Over the past two years, wholesale electricity prices in Bulgaria and the wider South-Eastern European region have consistently been higher than in Central Europe. Net-Zero Lab has already analyzed the price divergence in 2025 (link).
Many observers ask: Is the EU’s new flow-based market coupling system to blame?
The data tell a more complex — and more interesting — story.
A detailed statistical analysis by REKK covering 2024–mid-2025 (read it here) examined why the “High-Price Region” (Bulgaria, Hungary, Romania, Serbia, Greece, Croatia) diverges from Germany and Central Europe.
he results show that the price gap is not random — and not caused by one single factor.
The Three Forces Behind Higher Prices
The researchers built an econometric model explaining about one-third of the observed price difference (R² ≈ 33%, rising to 38% during the most extreme period). In electricity markets, that is a strong explanatory power. Among all variables tested, three factors stand out.
1️⃣ Demand Pressure: When the Region Consumes More, Prices Rise Faster
The single largest contributor is regional electricity consumption. Statistically, it explains 26% of the model’s explained variation. For every additional 1 GWh of electricity consumed in the region, the price difference versus Germany increases by:
- +5.9 EUR/MWh (entire period)
- +7.3 EUR/MWh (high-price period)
When electricity demand rises in Bulgaria and its neighbouring countries, the system must rely either on additional domestic generation or on imports. But local supply is limited, and cross-border transmission lines can only carry so much power at any given time. When these physical limits are reached, buyers compete for a constrained amount of available electricity, which drives prices up. That is why higher regional demand translates into a stronger price premium compared to better-connected markets like Germany.
2️⃣ Transmission Bottlenecks: The Hidden Price Multiplier
The second most important factor is something most consumers never see: grid congestion.
In flow-based market coupling, electricity can only move across borders if there is sufficient “Remaining Available Margin” (RAM) — meaning unused transmission capacity. RAM constraints explain 24% of the model’s explained variation. Within the econometric model (which explains ~33–38% of total price divergence), RAM is the second most important quantified driver with 24% weight of transmission constraints relative to other economic variables like demand and generation.
This means, that electricity prices in Bulgaria and its neighbours are heavily influenced by what happens on just a few critical transmission lines connecting Central and South-Eastern Europe. When more capacity is available on these corridors, prices in the region move closer to German levels. Statistically, increasing available capacity by 100 MW reduces the price gap:
- By 3.48 EUR/MWh (Levice–Göd line)
- By 2.7 EUR/MWh (Nosovice–Varín line)
- By 1.1 EUR/MWh (V. Ďur–Levice line)
But when these lines become binding constraints — meaning they are fully used and cannot transmit additional power — price spreads can surge dramatically, in some cases multiplying several times. The conclusion is straightforward: it is not the market coupling system itself that creates high prices. Rather, it is limited cross-border and internal grid capacity within that system. When cheaper electricity from Western Europe cannot physically flow into South-Eastern Europe, prices in the region remain structurally higher:
The analysis shows that the higher prices in Bulgaria and the wider region are not caused by dozens of grid problems, but mainly by a small handful of critical transmission lines between Central and South-Eastern Europe. Between 2024 and mid-2025, just five key bottlenecks of all congestion-related price effects observed at borders explain about 84% of the observed price differences, and two internal lines in Slovakia and Austria alone accounted for nearly 60% of congestion-related effects. Some of these lines were frequently congested and steadily widened the gap, while others were rarely constrained but caused extreme price spikes when they were. When the remaining available capacity (RAM) on these lines fell — especially during afternoon peak hours — price spreads surged; when capacity was higher, prices converged. In simple terms, a few physical “choke points” in the grid act like narrow bridges between markets: when they tighten, cheaper Western electricity cannot flow eastward, and prices in Bulgaria and its neighbours jump.
3️⃣ Local Generation: More Supply Reduces the Gap
A third key driver of the price gap is how much electricity the region produces itself — especially from low-cost sources such as solar, wind and nuclear power. In fact, solar generation alone accounts for 22% of the explained variation in the model, making it one of the most powerful structural factors. The numbers are clear: every additional 1 GWh of solar output reduces the price difference with Germany by –5.4 EUR/MWh (and by –6.7 EUR/MWh during high-price periods). Wind reduces the gap even more (–7.7 EUR/MWh), while hydro also contributes (–2.6 EUR/MWh).
In simple terms, the more electricity Bulgaria and its neighbours generate domestically — particularly from low-marginal-cost technologies — the less they depend on constrained imports, and the closer their prices move to Western European levels. This directly challenges a common misconception: renewables are not driving higher regional prices. On the contrary, the data show they help narrow the price gap.
Other Influences
The model also shows that when Germany’s own wholesale price rises, the gap narrows mechanically. Every additional 1 EUR per MWh increase in Germany reduces the spread by about –0.3 EUR/MWh. But this is secondary compared to demand and grid constraints.
What Does This Mean for Bulgaria?
Higher wholesale electricity prices in Bulgaria are not the result of a single flawed policy.
They reflect the interaction of:
• Strong regional demand
• Transmission bottlenecks in Central Europe
• Limited cross-border capacity
• Insufficient regional low-cost generation
Together, demand (26%), grid constraints (24%), and solar generation (22%) explain the majority of the statistically identified drivers.
The remaining two-thirds of price variation are influenced by additional market dynamics that are harder to quantify — including trading behaviour, fuel prices, outages, and system flexibility.
European market integration through flow-based coupling was designed to maximise welfare across the continent. It does improve overall efficiency. But its benefits are uneven when physical bottlenecks remain.
South-Eastern Europe is more sensitive to congestion and demand shocks because:
• It is structurally further from large low-cost supply hubs
• It has fewer interconnections
• It depends more on constrained corridors
Without stronger grids and more flexibility, integration alone cannot eliminate price divergence
Author: Dr. Mariya Trifonova