Splitting Germany's electricity price zone could reduce domestic power prices – report

Dividing Germany’s single power price zone into several individual regions could reduce final electricity prices for consumers across the country, said a report by the Ariadne consortium of research institutes. Final electricity prices could be reduced by an average of 7.5 euros per megawatt hour in 2045 through savings in the expansion of electricity transmission grids, it said. Economists and EU partners have called on Germany to split its price zone, but politicians and industry - especially in the south - worry about relative higher prices and oppose the split.

In addition, Germany, with its central geographical location, particularly benefits from the European integrated electricity market, the report found. “It is therefore in Germany's interest to strengthen the internal electricity market, particularly by coordinating cross-border grid expansion,” it said. The electricity exchange with European neighbours is an “important pillar of a cost-efficient energy system” and a key element for the flexibility needed in a system based on intermittent renewable energy supply, it said.

The Ariadne report lays out different scenarios on how Germany can reach climate neutrality, each with a different level of electrification or use of hydrogen and hydrogen-based fuels, and with differing energy demand. 

It said renewable energies, grids, the modernisation of buildings and electrification of industry, heating and transport require investments of 116-131 billion euros annually until 2045 – with a large part coming from private sources. These investments will lead to significant savings when it comes to fossil energy costs, so the annual additional needs compared to a scenario based on existing policies comes to 16 to 26 billion euros. However, the report added that the additional costs of achieving climate neutrality are significantly lower than the forcast damages from climate change.

The investments are an opportunity for Germany to become an exporting pioneer in clean technologies like renewable energies, heat pumps or storages, and ensure its continued competitiveness, said the report. “If, on the other hand, Germany were to cling to fossil fuels, it would not only miss out on its climate targets, but also its competitiveness.”

Compared to other energy consumers, there is a much higher burden for industries which are difficult to electrify, such as aviation or the production of primary commodities, said the report. They have used fossil gas and now face the challenge of switching to green hydrogen and e-fuels, which will continue to be “scarce and expensive”. Germany will import between one and two-thirds of its green hydrogen needs, and most of the e-fuels it will use. These industries also face higher costs due to CO2 pricing and the need to build clean production facilities or carbon capture systems. “The first processing steps in energy-intensive industries, such as steel production and basic chemicals, can be relocated to countries with potential for cheaper renewable electricity,” said the consortium.