Grid authority considers split of Austrian-German electricity market

The German grid regulator, Bundesnetzagentur (Federal Network Agency), said on Wednesday that it was seriously considering splitting the German and Austrian energy markets in a bid to ensure that power needed to meet demand in southern Germany is not lost to foreign markets.  

In a statement to the Clean Energy Wire the Bundesnetzagentur said it is currently "forming an opinion" on the issue. The common bidding zone, which was introduced in 2002, could be split in 2018 at the earliest, according to the grid regulator.

Currently, the common “bidding zone” means wholesale electricity prices in Germany and Austria are the same all year round. Traders do not have to worry about securing grid capacity at the border as they do to export electricity from Germany to, for example, France.

For power traders in the European market, the splitting of the Austrian-German bidding zone could entail significant consequences. Electricity for delivery in 2021 can already be traded, but problems could occur if the zone is indeed split in 2018.

The prospect of decoupling Austria from the German markets comes at a time when the European Union aims to further integrate its energy markets. The Germany-Austria bidding zone is the only relatively large zone in Europe shared by two countries. But the grid regulator argues that the advantage of splitting the market would be "lower risk for the security of supply in Germany, Poland and the Czech Republic".

Currently, to cope with strong electricity flows from renewable power (particularly from wind turbines in the north of Germany), so-called redispatch measures are needed to ensure the safety of the electricity grids. The disadvantage of the split would be that unlimited electricity trading between Germany and Austria would no longer be possible, the Federal Network Agency confirmed.

For several years now, central and east European countries have complained about the Austria-Germany bidding zone. In a joint study, the transmission grid operators (TSOs) of Poland, Hungary, the Czech Republic and Slovakia argued "the volume of commercial transactions between Germany and Austria [...] has a direct link to the level of unplanned flows and may increase the risk of endangering the transmission systems of neighbouring countries".

Problems arise because the traded volumes of electricity between Germany and Austria regularly exceed the physical capacities at the border. The study describes, for example, a grid situation in which Germany sold high volumes of electricity to Austria, but the physical flow was limited to half that amount. As a result, the excess power was transmitted from Germany to Poland, and on to the Czech Republic.

The phenomenon that electricity physically "spills" into other networks, disregarding agreed trade volumes, is known as “loop flow”. To reduce these unwanted flows, the Czech Republic and Poland are currently installing four phase shifters at their borders with Germany that can block unwanted currents.

Germany’s Bundesnetzagentur used to be strongly in favour of a common bidding zone with Austria. But concerns over grid stability in southern Germany appear to have led to a change of opinion. This was expressed in a recent analysis of the need for backup capacity to ensure sufficient supply in power-starved southern Germany, where several nuclear power plants are to be switched off in the next few years.

Prevent power leakage from the capacity-starved south

Germany now exports record amounts of electricity, often at times when energy generation from renewable sources in the north of the country is high. But at the same time, reserve capacity in the south has to be activated to balance local production and consumption.

This situation in southern Germany is exacerbated by additional flows to the Austrian market zone. According to Bundesnetzagentur's analysis, physical capacity at the Austrian-German border is expected to remain at 5.5 GW, but trade could exceed 10 GW if the bidding zone is not split.

Essentially, market splitting would be like putting a plug in the bathtub to prevent the leaking of electricity from capacity-starved southern Germany.

In its study, the Federal Network Agency argued that the reserve capacity German TSOs have to buy from power plant operators for the winter would be at least 6.6 GW for 2015-2016 and 6.7 GW for 2016-2017. But in 2019-2020, it would only be 1.6 GW if the bidding zone with Austria were abandoned – a drastic reduction, which would entail lower risk, as well as lower costs for consumers.

ENTSO-E, the European network of transmission grid operators (TSOs), is in the process of preparing a review of pricing zones in Europe, which will be published in the second or third quarter of 2016. But ultimately, a spokesperson of ENTSO-E said, the decision whether or not to split a bidding zone lies with national regulators.

Jakob Schlandt is a freelance contributor to the Clean Energy Wire. He also writes for Europolitics and BIZZ energy today and his own blog http://phasenpruefer.info/.