The Southeast region is experiencing escalating energy costs

The Southeast region is experiencing escalating energy costs

Germany's energy transition, driven by a significant share of renewables (46%), is facing structural challenges due to geographic spread, with wind and solar power predominantly generated in the north and east, while major demand centers are located in the south and west [4][5]. This requires substantial grid infrastructure and coordinated market operations to balance supply and demand efficiently.

The idea of dividing Germany into five electricity price zones, proposed by Entso-E, an association of European transmission system operators, has sparked controversy. The ZEW in Mannheim supports this proposal, stating that it would make the European electricity market significantly more efficient [6]. However, several stakeholders have expressed reservations.

Werner Götz, CEO of transmission grid operator Transnet BW, rejects the proposal, arguing it does not consider the significant costs of implementation [7]. The economy minister, Nicole Hoffmeister-Kraut, shares this sentiment, stating that rising electricity prices and further uncertainties must be prevented [1]. The UBW association of entrepreneurs warns that splitting up would lead to higher electricity prices in the south [2].

The Baden-Württemberg Industry and Commerce Chamber argues that electricity price zones could hinder investments in renewable energy expansion and flexibility [3]. Resistance comes from several regions, including Bavaria, Baden-Württemberg, Hesse, North Rhine-Westphalia, Rhineland-Palatinate, and Saarland, where there are fears of a weakening of their own economies [8].

Price zones are supposed to prevent the current issue of consumers not reacting flexibly enough to the fluctuating and increasing supply of limited controllable renewable energies [9]. However, creating separate zones in Germany could result in price divergences within the country, decreasing overall market liquidity and distorting efficient price signals for generation and consumption [4][5].

Large regional differences in electricity generation are causing tensions, with northern Germany producing a lot of cheap wind power that could be used by the industry-rich south, but there are not enough lines to transport the electricity [10]. The widening French-German power price spread (currently some €27.50/MWh) illustrates challenges in cross-border price convergence. Dividing Germany internally could exacerbate such spreads, complicating European electricity market integration and reducing arbitrage [3].

Instead, accelerating grid expansion is a more effective way to reduce bottlenecks, advance the energy transition, and secure industrial competitiveness, according to Götz [7]. Current German policy debates highlight the need for enhanced grid expansion, including smart grid technologies and cross-border interconnectors to facilitate efficient renewable integration and electricity flows [2][4].

In summary, dividing Germany into multiple electricity price zones carries risks of reduced efficiency within Germany and increased challenges for the broader European market unless it is accompanied by greater grid capacity, improved interconnectors, and harmonized EU regulatory measures to manage congestion and maintain integration [3][4]. The controversy surrounding this proposal underscores the complexities involved in navigating Germany's energy transition and the need for a balanced approach that considers the interests of all stakeholders.

References:

1. Economy Minister backs stance against electricity price zones
2. Economy rejects proposal of electricity price zones
3. ZEW President believes price zones could solve fundamental problems in the German energy market
4. Germany's energy transition faces structural challenges
5. Germany's energy transition: too little grid expansion
6. ZEW supports proposal of electricity price zones
7. Transnet BW CEO rejects proposal of electricity price zones
8. Resistance to electricity price zones comes from several regions
9. Current electricity consumers do not react flexibly enough to fluctuating and increasing supply of renewables
10. Large regional differences in electricity generation cause tensions

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