End of the German-Austrian electricity price zone - what does this mean?
As part of defining Capacity Calculation Regions (CCRs) for the European power market, the Agency for the Cooperation of Energy Regulators (ACER) in November 2016 issued a legally binding decision newly establishing a congestion management procedure at the German-Austrian border. In May 2017, the German and Austrian regulatory authorities (BNetzA and E-Control) reached an agreement on splitting the common electricity price zone in existence since liberalisation of the electricity market.
As transmission system operator and control area operator, APG is responsible for technical implementation of the ACER decision. The split of the electricity price zone between Germany and Austria took effect on 1 October 2018. Since then, the cross-border exchange of electricity is no longer unlimited. However, allocation of up to 4.9 gigawatts, or around half of Austrian demand during peaks, is still guaranteed. Lagging grid development was the main reason for splitting the joint bidding price zone.
APG’s core function is to provide market-based, non-discriminatory access to cross-border capacity as the basis for a functioning marketplace for all market participants. Specifically, this means that APG must make its short-, medium- and long-term capacity available to the market for electricity trading. Highly complex processes and forecasts are used to calculate the available capacity.
The deregulated energy market is essentially made up of two groups:
- Market participants (generation, trading and sales)
- System operators (infrastructure)
A bidding zone – also known as an electricity price zone – is the largest geographical area in which electricity can be traded on the wholesale market without capacity allocation. The assumption is that no congestion will occur within a bidding zone, i.e. that energy can be exchanged without restriction. As a result, bidding zones have a uniform market price in place.
The exchange of power across bidding zone borders is subject to technical restrictions arising from limited cross-border interconnector capacity. Bidding zone borders in electricity trading are intended to reflect technical (i.e. physical) congestion.
In the electricity market, interconnector capacity is what determines how much energy can be bought and sold across bidding zone borders. This is why market participants wishing to buy and sell electricity across bidding zone borders must purchase the corresponding capacity.
If the amount of energy to be traded across electricity market bidding zones exceeds the capacity of the interconnectors, different prices will prevail in the different bidding zones depending on supply and demand. The price differential between the bidding zones reflects the “scarcity” of cross-border interconnector capacity.
Ever since liberalisation of the European electricity markets in 2001, the majority of bidding zones have followed national borders. This is because the individual countries have built dense grid infrastractures whereas cross-border interconnectors are only available to a limited extent. Some countries may even have more than one bidding zone, examples being Italy, Norway and Sweden. The joint German-Austrian bidding zone introduced upon market liberalisation was the exception throughout Europe. Austria and Germany have had separate bidding zones since 1 October 2018.
Transmission system operators are tasked with providing the market with cross-border interconnector capacity for electricity trading. The available capacity is calculated using highly complex processes and forecasts in order to account for physical grid conditions as accurately as possible. The introduction of congestion management between Germany and Austria now limits electricity trading between the two countries, which was previously unrestricted. This means that as of 1 October 2018, the available interconnector capacity also needs to be calculated for the border between Germany and Austria.
APG is included in the CWE region (Central Western Europe) for the purpose of coordinated capacity allocation. Since the coordinated capacity allocation procedure involves multiple countries, all transmission system operators in the CWE region are affected by the introduction of congestion management given the potential for congestion management procedures to impact the capacity available for transmission in their countries and at their borders. APG therefore had to coordinate the process of introducing congestion management with numerous market participants, including some outside of Austria and Germany. The technical solution, which was implemented on 1 October 2018, was approved by all regulators in the CWE region.
Electricity can be traded on wholesale markets over various time frames: annual, monthly, daily and intraday. This is why the available transmission capacity is also calculated for these time frames.
A minimum capacity of 4.9 GW was introduced at the border between Germany and Austria for the long-term time frame effective 1 October 2018. What this means is that at the very least, 4.9 GW will always be available to the European market for cross-border electricity trading.
European regulations dictate that daily capacity within a region should be calculated jointly in a coordinated daily process, which can result in capacity in excess of 4.9 GW being available at the Germany-Austria border for the following day (day-ahead market). The regulations additionally stipulate that capacity for the long-term time frame must in future also be calculated jointly and in a coordinated manner within the regions. Not until 2020 at the earliest will it be possible to make the calculations. The extent to which the minimum long-term capacity of 4.9 GW will be maintained when coordinated capacity calculation is introduced is currently unclear and subject to approval by the regulators.
The available cross-border daily and intraday capacities are implicitly allocated through exchange trading. Therefore, cross-border electricity exchanges are needed in order to trade electricity. The impact on electricity prices depends on the bids and offers submitted by participants on the wholesale market. The prices are determined by supply and demand on the electricity exchanges.
Joint press release by the German Federal Network Agency and Austria's E-Control on congestion management at the German-Austrian border dated 23 September 2015 (in German only)
Q&A on the German-Austrian electricity price zone on the website of E-Control, the Austrian regulator for electricity and natural gas (in German only)