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Glossary · Energy industry & energy transition

Bidding Zone Review

Bidding zone review bidding zone electricity market EU congestion management zonal pricing

The Bidding Zone Review, in German Überprüfung der Gebotszonen, is a review procedure laid down in EU law. It clarifies whether the boundaries of the electricity price areas in the European wholesale market still fit the actual transmission grid. According to the Electricity Market Regulation (EU) 2019/943, a bidding zone is the largest geographical area within which market participants can exchange energy without capacity allocation. For trading within such a zone, the lines are therefore treated as if they had no limits. This results in a single zonal price for each trading interval in the day-ahead market.

The review does not ask whether a price area is politically desirable. It examines whether the existing division appropriately reflects grid congestion, trading capacities, economic efficiency and system security. Possible outcomes are keeping the zones, splitting a zone, merging several zones, or shifting boundaries.

Bidding zone, grid congestion and price

The core of the topic is the difference between the market area and the physical grid. Between bidding zones, the transmission system operators calculate the available cross-zonal capacities. These capacities are allocated to trading, and congestion at zonal borders shows up as price differences. Within a zone, by contrast, a single price applies, even though electricity cannot physically flow freely from the place of generation to the place of consumption.

An example: in the north of a zone, wind farms generate a lot of electricity, while consumption in the south is high. The single price then leads to trades that would overload the grid within the zone. For this reason, grid operators intervene after trading, above all through redispatch. The generation or load pattern is changed so that power flows match the limits of the lines. In Germany, the former feed-in management has been integrated into redispatch since October 2021 as so-called Redispatch 2.0. The costs of these interventions do not appear in the exchange price but are distributed mainly through network charges.

The concept of structural congestion is central. It refers to congestion that can be clearly identified, is predictable, remains geographically stable over a longer period, and frequently recurs under normal conditions. A single event in an exceptional grid situation does not meet these conditions. Under Article 14 of the Regulation, bidding zones must in principle not contain such congestion. Exceptions apply where the congestion has no impact on neighbouring zones or where such impacts are temporarily mitigated by relief measures. In addition, it must not reduce the cross-zonal trading capacity required under Article 16. A minimum value of 70 percent is set there.

Legal basis and procedure

Articles 14 and 15 of Regulation (EU) 2019/943 are decisive. In addition, there is the Guideline on Capacity Allocation and Congestion Management (CACM, Regulation (EU) 2015/1222), under which reviews can also be initiated regionally. The procedure runs in several stages:

  • Methodology and alternatives: The transmission system operators propose methodologies, assumptions and alternative zone configurations. The regulatory authorities could not agree on the first proposal. The decision therefore passed to the EU Agency for the Cooperation of Energy Regulators ACER in July 2020. In 2022 it determined the configurations to be examined.

  • Study: On this basis, the transmission system operators involved submit a joint proposal within twelve months of approval of the methodology on whether the configuration should be changed or kept.

  • Decision: The Member States concerned then have six months to decide unanimously on keeping or changing the configuration. If unanimity is not reached, the European Commission decides as a last resort, after consulting ACER, within a further six months.

  • Action plan instead of changing zones: A Member State with structural congestion may, instead of a reconfiguration, submit an action plan under Article 15. In it, it describes measures such as grid expansion and higher trading capacities.

The configurations are assessed against many criteria, including grid security, market efficiency, liquidity, transition costs, stability and robustness of the zones, and the integration of renewable energy. The most important indicator is monetised economic efficiency. Among other things, it offsets market welfare against the costs of redispatch and countertrading.

Results of the first Europe-wide review

On 28 April 2025, the transmission system operators published the study for the target year 2025 via ENTSO-E. It examined 14 configurations specified by ACER in Central Europe and Northern Europe. According to the study, all examined splits of the German-Luxembourg bidding zone achieved higher economic efficiency than the status quo. The gains ranged between 251 and 339 million euros per year. A split into five zones performed best. A split of the Netherlands brought a small benefit of 9 million euros. The variants examined for France and Italy performed worse, and the Nordic variants also brought no efficiency gains.

The figures should be read with caution. ENTSO-E itself pointed to methodological weaknesses, for example outdated input data from the methodology phase. In an opinion addressed to the Council of the EU, ACER reached a different conclusion: the study significantly underestimates the benefits of splitting Germany and Luxembourg, among other reasons because it assumes overly favourable coordination of grid operators in congestion management. The Federal Government, in turn, considers the validity of the study disputed because of these methodological shortcomings.

Germany decided to keep the single German-Luxembourg bidding zone and instead submitted an action plan for the bidding zone. According to the Federal Government, this also corresponds to the coalition agreement of CDU/CSU and SPD. The plan relies on more transmission capacity, grid expansion and operational measures. Whether and how the European Commission will respond could not be conclusively clarified at the editorial deadline. Legally, this decision does not settle the question for good, because future reviews are provided for.

Distinction from nodal pricing, congestion management and grid expansion

The Bidding Zone Review does not introduce a node-specific market. Under nodal pricing, prices arise for individual grid nodes. The review, by contrast, stays within the zonal model and only asks where the zone boundaries should lie. However, for deriving alternative zone configurations, ACER required analyses using nodal marginal prices. Nodal calculations thus serve here as an analytical tool, not as market design.

The review also does not replace congestion management. Redispatch, countertrading, the grid reserve and coordinated capacity calculation remain operational tools. A different zone configuration does, however, change how much congestion management is needed and who receives which scarcity signals through the price. Grid expansion and zone configuration are also two different responses to the same limited transport capability. New lines reduce congestion. New zone boundaries make it visible in the market but do not eliminate it. If it is foreseeable that specific line projects will resolve a congestion, this can argue against a short-term zone change. If expansion is delayed, on the other hand, pressure on the zone configuration grows.

Distributional effects and conflicting objectives

A zone split shifts wholesale prices regionally. In an area with a lot of inexpensive generation and limited export possibilities, prices tend to fall; in a high-consumption area with scarce import possibilities, they tend to rise. This affects procurement costs, hedging strategies, power plant revenues and location decisions. That is why the topic is politically sensitive. Many regard a single price as an expression of a common economic area, even though electricity follows physical power flows and not administrative borders.

There are real conflicts between the objectives. Smaller zones reflect scarcity more precisely but can weaken liquidity and hedging possibilities in the forward market. This is particularly significant because many market participants in Europe use the German market as a reference for hedging. Large zones simplify trading but conceal intra-zonal congestion and spread its costs across all network users. Regional prices are therefore not an artificial disadvantage from the outset, and a split is not a cure-all. The electricity system needs grid operation, balancing energy, redispatch and long-term grid development in any case.

Significance for investment and flexibility

The zone configuration influences which investments pay off where. With a single price, investors assess sites for generation, storage, electrolysers or data centres on the basis of average prices, even though the local grid situation can be very different. In a zone with a generation surplus, low prices would occur more often. This can attract flexibility such as storage, power-to-heat or flexible industrial processes. In tight consumption zones, higher prices would favour local generation and demand flexibility. How strongly such signals take effect also depends on network charges, support rules, hedging possibilities and permits. With the expansion of wind and photovoltaics and with electrification through heat pumps and electric mobility, the question is likely to gain in importance.

Assessment

The Bidding Zone Review makes it visible that a single price in a large zone is not a property of the electricity system but an institutional decision. This decision distributes the complexity across exchange trading, grid operation, regulation and cost allocation. The procedure organises the conflicting objectives but does not resolve them. Which configuration is right depends on assumptions about grid expansion, generation mix, demand, storage and European trade flows. In the end, the Member States decide, or failing that, the Commission.

Sources

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Edited by eCMS on 11.11.2026 15:36

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