Grid operators recommend splitting German power price zone, industry disagrees
Germany should split its single power price zone into five areas to maximise economic efficiency, said transmission system operators (TSOs) in Central Europe. In its Bidding Zone Review, TSO association ENTSO-E modelled different configurations of Germany's single electricity bidding zone – which currently encompasses the whole country as well as Luxemburg – and said all simulation results splitting the market area into two, three, four or five zones show higher economic efficiency compared to the status quo.
In a theoretical scenario based on data and assumptions from 2019 splitting the single power price zone would have brought economic efficiency gains ranging from 251 million to 339 million euros this year alone, with a five-way split performing the highest, ENTSO-E concluded. Such a move could reduce grid bottlenecks and ensure more renewable power can be connected to the grid, as well as used instead of curtailed, reducing so-called redispatch costs. ENTSO-E warned that "it is an unfortunate reality that the input data used [in the review] is outdated", adding that an update was not possible due to methodological requirements.
ENTSO-E added that the result should not be seen in isolation, and that countries, which now have six months to make a decision based on the recommendation, should also consider other aspects, such as expected grid expansion by 2030 or potential impacts on electricity balancing markets. "Conclusions solely based on simulation results are not suitable for decision making when seen in isolation," the association wrote.
Efficient power market
Currently, electricity producers, such as wind parks and coal power plants, and consumers, such as utilities or businesses, can freely trade electricity across Germany, regardless of where it comes from or where it is needed, and without needing to consider transmission constraints.
High renewable generation capacity in Germany's windy north and high industrial demand in the south – combined with insufficient transmission grid capacity between the two – have meant that the country's TSOs increasingly have to carry out expensive balancing measures to ensure grid stability.
This distorts prices, also for Germany's neighbours, and has led to economists, researchers and EU partners calling on Germany to split its price zone.
"Splitting Germany’s single price zone is long overdue," wrote Jan Rosenow, vice president at clean energy NGO Regulatory Assistance Project (RAP), on Bluesky. "Right now, it drives generation and demand to the wrong places — making electricity more expensive for everyone."
Sweden has said it would only support the construction of a new transmission line between its south and Germany if Berlin rearranged its electricity market.
Germany's southern politicians, energy and automotive industry oppose split
Markus Söder, head of the Christian Social Union (CSU) in southern state Bavaria, part of Germany's likely next government, vehemently rejects a split. "Our country must not be divided," Söder told newspaper Augsburger Allgemeine ahead of the report's publication. "The south is the economic powerhouse, and the west is also economically strong."
Söder’s call is echoed by energy industry association BDEW and automotive association VDA. "Germany as an industrial location needs reliability, planning security and affordable energy – not new uncertainties," the lobby groups wrote in a joint statement. "Electricity costs, which are already very high by international standards, would be driven up further, placing companies based [in industrial regions] at a considerable disadvantage and massively weakening their competitiveness – with corresponding negative consequences for prosperity and employment."
At the same time, electricity producers in the north – especially offshore wind parks – can also expect lower revenues from a smaller market area.
"A complete reorganisation of the electricity market would take many years and open up a new mega construction site," said Matthias Belitz from chemical industry lobby group VCI. "Considerable uncertainty for consumers and producers is the complete opposite of what we need in the current difficult situation and in view of the urgently needed transformation." Belitz called for the new government to "quickly present a plan on how grid bottlenecks can be rapidly eliminated and the uniform bidding zone maintained."
In their coalition treaty, Germany's likely next government parties rejected the splitting of Germany's uniform power price zone.
Future electricity system transformation makes topic pressing
Grid balancing costs in Germany have increased in recent years, amounting to 3.2 billion euros in 2023. These costs come about as insufficient electricity transmission capacity means that areas with high demand have to use additional, more expensive forms of electricity generation, while areas with oversupply have to reduce output.
"For all German-Luxembourgish split configurations and combinations, the decrease in market welfare is compensated by the cost savings from redispatch of approximately 50 percent compared to the redispatch costs in the status quo [bidding zone] layout," ENTSO-E concluded.
Think tank Agora Energiewende said the issue of rearranging Germany's power price zone will only gain in importance as more flexible consumers – including hydrogen electrolysers, electric vehicles, heat pumps and storage facilities – form part of the future, renewables-based electricity system. These electricity consumers would need (price) incentives to adjust their consumption to avoid grid bottlenecks.
Countries now have six months to decide whether to accept or reject the TSOs' recommendation. If they fail to reach a unanimous decision, the European Commission has a further six months to decide.
