Energy consumers are spending as much as an extra £1.1bn a year on electricity, now the UK no longer has access EU internal energy markets.
According to Energy UK (EUK), an industry body representing power generators and traders, greater cooperation with Europe on electricity trading and carbon pricing would reduce energy costs for consumers. The organisation claims that inefficient trading arrangements have resulted in UK households bearing the brunt of the costs since 2021, as electricity is no longer exchanged through the EU market coupling regime.
Despite expectations for a new trading arrangement by April 2022, progress has been lacking. The Specialised Committee on Energy, a joint forum between the UK and the EU established in 2021 as part of the Trade and Cooperation Agreement, has only met three times according to the lobby group. EUK claims the mismatch of trading arrangements has led to a more complex, costly, and a less efficient model for electricity trade between the EU and UK. It has also added regulatory and administrative burdens for energy traders.
The industry body highlights that Brexit has introduced barriers to electricity trading across interconnectors. These are high-voltage cables on the seabed used to export surplus power and import it during scarcity, which contributed nearly 9% of the UK’s electricity last year.
Prior to Brexit, the UK was part of the internal energy market regime which balanced needs and established a single price using computer algorithms. However, since completing the EU transition period in December 2021, the UK has shifted to a backup system involving daily auctions.
Under the current situation traders must purchase or sell energy separately in each geographical market, which increases complexity and costs. EUK emphasises the need to recouple power exchanges and order books, as inefficient cross-border trading arrangements may hinder investment in joint renewables projects between the UK, neighbouring EU member states, and Norway. This issue is expected to intensify as UK electricity exports rise due to the significant offshore wind capacity being developed around the British Isles.
Net exporter of electricity
Official statistics indicate that the UK became a net exporter of electricity in 2022 for the first time in over four decades, driven by nuclear outages in France. The country currently has 7.9 gigawatts of electricity interconnection capacity, with plans to expand to at least 18 gigawatts by 2030. There are currently eight privately owned interconnectors linking the UK, and another between the UK and Denmark is expected to begin operations in early 2024, further increasing capacity to 9.8GW.
According to the Financial Times, the Department for Energy Security and Net Zero says: “The UK government has been consistently calling on the EU to implement the Trade and Cooperation Agreement’s Energy Title in full and more quickly, including developing and implementing more efficient electricity trading arrangements over the interconnectors.”
This position is a step-change from that of the Johnson government in which relations with the EU were characterised by tension and mistrust. While Sunak is a Brexiteer, he recognised the impasse over the Northern Ireland Protocol was untenable, negotiating its replacement with the new Windsor Framework.
Engaging more positively and proactively with the EU presents the opportunity to develop and implement more efficient electricity trading arrangements over the interconnectors. This will enhance energy security, lower carbon emissions for both the UK and the EU and reduce bills for UK energy consumers. Given the record cost of energy over the past year, this can’t come soon enough.
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