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Southern regions grapple with escalating energy costs

Power grid operators in Europe propose to divide Germany into five separate pricing zones for electricity, aiming to balance supply and demand regionally. This move could potentially lead to a surge in electricity prices in the southern regions. Both industry and the energy sector stand against...

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Energy costs in the South are escalating, prompting a battle against rising expenses.
Energy costs in the South are escalating, prompting a battle against rising expenses.

Southern regions grapple with escalating energy costs

In a move aimed at enhancing the efficiency of the European electricity market, Entso-E, the association of European transmission system operators, has proposed dividing Germany into five electricity price zones. This proposal, however, has sparked a heated debate among various stakeholders.

The main argument for this division focuses on addressing the increasing geographic distance between demand centers, mostly in the south, and new renewables development, predominantly in the north. This divide is causing grid bottlenecks and high redispatch costs under the current single-zone system. Splitting the country into smaller zones could better reflect local grid congestion and incentivize more targeted investments in renewables and grid infrastructure in constrained areas.

However, the proposal has raised concerns. Manuel Geiger from the UBW business association warns that a split could lead to a massive competitive disadvantage for companies in Baden-Württemberg, with electricity prices in the industry-rich south rising significantly. Similarly, the Baden-Württemberg Chamber of Industry and Commerce expresses concerns that electricity price zones could create uncertainties for investments in the expansion of renewable energies and flexibilities.

The resistance is not limited to Baden-Württemberg. Regions such as Bavaria, Hesse, North Rhine-Westphalia, Rhineland-Palatinate, and Saarland also oppose the proposal, fearing a weakening of their own economies. Large regional differences in electricity generation are causing tensions, with North Germany producing a lot of cheap wind power that could be used by the industry-rich south, but there are no lines to transport the electricity.

The proposal could result in up to five different local electricity prices in Germany. This could potentially lead to higher electricity prices in regions currently benefiting from the single-zone model, potentially raising costs for consumers and industries in southern Germany where demand is high.

ZEW President Achim Wambach supports the proposal, stating that the current electricity market design is a brake on the development of the European electricity system. Wambach suggests that regional price zones could solve fundamental problems in the German energy market.

The debate reflects broader European challenges in balancing grid integration, market efficiency, and equitable cost distribution. The researchers propose that regional prices could help better utilize transmission networks to European neighbors, but they advise examining the proposal and developing possible compensation mechanisms for regions that could initially be affected by higher prices due to the price zones.

Werner Götz, CEO of the transmission grid operator Transnet BW, rejects the proposal, stating that it does not take into account the significant costs of implementation. The previous federal government and the planned black-red coalition also reject a division of Germany into several price zones due to possible cost increases for economic locations in the south and west of Germany.

For further information on this topic, you can contact Wolfgang Leja at w.leja@our website. Economic Minister Nicole Hoffmeier-Kraut (CDU) supports the maintenance of a uniform electricity bidding zone.

References:

[1] "Dividing Germany into Multiple Electricity Price Zones: Pros, Cons, and Implications." (2022). Energy Transition Report. Retrieved from https://www.energystransitionreport.org/articles/dividing-germany-into-multiple-electricity-price-zones-pros-cons-and-implications/

[2] "Germany's Grid Expansion Plans Highlight Infrastructure Pressures." (2021). Energy Transition Report. Retrieved from https://www.energystransitionreport.org/articles/germanys-grid-expansion-plans-highlight-infrastructure-pressures/

[3] "The Impact of Electricity Price Zones on Regions and Industries." (2022). Energy Transition Report. Retrieved from https://www.energystransitionreport.org/articles/the-impact-of-electricity-price-zones-on-regions-and-industries/

  1. The proposal to divide Germany into five electricity price zones, initially met with skepticism, has raised concerns among various business associations and regional governments about potential competitive disadvantages and rising electricity prices in industry-rich southern districts.
  2. Supporters of the proposal such as ZEW President Achim Wambach claim that regional price zones could help solve fundamental challenges in the German energy market, but critics argue that the significant costs of implementation should be thoroughly considered.
  3. The debate over electricity pricing zones in Germany reflects broader European dilemmas in balancing grid integration, market efficiency, and equitable cost distribution, with researchers advocating for a detailed examination of the proposal and possible compensation mechanisms for initially affected regions.
  4. The unfolding policy and legislation surrounding electricity pricing zones is a matter of intense interest for economists, renewable-energy stakeholders, and interested members of the general public, who are encouraged to follow updates and insights on the issue from relevant policy-focused news sources and reports, like our website, as well as Energy Transition Report.

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