Austria: bottleneck or catalyst for price convergence

Key Insights

• Central location in Europe positions Austria as a strategic energy hub.

• High share of renewables but seasonal reliance on gas-fired generation and imports.

• Internal grid bottlenecks cause high redispatch costs.

• Germany–Austria bidding zone split reduced unplanned flows, but created lasting price spreads.

• Complexity is rising in Austria’s energy market - caused by new European mechanisms and regional dynamics.
  

Austria’s central location in Europe places it at a pivotal point between Central Western countries, Italy to the south, and the Central and South Eastern trade routes via Czechia, Hungary, and Slovenia. This strategic position makes Austria an attractive market for a wide range of players in today’s energy sector.

With a high share of hydro generation and a significant contribution from wind and solar, Austria meets most of its demand with zero-emission power. However, in winter, combined-cycle gas turbines (CCGTs) and imports are needed to support the market during the tightest periods.

Its close connection with the German market also creates a strong link to German price developments, increasingly exposing Austria to the extremes caused by either the absence or abundance of renewables in Germany.

At the centre of European power

Austria maintains a sound balance between supply and demand, as well as between imports and exports. Combined with its flexibility and central position, this would seem to make it the ideal neighbour for countries to the west, east, and south.

However, for many years, complaints about limited border capacity and significant price differences at crucial times have dominated discussions about the Austrian market.

The first chart illustrates a moderate summer day in Western Europe, coupled with a heatwave in South Eastern Europe. Austria exports to Hungary, particularly during the evening peak, while maintaining structural exports to Slovenia and Italy. Since Slovenia and Hungary are connected to the wider CEE and SEE regions (and both Germany and Czechia also import during the evening peak) scarcity often results.

Export flows reach their maximum available levels. For the block between 20:00 and 21:00, available capacity for exports to Hungary is limited to around 70% of the daily maximum.

Internal bottlenecks

As renewables, especially PV and run-of-river hydropower, have expanded, grid constraints have become more apparent. In 2024, the Austrian TSO, Austrian Power Grid (APG) repeatedly sent surplus power from the northeast to pumped-storage plants in the west, highlighting chokepoints in the domestic grid.

During these episodes, renewables were curtailed on numerous days, underlining capacity limitations. According to APG’s 2023 Network Development Plan, redispatch and grid reserve interventions were required on up to 300 days in a single year. Grid operators pass the €92-149 million annual cost on to customers through grid tariffs.

Structural grid capacity, especially in the 380 kV network, remains insufficient to handle high transfer needs. This is particularly true for connections between wind or PV-heavy regions and storage facilities or demand centres. APG stresses that only long-term grid expansion can address these recurring bottlenecks.

During periods of low wind and solar, combined with high consumption, Austria becomes heavily import-dependent. Restarting gas-fired power plants is often necessary, highlighting the grid’s limited flexibility when domestic renewables are not sufficient.

Germany–Austria bidding zone split

Until October 2018, Germany and Austria shared one bidding zone, allowing unrestricted trading. This caused large scheduled transfers, often resulting in physical flows that bypassed Austria’s grid, placing strain on neighbouring systems such as Poland and Czechia

The separation of the bidding zones required capacity allocation via auctions, significantly reducing unplanned flows between Germany and Austria and improving the situation for Czechia and Slovakia. Unplanned flows towards Poland increased, though the effect there is less clear.

Wholesale prices are now decoupled: Austria generally trades at a premium over Germany, particularly in seasons when hydropower output is weaker. This has reduced volatility in Austrian markets but has also created persistent price spreads.

Stability, but not for everyone

The effect of the bidding-zone split was negligible for the Hungarian and Slovenian borders. During periods of extremely high prices and reduced imports, some critical domestic network elements in Austria reportedly reached their transfer limits, resulting in substantial price spreads.

As generation shifts from centralised plants to decentralised renewables, fossil fuel generation is increasingly pushed out of the merit order during the solar peak. This leads to more extreme price spreads. During a heatwave, several factors converge to create severe challenges for Austria’s eastern neighbours, especially when cross-border capacity is limited.

When fossil plants are ramped down or switched off during the solar peak, they must be ramped up or restarted for the evening peak, reducing efficiency and increasing marginal costs. For some units, the start-up costs are significant.

As people return home from work, air-conditioning use increases, adding to the existing evening demand spike. Fossil fuel assets also have lower maximum output in high temperatures, for example, a 440 MW CCGT may only be able to produce 380 MW when the temperature exceeds 30°C.

In 2024, the price spreads between Austria and Hungary during a summer heatwave averaged over €340/MWh in July for the 20:00 hour. In the afternoon (13:00 hour), the delta was only €13/MWh. This year, the situation has been less severe, with evening peak spreads averaging between €60 and €80/MWh since May 2025. On extreme days, such as 25 July, price spreads of several hundred euros persist, highlighting that the problem remains unresolved.

Looking ahead: increasing granularity, increasing complexity

Over the last few years, power markets have become increasingly complex. Published data often lags behind the developments that shape prices and flows. In recent years, Austria has experienced a bidding-zone split, changes to contracting FCR and aFRR capacity, the launch of MARI and PICASSO and the introduction of quarter-hourly intraday auctions.

These shifts have coincided with a surge in renewables, longer periods of drought, low wind conditions, heatwaves and geopolitical tensions. In the coming months, the day-ahead auction will move to quarter-hourly resolution, the Alpaca mechanism will go live, and Italy will (re)enter the PICASSO platform.

As a relatively small country, Austria will remain exposed not only to domestic energy market conditions but also to regulatory and market changes in surrounding countries. Germany’s transformation from net exporter to net importer means that it is no longer sufficient to focus solely on developments in the “big brother to the north”.

Dealing with new information flows, rising data intensity, and increasing complexity from pan-European mechanisms will be essential. Anyone active in the Austrian energy market will need to broaden their horizons and prepare for the future. Forecasting prices, understanding flows, valuing flexibility, and grasping the drivers in neighbouring markets will determine success.