The current system of a uniform bidding zone with redispatch is reaching its limits due to the subsequent adjustment of generation and consumption on the way to a climate-neutral electricity system. This is suggested by the study "Local electricity prices - How the integration of grid reality into the electricity market succeeds and reduces costs", which was compiled by the think tank and lobby organization Agora Energiewende in collaboration with the Fraunhofer Institute for Energy Economics and Energy System Technology (IEE). This is because battery storage systems and flexible end consumers such as electric cars, heat pumps and electrolysers are currently not given any incentives to adjust their electricity consumption to avoid bottlenecks. By taking supply, demand and grid utilization in different regions into account, local prices help to maintain the high level of security of supply in the German electricity system and reduce overall costs. A system of local prices would generate considerable congestion rents - i.e. revenue generated by the transportation of electricity between the respective domestic zones or grid nodes. In the last five years, the transmission system operators have been able to generate an average of EUR 1.2 billion per year in such congestion rents. These additional funds could be used to compensate for disadvantages for individual large consumers in industry. As these companies already benefit from an exemption from grid fees, the price-reducing effects of a system of local prices are unlikely to be noticeable for them for the time being. Any additional burdens for these companies, which are often in international competition, could be compensated for with the income from the congestion rents. Furthermore, liquid futures trading should be established for local electricity markets and the economic viability of investments in renewable energy should be ensured across the board, if necessary through a new investment framework. Additional hedging mechanisms are proposed to limit the risk of price fluctuations.
