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On the long-term efficiency of market splitting in Germany

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  • Fraunholz, Christoph
  • Hladik, Dirk
  • Keles, Dogan
  • Möst, Dominik
  • Fichtner, Wolf

Abstract

In Europe, the ongoing renewable expansion and delays in the planned grid extension have intensified the discussion about an adequate electricity market design. Against this background, we jointly apply an agent-based electricity market model and an optimal power flow model to investigate the long-term impacts of splitting the German market area into two price zones. Our approach allows capturing long-term investment and short-term market behavior under imperfect information. We find strong impacts of a German market splitting on electricity prices, expansion planning of generators and required congestion management. While the congestion volumes decrease significantly under a market split in the short term, the optimal zonal configuration for 2020 becomes outdated over time due to dynamic effects like grid extension, renewable expansion and new power plant investments. Policymakers and regulators should therefore regularly re-assess bidding zone configurations. Yet, this stands in contrast to the major objective of price zones to create stable locational investment incentives.

Suggested Citation

  • Fraunholz, Christoph & Hladik, Dirk & Keles, Dogan & Möst, Dominik & Fichtner, Wolf, 2021. "On the long-term efficiency of market splitting in Germany," Energy Policy, Elsevier, vol. 149(C).
    • Handle: RePEc:eee:enepol:v:149:y:2021:i:c:s0301421520305504
    DOI: 10.1016/j.enpol.2020.111833
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    Cited by:

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    2. Thure Traber & Franziska Simone Hegner & Hans-Josef Fell, 2021. "An Economically Viable 100% Renewable Energy System for All Energy Sectors of Germany in 2030," Energies, MDPI, vol. 14(17), pages 1-17, August.
    3. Schönheit, David & Bruninx, Kenneth & Kenis, Michiel & Möst, Dominik, 2022. "Improved selection of critical network elements for flow-based market coupling based on congestion patterns," Applied Energy, Elsevier, vol. 306(PA).
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    5. Qu, Chunzi & Bang, Rasmus Noss, 2024. "European Grid Development Modeling and Analysis: Established Frameworks, Research Trends, and Future Opportunities," Discussion Papers 2024/11, Norwegian School of Economics, Department of Business and Management Science.
    6. Lété, Quentin & Smeers, Yves & Papavasiliou, Anthony, 2022. "An analysis of zonal electricity pricing from a long-term perspective," Energy Economics, Elsevier, vol. 107(C).
    7. Titz, Maurizio & Pütz, Sebastian & Witthaut, Dirk, 2024. "Identifying drivers and mitigators for congestion and redispatch in the German electric power system with explainable AI," Applied Energy, Elsevier, vol. 356(C).
    8. Schönheit, David & Bruninx, Kenneth & Kenis, Michiel & Möst, Dominik, 2021. "Improved selection of critical network elements for flow-based market coupling based on congestion patterns," EconStor Preprints 233467, ZBW - Leibniz Information Centre for Economics.
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