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TSOs propose methodology, assumptions and alternative configurations for the upcoming European bidding zone review

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In the context of the European regulation on the internal market for electricity, part of the Clean Energy Package, the European TSOs will conduct a common study into alternative bidding zone configurations, the so-called bidding zone review. Bidding zones are areas in Europe in which a single (wholesale) electricity market price applies. On the fourth of October the TSOs have submitted their proposal for the methodology and the configurations to be studied in the bidding zone review to the national regulatory authorities. The published package can be found on the ENTSO-E website.

The purpose of the bidding zone review is to investigate whether alternative bidding zone configurations increase the economic efficiency and cross-border trade opportunities, while at the same time the operational security of the electricity grid can be maintained. The Regulation (EU) 2019/943 on the internal market for electricity ("EU Electricity Regulation") prescribes that bidding zone borders should be based on structural congestions in the transmission grid. TenneT has provided alternative bidding zone configurations for The Netherlands and, together with the other German TSOs, for Germany. The final configurations which will have to be studied in the bidding zone review will ultimately be decided by the regulatory authorities or by the European regulatory authority ACER early 2020.

On the basis of the results of the study, which is expected to be completed in 2021, TSOs will make a joint recommendation to the governments of the involved Member States. The Member States will then have six months to decide whether to maintain or amend the current bidding zone configuration.

The alternative bidding zone configuration put forward for The Netherlands

The Netherlands is currently one single bidding zone. TenneT has identified an alternative configuration in which the single Dutch bidding zone is split into three bidding zones, as shown in the figure as NL1, NL2 and NL3.

A major reason to put forward this configuration for this review is that the Dutch transmission grid often has to deal with large electricity flows from the north to the south of The Netherlands. Even though TenneT invests in increasing the capacity of its transmission grid, i.e. by upgrading the capacity of existing connections and by building new connections, these reinforcements could be insufficient to ensure compliance with the requirements of the EU Electricity Regulation. This regulation requires that ultimately in 2025 a minimum of 70% of the capacity of critical network elements will need to be made available for electricity flows caused by cross-border trade. In the bidding zone review, TenneT wants to investigate whether a change of the bidding zone configuration improves the ability to comply with this regulatory requirement towards 2025.

The alternative bidding zone configurations put forward for Germany

Germany and Luxembourg together currently form a single bidding zone as well. TenneT and the other German TSOs have identified three alternative configurations: 

  1. Configuration 1 consists of a split of the German/Luxemburg bidding zone along the borders of the federal states Bavaria and Baden-Württemberg into a northern and a southern bidding zone.
  2. Configuration 2 consists of a split of the German/Luxemburg bidding zone approximately along the borders of the federal states Bavaria, Hesse, North Rhine-Westphalia in the south (following the borders of control areas), into a north-eastern and a south-western bidding zone.
  3. Configuration 3 extends on configuration 2 with an additional split along the border of Schleswig-Holstein.

Germany has planned large-scale investments in grid infrastructure reinforcements to solve the potential structural congestions on the long term.

Elements studied in the bidding zone review

The bidding zone review will include an extensive evaluation of the positive and negative effects of different bidding zone configurations with respect to overall market efficiency and network security. For example, it will investigate what the impact of a bidding zone amendment would be on market liquidity and market efficiency, on transaction and transition costs related to e.g. adapting IT-systems, and on the ability to maintain the operational security of the electricity system. On the basis of the results of the study, which is expected to be completed in 2021, TSOs will make a joint recommendation to the governments of the involved member states. The member states will then have six months to decide whether to maintain or amend the current bidding zone configuration.

No consensus on alternative bidding zone configurations was reached in Central Europe

The TSOs have decided to submit the alternative bidding zone configurations per region in Europe. The TSOs of the region 'Central Europe', of which the Netherlands and Germany are part, discussed thoroughly the possible combinations of individual proposals for alternative configurations. Unfortunately, they have not been able to agree on a set of alternative configurations to be proposed to be used for the bidding zone review. The main reason was that only a limited number of TSOs of this region provided proposals for alternative configurations. In the framework of a pan-European bidding zone review it was not considered appropriate for the large region of Central Europe to focus only on alternative configurations of a few bidding zones, while for the majority of the bidding zones no alternative configurations would be investigated. Only a balanced investigation of alternative configurations for the majority of the bidding zones in Central Europe would explore all relevant options on an equal basis.

Regulatory approval process of the proposal

Before starting the study, regulatory authorities will decide whether they can approve the proposal for the methodology, assumptions and configurations as proposed by the TSOs. If this proposal is not accepted unanimously by the national regulatory authorities, it will be submitted to the European regulatory authority ACER. In this case, ACER is qualified to adjust the proposal and to decide on the methodology and final configurations to be investigated in the bidding zone review. As no consensus was reached in the region Central Europe on the set of bidding zone configurations to be proposed for investigation, an escalation by NRAs to ACER seems inevitable. In this case, ACER will decide on the final alternative configurations to be investigated in the bidding zone review early 2020.

Do you want to know more?

Jeroen Brouwers

Media Relations

+31 (0)26 373 26 00
press@tennet.eu

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