Brexit causes power price hikes as interconnector use drops

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Britain’s exit from the EU has resulted in reduced trading on the electricity interconnectors between Great Britain (GB) and Ireland and increased the frequency of extreme prices.

The GB electricity market left the internal energy market of the European Union (IEM) following the end of the Brexit transition period on January 1, 2021. As part of the withdrawal agreement between the UK and the EU, the Northern Ireland Protocol ensured that the single electricity market (SEM) of the island of Ireland would remain intact.

However, the effect of the GB electricity market leaving the IEM has still resulted in a decrease in the use of the SEM’s interconnectors that link it with Britain, recent research from EnAppSys shows.

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Average utilisation in January was around 350MW, compared with 500MW prior to Brexit. The January figure was the typical level when one of the interconnectors suffered an outage before the GB left the IEM. According to EnAppSys, this reduced usage led to an increase in the frequency of extreme prices as liquidity decreased.

Phil Hewitt, director of EnAppSys, said: “Before Brexit, the SEM was coupled with the IEM via the two interconnectors to GB, via a common day-ahead auction that ran at 11 AM for the following day. This ensured that if prices were higher in the SEM than in GB, energy would flow from GB to the SEM to reduce prices for consumers in the SEM and vice versa.

“With GB leaving the IEM, the two markets are no longer coupled across the two interconnectors that link both islands – the island of GB and the island of Ireland – for the common 11AM day-ahead auction.

The chart shows the monthly average of auction levels for the first months of the SEM whilst GB was still in the IEM. Since January 1 2021, the average auction levels are shown on a day-to-day basis, credit EnAppSys

Hewitt explains that the liquidity pool is reduced, both in the SEM and the GB market, as the interconnectors no longer participate in this auction. This leads to more extreme prices in both markets as they no longer share energy at the day-ahead stage. “For the 11 AM day-ahead auction, 11 of the 14 highest prices ever seen have occurred since Britain left the IEM with the peak value being €500/MWh equivalent to 50c per kWh unit.

“Also, because there is less volume than capacity in the IDA1 and IDA2 intraday auctions, which now are the only auctions that determine the interconnector flows between GB and the SEM, this means that the interconnectors are utilised less. In turn, this means that the SEM needs access to more indigenous generation which may be more expensive than in GB. In addition, when it is windy in Ireland there is less opportunity to push this excess wind energy over the interconnector to GB.

You can see that average interconnector utilisation before GB left the IEM was around 50%, credit EnAppSys

According to Hewitt, the reduction in imports and exports of cheaper power to and from Britain will lead to more extreme prices in the future. “The current situation with lower-than-usual dispatch on the interconnectors will continue until SEM market participants increase their use of the IDA1 and IDA2 auctions. This also requires more participation on the GB side.”