On the long-term efficiency of market splitting in Germany

In Europe, the ongoing renewable expansion and delays in planned grid extension have intensified discussion about an adequate electricity market design. Against this background, we jointly apply agent-based model optimal power flow to investigate long-term impacts of splitting German area into two price zones. Our approach allows capturing investment short-term behavior under imperfect information. We find strong a on prices, planning generators required congestion management. While volumes decrease significantly split short term, zonal configuration for 2020 becomes outdated over time due dynamic effects like extension, new plant investments. Policymakers regulators should therefore regularly re-assess bidding zone configurations. Yet, stands contrast major objective zones create stable locational incentives.