injection that flows on a given CNE. The flow-based welfare-optimum condition (derived at Eq. 19) is:

Δprice(i,j) = shadow_price(CNE) × PTDF(CNE, i→j)

i.e., an optimal market equilibrium requires the marginal value of a bilateral trade to equal the marginal cost of transmission it induces. When a trade from j→i has a relieving effect on a binding CNE (its zone-to-zone PTDF is negative), the algorithm will price the export zone higher than the import zone to reflect that relief — this is exactly the non-intuitive flow condition, and it is a mathematical consequence of PTDF-based flow-based optimization, not an anomaly.

Practically: this is also why non-intuitive flows are structurally more common under flow-based than NTC — NTC’s border-only constraints can’t express “relieve an internal CNE by routing power the ‘wrong’ way,” while flow-based can and does whenever it’s welfare-optimal.

Case study: NO3 → SE2, 2022-01-18, MTU 8

A real parallel-run instance validates the theory. NO3 (29.6 EUR/MWh) exported to SE2 (15.3 EUR/MWh) — a 14.3 EUR/MWh non-intuitive spread. Decomposing by CNE shadow price × PTDF:

• Marginal cost of increasing NO3’s net position: 258.02 (aggregated across binding CNEs)
• Marginal cost of increasing SE2’s net position instead: 272.37

Because routing the marginal MW via NO3→SE2 was cheaper in system-wide transmission cost than the alternative (routing via SE2 directly), the algorithm chose the non-intuitive direction — the 14.3 spread is exactly explained by the CNE shadow-price/PTDF decomposition (Table 2 in the source; the totals differ by 14.34, matching the observed price gap). The flow-based case also exported 400 MW more than NTC from the four northern low-price zones (SE1, SE2, NO3, NO4) to southern high-price zones in the same MTU — a direct illustration of flow-based recovering welfare that NTC’s cruder border constraints left on the table.

Relevance to the wiki

• Flow-Based Capacity Calculation — supplies the missing theoretical/mechanistic explanation for the “non-intuitive flows” phenomenon already noted empirically on that page (first-weeks operational observations, November 2024 Elmarknadsrådet meeting) but not previously explained in terms of the underlying welfare economics. Added as a new subsection with the shadow-price × PTDF mechanism and the case study.
• Elmarknadsrådet — the passing “non-intuitive flows” mention in the November 2024 meeting notes (SE2 CNEC as binding constraint) can now be cross-referenced to the underlying theory.

Data gaps

• This is a 2022 parallel-run-era document; it does not cover how frequently non-intuitive flows have occurred since the October 2024 live go-live, nor whether the phenomenon’s prevalence changed under the 2026 CCM Third Amendment (FRM/CDC changes, 70%-rule reinterpretation) — see Flow-Based Capacity Calculation › The 70% rule: floor or ceiling? for the latter.