EEX chief warns against splitting European power price zones

Speaking at an EEX and EPEX Spot panel in London on Thursday as part of his opening remarks, Paulun said proposals to address power market challenges by dividing existing price zones would move Europe in the wrong direction.

“Discussions like splitting up price zones and looking at the overall problem in smaller scales are fully misguided,” Paulun said at in his opening remarks. “We need to look into the other direction, join forces across the European energy market as we tackle these challenges of the next days, because together naturally we're stronger, and that also applies in the energy system.”

Paulun’s comments follow a wider debate over the future structure of European power markets. Energy Traders Europe, Eurelectric and Europex called for further consultation on plans for virtual trading hubs in February of last year, arguing the proposed regional pricing model required further discussion between policymakers and market participants. The Leipzig-headquartered exchange group has also previously opposed the virtual hub proposal, favouring a market-led approach to forward electricity pricing.

European bidding zones are geographical areas within which electricity can be traded without allocating transmission capacity. While they largely follow national borders, European rules allow zones to be split, merged or adjusted as part of efforts to manage structural network congestion and improve market efficiency.

Paulun said the focus should instead be on connecting different sources of flexibility through an integrated European market as renewable generation continues to increase.

“We think that we are also at the starting point of the next phase of the energy transition, where other priorities become important as before,” he said. “Over the last two decades, we have seen a tremendous growth in installed capacity for renewables across all of Europe, with some areas particularly pronounced, not always fully coordinated with Europe, but there was only one direction that was more capacity."

Paulun added: “That will for sure continue, but in this next phase, we see other elements also gaining in importance, and that is flexibility in the markets, and that's where batteries come into play.”

EEX backs integrated market

Paulun said increased battery storage would need to be accompanied by greater demand-side flexibility, with consumers responding more actively to power price signals.

He argued markets were central to coordinating those resources and ensuring investment in the energy transition remained economically sustainable.

“As EEX Group, we are convinced that markets are a prerequisite to make sure that the energy transition will happen in an economically sustainable way,” Paulun said. “Beyond that, markets also contribute to energy security as they send the right price signals, and they, in itself, provide flexibility for changing supply patterns, procuring energy in times of unexpected shortages, of course.”

Paulun said those markets still needed an appropriate regulatory framework, pointing to rules governing gas storage as an example of where policy and market mechanisms have to operate together.

“It all goes hand in hand in the end with markets right at the centre of that important development,” he said.

The comments come as European power markets face increasingly divergent pricing between regions as renewable output, transmission constraints and generation conditions vary across the continent. European rules provide for bidding-zone configurations to be reviewed against factors including congestion management and overall market efficiency.

Paulun said transparent market prices were also important for investment in new generation and storage capacity.

“Markets continue to send price signals. They do provide transparency, also for investments into new physical capacity, be it production or batteries,” he said. “This needs to be governed. This needs to be maintained, and then it needs to bring different parties together in a broad system.”

Paulun’s comments come as trading activity across EEX Group’s power markets continues to grow. Global power trading volumes rose 17% from a year earlier to 1,053.4 TWh in August, with European power derivatives volumes increasing 25% to 733.3 TWh. German power futures, the group’s largest European derivatives market, rose 17% to 473.3 TWh, while European power spot volumes increased 22% to 88.3 TWh.