Explainer-What's behind the request for Germany to split its power market?

By Vera Eckert

FRANKFURT (Reuters) -Germany has been landed with demands to split its 25 year-old single electricity market into up to five price bidding zones by European power grid lobby ENTSO-E, that wants to stop intra-German price differences leaking to neighbouring countries.

Here are facts and considerations around the issue as a six-month consultation period started on Monday.

WHY HAS THE TOPIC COME TO THE FORE?

In its Bidding Zone Review, the European network companies' group argues that dividing Germany's huge market area into a number of zones would bring more efficiency and reduce management costs in Germany and outside.

A scenario modelled on 2019 conditions showed a five-way zonal split could save up to 339 million euros of grid management costs a year, reduce bottlenecks, and help more renewable power to be transmitted, it said.

German grid handling costs ran to 2.8 billion euros ($3.19 billion) in 2024, standing in the way of steering producers' and consumers' behaviour.

WHAT ENTSO-E HOPES TO ACHIEVE

High renewable generation in Germany's north, while industry demand is concentrated in the south, distorts prices in a single zone over a large geography, say some organisations, economists, northern federal states, and Germany's EU partners such as Sweden, which operates a connecting cable.

Northern areas cannot benefit from cheap local power as everyone pays too much when the entire national grid bill is spread around all, they say.

Local zones with realistic prices would encourage better participation in battery storage, electric cars and heat pumps.

WHY GERMANY IS OPPOSED

Germany concedes its network expansion is slow but it has clear targets for building north-south transmission highways to overcome the structural problems. It cannot ditch these now to adopt an entirely new system, say the coalition government, southern states and industries, namely energy, cars and chemicals.

Germany's export-geared industries are struggling with recession and, if burdened with even higher costs in the south, might decamp, withdraw employment.

Meanwhile, transmission companies (TSOs), under the watch of the energy regulator, are clearly making progress with big new transport lines.

POSSIBLE CONSEQUENCES OF AN ESCALATION

If the EU Commission, led by German national Ursula von der Leyen, adopted ENTSO-E's stance and pitted itself against Berlin, the row could rattle the bloc's biggest economy and give rise to right-wing and anti-EU sentiments.

Or, if Germany persisted in its opposition to a reconfiguration, it could face retaliation at a time when it needs good relations with its EU trade partners.

If member states do not agree how to proceed within six months, the Commission has a further six months to decide on a course of action.

HOW THE ISSUE COULD BE SILENTLY REMEDIED

Germany can hope to maintain its unified price zone if it adheres to a long-term requirement under an EU internal energy market regulation for 70% of its border interconnection capacity being ready for tradable power flows by year-end.

TSOs are optimistic they can prove their progress on this target, a bid supported by Germany's power bourse, the European Energy Exchange.

"Then, there would be no reason to break up this large liquidity pool (Germany's status quo)," said EEX chief executive, Peter Reitz, in a call with reporters on Monday.

($1 = 0.8789 euros)

(Reporting by Vera Eckert, editing by David Evans)