Germany's electricity market is facing a potential overhaul as industry associations and grid operators voice strong opposition against a proposal to split the country into five distinct electricity price zones. This initiative, driven by the European Network of Transmission System Operators for Electricity (ENTSO-E), aims to address long-standing inefficiencies in the German electricity market, which has been criticized for its unitary pricing system that fails to account for regional disparities in power demand and supply.
The current system has resulted in significant challenges, particularly for the power-hungry southern regions that rely heavily on electricity supplied from the north. This reliance has been exacerbated by inadequate infrastructure, often referred to as the fictitious German “copper plate,” which implies that electricity can flow freely across the country. However, this is far from reality, as the lack of sufficient cables to transport electricity from the north to the south has led to congestion and inefficiencies.
According to a study conducted by ENTSO-E, splitting the Germany-Luxembourg bidding zone into five separate zones could yield substantial financial benefits, potentially saving more than €300 million per year by reducing payments associated with grid congestion, which soared to €4 billion in 2022 and decreased to €2.78 billion in 2024. Furthermore, the proposal could save Germany an estimated €90 billion in grid investments by allowing for localized pricing of electricity.
Despite these potential savings, the proposal has faced fierce resistance from various sectors within Germany. The chemical industry association VCI has issued urgent warnings against the split, while the carmaker group VDA and the utility lobby BDEW jointly criticized the plan as “neither sensible nor proportionate.” Even the traditionally liberal energy trader association expressed concerns that dividing the market could create more problems and costs than it solves, a sentiment echoed by the renewables association BEE, which called the plan a “genie better left in the bottle.”
Only utility company Octopus has publicly supported the division, labeling it “overdue.” This division of opinion highlights the complexity of the situation, with grid operators themselves, who co-authored the review, stating that the results are unsuitable for making a decision regarding the bidding zone division. They argue that the anticipated gains are too low and that the study relies on outdated data from 2019, failing to adequately consider the value of Germany’s vast power-trading market, which is crucial to EU energy prices.
As the debate continues, it is clear that a split would create winners and losers. While power prices would decrease for most of Germany and Denmark, they would rise for consumers in the southern regions all the way down to Romania. This discrepancy has led to what Bernd Weber, a think tank analyst at EPICO, describes as an “overly politicized, often short-sighted dispute” between the north and south of Germany.
The decision now lies with politicians, as EU countries from France to Romania have six months to reach a unanimous agreement on the proposal. However, many experts are skeptical about the likelihood of a resolution, with Karsten Neuhoff, a long-time researcher on local power pricing in Berlin, noting that “politicians will struggle to resolve the issue in six months after transmission grid operators could not find a common understanding in six years.”
Neuhoff describes the challenge of making bidding zones small enough to limit structural congestion while still ensuring sufficient liquidity and competition as akin to “squaring a circle.” This political decision is further complicated by the European Commission’s mandate to adopt a decision if EU countries cannot reach an agreement, a process that must also be completed within six months.
As the clock ticks down, the European Commission has stated that it is ready to facilitate discussions as needed, emphasizing that “keeping energy bills affordable remains a key priority.” However, the path forward remains fraught with uncertainty, and the outcome of this debate could have significant implications for Germany’s energy transition and its broader economic landscape.
In conclusion, the potential division of Germany's electricity market into multiple price zones has sparked a heated debate among industry stakeholders. While proponents argue for the economic efficiencies that could be gained, the opposition raises valid concerns about the long-term impacts on pricing, investment climate, and energy transition efforts. With a decision looming, the coming months will be critical in shaping the future of Germany's electricity market.
