The power of power markets: Zonal market designs in advancing energy transitions

Environmental Innovation and Societal Transitions, Vol 45, 2022, pp. 132-153.

Electricity market design becomes increasingly important with growing shares of renewable energy in the electricity system. This article examines zonal market designs and their compatibility with ongoing energy transitions, focusing on two types of zonal market designs: the Nordic market with numerous, smaller zones, and the German “copper plate approach” with one, national zone. It assesses the dominant ideas and institutional logics within the two market designs. Perceptions of what kind of market design works best and is most efficient vary significantly, in line with the roles and interests of dominant stakeholders. Overall, the Nordic market is found to be better aligned with the energy transition in terms of flexibility, portfolio effects and system costs. The German market has considerably higher system costs but provides better conditions for long-term trading.