Why neighbouring countries pay different prices

How a shared market ends up with two prices

Europe's day-ahead markets are coupled: every morning a single algorithm collects the bids from the connected bidding zones and clears them together, sending power wherever it is worth most. A bidding zone is the area inside which electricity has one price, which is usually a country and sometimes part of one. When enough transmission capacity is free between two zones, coupling pushes their prices to the same level, because any gap would be worth trading away.

Prices split when the wire between them fills up. Once the flow reaches the capacity the operators have made available, no further power can move, the cheaper zone keeps its surplus and the dearer zone has to start a more expensive plant. The gap that opens is the price of the missing wire. That is why the flow chart belongs beside the price chart: a large gap during hours when the border is at its limit tells a different story from a large gap while capacity sits unused, which usually points to something inside one of the zones.

A monthly gap is a seasonal pattern. Germany's price sits above France's in some months and below it in others, driven by wind, by how many French reactors are on outage, by hydro reservoirs in the Alps and the Nordics, and by demand in a cold week. A single month rarely repeats the one before it.

The prices are day-ahead wholesale prices, from the market that clears the day before delivery; what a household pays is broken down on Electricity Bill Breakdown. The flows here are commercial and physical transfers across a border, so they describe the electricity that crossed, leaving aside the unscheduled loop flows that follow the laws of physics through a third country's network. Those matter for grid operators and change little in the price gap shown here.