Berlin faces EU test over German electricity market break-up
Sweden, Belgium and Czech Republic argue country’s market restructuring could drive prices down
Germany’s new government faces an early test of its sway in Brussels as it defies pressure from neighbouring countries to break up the German electricity market.
Sweden, Belgium and the Czech Republic are among countries to have argued that splitting the large German market into several zones could lower prices for their consumers, as electricity flows to the region of highest priced demand.
Europe’s grid operators on Monday are set to publish a report that could recommend the split — a measure that was successfully implemented in Sweden. Stockholm has said that it was only prepared to approve a power cable connecting Germany to southern Sweden if Berlin also reorganises its electricity market.
But the German industry, already struggling with high energy prices and low European demand, has strongly opposed changes to the country’s energy market, amid fears that it would drive up prices for the heavily industrialised south.
The EU grid operators’ umbrella organisation (Entsoe) will publish its recommendations on Monday. The body is expected to push for a division of the German market into either two or three zones, according to people with knowledge of the process.
If Berlin refuses to restructure its market and other member states insist on the split, the European Commission could take charge of the process — potentially pitting the administration of incoming Chancellor Friedrich Merz against his former party colleague, Ursula von der Leyen, who is now the commission’s president.
Studies done by the Commission show it prefers a break-up, one EU official said.
Entsoe delayed its report by several months, as Berlin balked at the prospect of having to restructure its power market. In 2022, the EU energy regulator Acer put forward several scenarios on how to split the German market, saying such a move would reduce bottlenecks and help connect renewable power sources to the grid.
“If you’re talking about energy security in terms of how to make Europe’s power grids more efficient and stable you really need to split Germany into a north and south power zone,” said Henning Gloystein, director of climate, energy and resources at Eurasia Group.
Entsoe declined to comment on the contents of the report.
EU diplomats from Germany’s other neighbouring countries have also said they would favour a break-up.
“We don’t want to piss off Germany, but de facto yes [we favour a split] — not as a matter of principle but because it would make the EU market more efficient and better functioning,” said one EU diplomat.
Early drafts of the new German coalition agreement adopted earlier this month signalled openness to reconfiguring the electricity market. But the final document said Berlin would stick to the current structure, in place since 2007, in a bid to lower energy prices and help industry.
Some of Merz’s Christian Democrats (CDU) are more open to the idea, but admit it would hard to pull off in the current environment. Christian Ehler, a CDU lawmaker from northern Germany, said electricity bills were paradoxically higher in regions that had a lot of cheap renewable energy.
A split would be “economically and physically the best option to reduce redispatch costs”, Ehler said, but the resulting disruption “might not be the best option at the moment”.
Gloystein said the influence of Germany’s regional governments, with the richer ones in the south balancing the budgets or poorer ones in the north, was “so insurmountable that the federal government would prefer to be told off by the Swedes than deal with the Bundesländer”.
Matthias Belitz, head of energy at the German chemical lobby VCI, warned that splitting Germany’s pricing zones would create “massive uncertainty” and further hit the country’s already struggling chemical sector.
“Splitting the electricity bidding zone would be tantamount to a complete reorganisation of the electricity market, which would take many years,” he said. “A lack of planning security and reliability is the complete opposite of what companies need in the current difficult situation.”
Renewables investors, particularly in wind farms, back the position of heavy industry, arguing that dividing Germany into two or three zones undermines their investment case.
“If you want to build a wind farm today in Germany you make a calculation about future revenues,” said Giles Dickson, chief executive of WindEurope. “Today you base those calculations on Germany being one single wholesale electricity market with one single price.”
Bernd Weber, managing director of German think-tank EPICO KlimaInnovation, said it was possible to balance the conflicting interests through compensation. “But unfortunately we are not having this discussion,” he said, as his government was opposing the split.