As solar and wind power continue to see significant growth and Europe’s grid becomes increasingly flexible, new challenges have emerged in the energy transition. One of the most pressing concerns is how to optimize power grid transformation to ensure both system resilience and cost efficiency.
At the 2025 Gurobi Summit in Vienna, Agora Energiewende (Agora), a think tank supporting the transition to clean energy globally, led a thought-provoking session that explored this question in depth—from trends reshaping the power system, to current challenges in market design and potential solutions through locational pricing. Below, we’ll explore key highlights from their discussion.
Key Trends Driving Change
As Thorsten Lenck, Programme Lead at Agora, explained, the power system is undergoing a fundamental shift, shaped by three major trends:
Rapid growth of wind and solar power as the backbone of renewable generation.
Electrification across sectors—such as industry and transport—as a cornerstone of decarbonization.
Increasing flexibility through technologies like battery storage, heat pumps, and demand response.
These trends promise a cleaner future, but also introduce complexity regarding market design and grid operations.
The Challenge: One Price Fits All?
Germany’s current electricity market operates under a single bidding zone, resulting in a uniform price nationwide. While simple, this design ignores a range of factors:
Grid bottlenecks between regions with high renewable generation and high demand.
Costly redispatch measures, whereby grid operators pay billions annually to curtail wind in the north and ramp up gas plants in the south.
Lack of locational signals, leading to inefficient investment and operation of flexible technologies.
“Nearly every country struggles with grid bottlenecks, and the question of how to align production and consumption of renewable energy,” said Lenck. “In Germany, it’s hard to distribute all of the electricity generated in the north down towards the south. Even if Germany expands its grid infrastructure, some bottlenecks would remain—this is due to the underlying physics at play. And these constraints accrue billions of euros in costs every year.”
Lenck added that modernizing market design through locational pricing could deliver major gains.
“Prices would be higher in some regions during periods of grid congestion, and lower when electricity can flow freely. By making constraints visible to producers and consumers—ultimately reflected in their energy bills—this approach creates an economic incentive to shift demand and optimize production,” Lenck said. “Over time, it can improve network efficiency and help to reduce electricity bills for all consumers.”
Consultants and scientists at the Fraunhofer IEE helped Agora by developing a forecast model for renewable energy and linking it to their demand and grid models. Using these models, Agora developed a web-based tool, the Locational Agorameter, which shows locational prices, and a new flexibility indicator, the Flexibility Profit Index. Powered by Gurobi, the tool helps stakeholders to better understand the impact of market design changes.
Exploring Solutions
Agora’s study and tool explores potential solutions vis-à-vis the challenge of system resilience and cost efficiency, such as:
Smaller bidding zones: This would split Germany into various zones to reduce redispatching; however, this is not a long-term fix.
Locational pricing: Introducing locational electricity prices can lower average consumer costs, improve system stability, and send critical investment signals for technologies such as batteries and electrolyzers. However, some regions will continue to experience slightly higher prices.
Why Locational Pricing Matters
According to Agora’s analysis, locational pricing can lead to:
Lower average prices: While some regions may see slight increases, most consumers would benefit from reduced costs.
Better investment signals: Locational prices incentivize flexible technologies and also favor building assets where they add the most value.
Enhanced resilience: Coordinating market and grid operations reduces costly interventions and strengthens system stability.
Agora concludes that Germany needs a roadmap for introducing locational electricity prices, coordinated at the European level. Complementary measures—such as ensuring market liquidity and supporting renewable investments—must accompany this shift.
Toward a More Resilient Energy Future
As renewable penetration grows and flexibility becomes essential, market design must evolve. Locational pricing isn’t simply an economic adjustment, but more so a strategic move toward a climate-neutral, cost-efficient, and resilient energy system.
For more on Agora’s research and optimization-powered analysis, check out their full presentation from the 2025 Gurobi Summit in Vienna, which can be downloaded here.
Want a deeper dive into how optimization is shaping the future of energy innovation across Europe? Join us April 21-22 in Warsaw for the 2026 Energy Innovation Summit (TSO Edition), co-hosted by Gurobi and Polskie Sieci Elektroenergetyczne (PSE).
The Summit will provide a focused, practitioner-level forum to exchange insights, challenge assumptions, and accelerate the industrialization of optimization-based decision support. More details and registration information can be found here.
