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Potential impacts of Brexit on power markets

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Potential impacts of Brexit on power markets

Great Britain’s electricity markets are currently integrated into those of the EU, with common rules governing their operations. Significant cross-border flows of electricity take place between continental Europe, Great Britain (GB) and the island of Ireland.

 

Before market integration was in place, electricity and capacity had to be traded separately forcing Traders to commit to cross-border trading volumes based on anticipated market prices. As a result, interconnector capacity was often underused. Furthermore, power sometimes flowed in a counterintuitive way from high- to low-price areas [UK government 2018]. Without financial support, a harmonized framework for investment in interconnectors and clear price signals pointing out the benefits of additional capacity, investors were reluctant to invest in additional interconnection capacity.

 

Implicit market coupling improves the efficiency of capacity allocation, creates clear signals for increased interconnector capacity and allows traders to easily trade across borders. If the United Kingdom  leaves the EU, current and future benefits of the European Internal Energy Market could be reversed depending on the terms of Brexit.

 

The aim of this study is to assess the potential impacts of the “Brelecxit” (Brexit and its effect on the electricity market). The paper starts with a brief explanation on the rationale behind the European Internal Energy market. The subsequent sections treat interconnectors and the EU market model with a focus on their importance for GB. Finally, the cost impacts of the Brelecxit is modeled for a Norwegian and Swiss style bilateral deal with the EU.

 

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