What impact would an electricity price zone split have on Germany?
A bidding zone review is currently underway, during which the transmission system operators are analyzing through ENTSO-E regarding a reorganization of electricity price zones. This formal process began in mid-2022 and aims to improve the efficiency and stability of electricity markets. ENTSO-E is expected to present its recommendations in spring 2025.
ACER has established the methodology for this analysis. The report will focus on two main aspects: assessing a redesign based on 22 indicators and providing a joint recommendation to the governments of the countries involved—Germany, France, Italy, the Netherlands, and Sweden. These countries will then have six months to reach a joint decision on whether to accept the recommendation.
FfE used the energy system model ISAaR to analyze the potential impact of splitting the German bidding zone into two parts in the upcoming years. The research focused on the following questions:
- To what extent will the two German bidding zones decouple?
- How will the future energy system differ in North and South?
- What effect will the electricity price zone split have on electricity prices?
Two different scenarios were evaluated: the no-split scenario, in which Germany is modeled as one bidding zone in line with the current status, and the split scenario, in which Germany is divided into two bidding zones (north and south) based on the ACER proposal. It is important to note that no fixed greenhouse gas reduction targets were established for either scenario. Consequently, achieving climate neutrality in Germany by 2045 is not considered a definitive target.
The results of the analyses are available for download below.
What are the key findings?
- When modeling a zonal split in Germany, the net transfer capacities between zones (intra-German NTCs), along with the developing demand and assumed climate protection targets, are crucial for the results.
- With a free expansion of renewables (from 2035 on), slightly more onshore wind is expanded in the Split scenario than in noSplit due to regional cost differences. Wind power is mainly located in the north and PV in the south.
- Without an electricity price zone split, no electrolysis will be installed in Germany in 2030 without a minimum expansion target. In the Split scenario, however, 16 GW are expanded in the north as early as 2030 due to the low residual load compared to noSplit.
- Bidirectional EVs are the preferred flexibility option in both scenarios due to the relatively low systemic investment costs and high potential. For this reason, no large-scale battery storage systems are installed. This does not correspond to the current development of the storage market in Germany.
- The market zone split increases electricity prices in the south by a maximum of 8 €/MWh in 2030 and decreases them in the north by up to 6 €/MWh compared to the noSplit scenario. The split into two electricity price zones reduces the redispatch costs and thus the grid charges for consumers. This cost saving applies to both zones and must be taken into account when calculating the costs for consumers.