Finding Stable Price Zones in European Electricity Markets: Aiming to Square the Circle?

The European day-ahead electricity market is split into multiple bidding zones. Within these zones, a uniform energy price is computed for each hour. Large bidding zones have been under scrutiny. The fact that zonal clearing ignores the transmission capacities within zones and the increase in renewables lead to a growing number of interventions in the generation of energy sources and large redispatch costs. The European Union Agency for the Cooperation of Energy Regulators (ACER) proposed alternative bidding zone configurations that should be analyzed as part of the Bidding Zone Review. For Germany, four alternative configurations were suggested. Bidding zones shall be stable and based on long-term, structural congestion in the grid. We analyzed the proposed configurations considering different clustering algorithms and periods. We found that the configurations do not reduce the price standard deviations within zones considerably, while the average prices across zones are similar. Other configurations identified based on clustering prices lead to lower price standard deviations but are not geographically coherent. Importantly, different configurations emerge depending on clustering features, algorithm, and period considered. Given the substantial changes in energy supply and demand that can be expected in the future, defining stable configurations appears to be a moving target.