UPDATE 1-German energy regulator abandons power zone with Austria from 2018

* Joint power zone to be split in favour of auctions

* Regulator wants lower costs, fewer technical risks

* Disadvantage for EU energy plans, Austrian industry (Adds detail, context)

FRANKFURT, Oct 28 (Reuters) - Germany’s energy regulator on Friday asked power transport companies to prepare for a split of the German and Austrian power markets, which are currently joined, to allow for greater traffic at lower cost and fewer technical risks.

The authority, Bundesnetzagentur (BnetzA), said in a statement it had asked Germany’s four high-voltage transmission grid firms to prepare for the split to become effective on July 3, 2018, after which border bottlenecks would be handled via auctions, as is usual on Germany’s other borders.

“Preparing to handle the bottlenecks on the German-Austrian border is aimed at ensuring that the power market can function in the long term and that supply security in Germany and the region is safeguarded,” Bundesnetzagentur president Jochen Homann said.

Austria’s regulator E-Control said in a statement the unilateral separation was “the wrong signal and not comprehensible”, but it would continue to talk to Germany to try to find a solution to an essentially German problem.

Austria has been linked to Germany’s power market since 2002 under EU targets eventually to create a single energy market.

BnetzA said auctions were planned for day-ahead, intraday and longer-term electricity deliveries.

The reason for the measures is oversupply from northern German wind parks, whose power flows not just onto Austrian, but also Polish and Czech grids in a development known as “loop flows”, the regulator said.

Germany’s neighbours complain that such flows cause rising costs for the technical handling of grid stability and, due to their frequency, increase stress on equipment and risks of disruption.

Currently, grids in Germany do not allow such power to flow into southern Germany in sufficient quantities and fast enough to reach industrial consumers there, because its network expansion plans are years behind implementation.

Consequently, German volumes are rerouted across the region and Poles and Czechs have installed expensive phase shifters to stem the power influx.

Austria’s Chamber of Commerce has said it expected prices to rise by around 15 percent compared to current levels after a split.

Ideally, the European Commission wants more, not less, cross-border power cooperation and price convergence under its long-term goals to encourage more trading and choice.

“The split clearly contradicts the goal of a more integrated EU internal market,” E-Control said.

Germany's four network operators tasked with the job are EnBW's TransnetBW, 50Hertz, belonging to Belgian Elia , the German arm of Dutch TenneT IPO-TTH.AS, and Amprion, formerly RWE's grid. (Additional reporting by Shadia Nasralla; Editing by Maria Sheahan and Dale Hudson)