Energy economists call for splitting up Germany into different power price zones

Leading energy economists have called for splitting Germany into different electricity price zones to reflect regional differences in power availability, and to stop “physically impossible” and “economically nonsensical” decisions. In an op-ed published in newspaper Frankfurter Allgemeine Zeitung entitled “The German electricity market needs local prices”, the twelve economists argue that, given current grid bottlenecks, the local value of electricity often varies greatly, for example at times of strong renewable power output in the windy north of the country and strong demand in the south. But because of the current uniform price zone, these regional differences are not reflected by prices, leading to costly results - for example, power stations in the north producing even more power that cannot be transported to the south, or southern hydro stations pumping water up the mountains and intelligent EV chargers jumping into action because the nation-wide power price is low. These misguided decisions can only be remedied by redispatch measures, such as starting up backup power stations in the south, or throttling down wind power production in the north.

“Only if the electricity grid has sufficient capacity to equalise supply and demand in all regions at the same time will the regional differences in value disappear,” the economists argue. Until then, “the wholesale power price should be higher where demand is high, and lower where there is an oversupply at that moment.” They add that different price zones would also mean industry could benefit from local green electricity oversupply and invest in energy-intensive applications such as electrolysers for hydrogen production. “Because investors in Germany don’t get cheap electricity, they are increasingly pulled abroad: For example to Sweden, where regional power prices have existed for a long time,” the economists argued. The signatories of the op-ed include Ottmar Edenhofer from the Potsdam Institute for Climate Impact Research (PIK), government advisors Veronika Grimm and Andreas Löschel, the Oeko Institute’s Felix Matthes, as well as Georg Zachmann of EU think tank Bruegel.

The delays in Germany's electricity grid expansion have repeatedly triggered calls for a split of the uniform price zone. Predictably, the country's northern states with plentiful wind power supply are in favour, while industry hotspots in the south and west of the country are opposed to this idea.