The beauty of bigger power price zones

When electricity grids first established cross-country connections in 1891 between Germany’s major cities, it marked a significant milestone. These connections helped to end frequent blackouts and confirmed that alternating current was the best choice for long-distance power transmission. 

Despite this early progress, it was not until 1942 that Germany managed to connect all its smaller cities to a unified transmission grid. The benefits were undeniable: in a larger system, disruptions could be managed more efficiently, as failures were spread across a broader area and absorbed by a greater number of participants. 

A star in the power grid 

The European transmission system took another leap forward in 1958 with the synchronisation of power grids between France, Germany and Switzerland at Laufenburg, Switzerland. This interconnection hub, known as the Star of Laufenburg, was the first international grid connection and significantly reduced the likelihood of blackouts. The name came from the way high-voltage power lines radiated from Laufenburg in multiple directions, resembling a star. It symbolised the power of interconnected grids to enhance stability and security in electricity supply. 

However, geopolitical realities soon led to division. The Iron Curtain created a separation between East and West, splitting transmission grids and their frequencies. Until 1995, when the Central Eastern European power grid (CENTREL) was synchronised with the western European system, Germany found itself in a unique position of fragmented grid connections. 

Lessons from history 

From 1961 to 1989, Berlin was physically divided by the Berlin Wall. But even after reunification, the country’s electricity system remained fractured. Between 1990 and 1995, Germany operated under three different frequency zones: former West Germany was part of the western European grid, East Germany was connected to the CENTREL system, and former West Berlin had its own isolated grid, while East Berlin was always within the CENTREL network. 

This fragmentation had serious consequences. West Berlin, disconnected from both major grid systems, was highly vulnerable to blackouts, which became a frequent occurrence in 1992 and 1994. The experience highlighted a fundamental lesson – the larger and more integrated an electricity system, the more resilient it is to internal disruptions. 

Our predecessors understood this principle well, which is why they prioritised expansion and integration of grid systems rather than fragmentation. The current discussions about introducing price zones, returning to national grids with limiting interconnectors suggest that we are failing to learn from history. 

In the land of the blind... 

Recent adaptations in Nordic grid flows – particularly the introduction of flow-based market coupling for the day-ahead market while leaving ancillary markets untouched – have exposed the dangers of restricting access to neighbouring markets. The result has been extreme price spikes caused by local market power. 

Smaller price zones make markets more susceptible to manipulation. As the saying goes: “In the country of the blind, the one-eyed man is king.” In larger price zones, exercising market power is costly and difficult to sustain. But in smaller markets, high concentration of market power becomes easier, leading to inefficiencies and unfair pricing. If price zones were further reduced to nodal pricing, a handful of players could gain overwhelming influence, eroding trust and liquidity in the market. 

Need for a new Laufenburg moment 

The beauty of bigger price zones lies in their ability to curb market power, enhance system resilience, and maintain trust – ultimately boosting liquidity. Instead of shrinking price zones, we should focus on expanding and reinforcing the grid. The Star of Laufenburg was a defining moment in European electricity history, proving the value of interconnectivity. To maintain a stable and competitive energy market, we need only to remember the lessons of history – something that seems increasingly difficult to do.

This article first appeared as a column on montelnews.com