The policy brief analyzes the economic impacts of a potential split of the German-Luxembourg electricity bidding zone. From a theoretical perspective, such a split could modestly reduce redispatch volumes and costs in the short term and, in the long term, create price-driven investment incentives for a system-oriented regionalization of generation, consumption, and flexibility. However, several practical challenges impede these potential benefits, including remaining grid bottlenecks within the zones and additional administrative costs. Furthermore, it is uncertain whether price differences between the zones would be sufficient to create regional incentives, given regulatory and other locational factors. This is further compounded by persistent investment uncertainties regarding uncertain future bidding zone adjustments. Due to the lack of essential data and insights, a conclusive quantitative assessment of the welfare effects of such a split is currently not feasible.
