Market zones and electrification – A case study on the impact of market zone configuration on power-to-heat

With the expansion of variable renewable electricity sources (VRES), electrification of heating, transportation and industry, and increased electricity integration of energy systems across country borders, electricity market structures and market behaviour impact not only investment and operation decisions in individual country systems but also across borders. This article explores this based on the case of Germany which has a single market-zone electricity market despite bottlenecks between north and south, resulting in the purchase of curtailment north of the country in Denmark during periods of high VRES-based production. This provides an income for Danish wind turbine operators, but it also means that prices are artificially high in Denmark during these hours resulting in lost opportunities for Power2x and Power2Heat operation. It ultimately impacts the feasibility of some of the main elements of the Danish energy transition which is based on the electrification of various sectors. For the consumer, it also raises concern regarding why wind turbines curtail during hours of high prices. This article addresses these issues in the German and Danish context and explores effects on the energy system. A market reconfiguration with more market zones in Germany would lower electricity prices in Denmark thus improving the feasibility of both electricity-intensive processes and electrification efforts while also benefitting Danish electricity consumers in general. It will, however, not necessarily benefit renewable energy-based producers.