- If the German power market were divided into separate north and south price zones, the wholesale electricity price in the south would be 5 (2030) or 9 (2045) €/MWh higher than in the north; delaying grid expansion could more than double the difference.
- If electrolysers were located primarily in the north, the price difference in 2045 would be smaller at 6 €/MWh, but green hydrogen could be produced in the region immediately using grid electricity, thanks to the high share of renewables.
- Electricity prices for the energy-intensive industry in the south zone be 3-7% higher in 2030 than if the market were not split.
- Aurora’s analysis of a price zone split in Germany is available in a free, public report: “Time to part ways? Implications of a potential bidding zone split for Germany”—download it here.
The structure of the German electricity market is currently being discussed both at the EU level and in Germany itself. The main reason for this is the unequal distribution of renewable generation capacities—concentrated in the north—and large industrial consumers, concentrated in the south. This imbalance, among other things, puts a strain on the power grids and hinders the energy transition. The division of the power market into separate north and south price zones could help to create price signals that would counteract this. The zones would result in different wholesale electricity prices: a megawatt hour in 2030 would cost 5 € more in the south than in the north; by 2045, this price difference would increase to 9 €, a new study by Aurora Energy Research finds.
Nicolas Leicht, Senior Advisory Associate, Aurora Energy Research, comments:
“With our study we want to enrich the heated debate about the configuration of the German power market with a comprehensive set of numbers. If the government chooses to split the market, a division into north and south zones seems to be the most likely option. We have modelled this and analysed its impact on electricity prices.”
Uncertainties remain, especially regarding grid expansion: if there is a significant delay, the price difference per megawatt hour between the north and south could rise to 13 € in 2030 and 24 € in 2045.
Grid-based green hydrogen from the north—also for the south
On the other hand, accelerated electrolyser buildout in the north could reduce the price difference in the long term: if 4 GW of electrolysers were located in the north instead of in the south, there would only be a 6 € difference between the zones’ wholesale electricity prices in 2045.
Claudia Günther, Senior Research Associate, Aurora Energy Research, comments:
“Flexible electricity consumers, such as electrolysers in the north, would benefit most from a price zone split, as they would not only be paying lower prices on average, but also would face low-price hours more frequently.”
“Since the share of renewables in the electricity mix would be very high in the north zone, electrolysers could produce green hydrogen using electricity from the grid, without a PPA, much sooner than would be possible with a single electricity price zone. This grid-based business model would also increase the competitiveness of the green hydrogen produced by up to a third. If the pipeline infrastructure within Germany were expanded accordingly, industrial consumers in the south would also benefit.”
Electricity consumers would feel the effects of the price zone split differently: for private households the effect would be negligible. The energy-intensive industry in the south would be hit harder, as it would have to pay electricity prices 3-7% higher than if the current single price zone remained in place and would therefore be worse off compared to international competitors. Compared to electricity prices in the north, this would mean additional costs of 400mn € per year. The price zone split could also make purchasing electricity more difficult for industrial electricity consumers: futures markets in smaller price zones are less liquid, and negotiating PPAs across zone boundaries is more complex.
Study author Leicht adds:
“In order to increase support for the energy transition and accelerate a market-driven transformation of Germany’s energy systems, we need regional and local price signals. As our calculations show, splitting the German price zone would cause these price signals. But it is just one of several possible paths.”
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From its Oxford academic roots, Aurora Energy Research has grown to become the largest dedicated power market analytics company in Europe, providing data-driven intelligence for strategic decisions in the global energy transformation. We are a diverse team of more than 500 experts with vast energy, financial, and consulting backgrounds, covering power, hydrogen, carbon, and fossil commodities. We are active in Europe, Australia, and the US, working with world-leading organisations to provide comprehensive market intelligence, bespoke analytic and advisory services, and cutting-edge software.
