Q3 2017: The future of Britain’s interconnectors

by Dr Iain Staffell – Imperial College London 

Electricity imports grow ever more important, yet several questions hang over the future of Britain’s interconnectors: not least the impacts of Brexit. 

The UK is part of Europe’s internal energy market (IEM) which allows prices to determine how power flows between countries. This future is unclear as participation is based on membership of the European single market, and no specific trade rules have been announced for the post-Brexit energy sector.¹ 

Leaving the IEM would revert us back to less efficient interconnector trading. Uneconomic trades (buying dear, selling cheap) could occur up to 20% of the time², leading to higher consumer bills³. Also, the UK has been the fourth highest recipient of European funds for energy infrastructure, with its interconnectors being awarded 17 out of 195 EU Projects of Common Interest (PCIs) and 12% (£100m) from the European Energy Programme for Recovery (EEPR). 

7 GW of new interconnector capacity is planned to be built over the next 5 years, almost tripling the current 4 GW of links (see figure, left). These will provide greater flexibility as weather-dependent renewable sources continue to grow, and greater security of supply whilst coal and nuclear capacity is rapidly retiring. British consumers have arguably benefitted from lower bills as our exporting neighbours have 20% lower electricity prices (see figure, below). Together, these benefits are predicted to reach £500 million per year by 2020⁴. 

The historic and anticipated growth of interconnection capacity to Britain⁵ Electricity prices in these countries compared to in Britain (right)⁶

However, this has led to Britain importing high-carbon electricity from Dutch and Irish generators. Overseas fossil-fuel generators benefit from an uneven playing field in two ways. British power stations must pay the Carbon Price Floor (£18 per tonne of CO₂) on top of the £5/tCO₂ European ETS price paid by imported electricity. This disadvantage for British power stations will diminish if and when the ETS price strengthens. Applying a levelling border tax on electricity would be administratively difficult, and so Britain’s price floor should be maintained to continue our decarbonisation objective. 

Secondly, British generators pay to access the national grid (via TNUoS charges)⁷, but imported electricity does not. These charges pay for transmission infrastructure, and could instead be paid directly by electricity consumers so that generators don’t face different charges depending on their nationality. This may prove easier than requiring European generators to pay TNUoS charges, as it is unlikely the EU would allow a single country to levy charges on European generators. 

Together these exemptions give European generators an estimated £10/MWh advantage over domestic generators, around a fifth of the market price. The UK must therefore come up with a feasible way to ensure electricity flows efficiently between borders to keep down costs and carbon emissions. If the markets either side of an interconnector have different charging arrangements, the outcome 
cannot be efficient.

Authors: Jonathan Bosch,  Dr Iain Staffell

1: UK Government, 2017, The United Kingdom’s exit from and new partnership with the European Union..

2: Reuters, 2017,  Power market coupling boosts chance of UK-Norway cable – Statnett.

3: UK Parliament, 2017, Leaving the EU: negotiation priorities for energy and climate change policy.

4: Vivid Economics, 2016, The impact of Brexit on the UK energy sector.

5: Ofgem, 2017, Electricity Interconnectors. interconnectors.

6: Prices in the Republic of Ireland are not accessible for the selected timeframe, but are likely to be higher than in continental Europe.

7: TNUoS: Transmission Network Use of System