Challenges in finding stable price zones in European electricity markets: Aiming to square the circle?

Teodora Dobos, Martin Bichler and Johannes Knörr

Applied Energy, 2025, vol. 382, issue C, No S0306261925000455

Abstract: The European day-ahead electricity market is split into multiple bidding zones with a uniform price. The increase in renewables leads to a growing number of interventions in the generation of energy sources and increasing redispatch costs. To ensure efficient congestion management, the EU Commission mandated a Bidding Zone Review (BZR) to reevaluate the configuration of European bidding zones. An integral part of this process was a locational marginal pricing study. Based on this study, alternative bidding zone configurations were proposed. These bidding zones shall be stable and robust over time. For Germany, four configurations were suggested. We analyzed the proposed configurations considering different clustering algorithms and periods based on the publicly released data set in the context of the BZR, and found that the configurations do not reduce the price standard deviations within zones much, and the average prices across zones are similar. Other configurations identified via price-based clustering lead to lower price variance but are not geographically coherent. Independent of the clustering features and algorithms used, the resulting zones are not stable over time. Interestingly, the effect of a zone split on prices would be low based on an analysis of the BZR data set.

Keywords: Energy pricing; Price zones; Bidding zone review; Electricity markets; Energy policy (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1016/j.apenergy.2025.125315

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