The U.K.’s exit from the European Union at the start of 2021 has somewhat predictably affected British business sectors ranging from musicians to lobster exporters. But there’s another Brexit victim that had nothing to do with the U.K.’s departure from the EU: the Irish energy market.
All of Ireland’s energy interconnections with Europe run through Great Britain. And since the U.K. is no longer part of the EU’s internal energy market (IEM), both islands have been suffering from increased supply volatility.
However, the problem is eight times bigger in Ireland because of the importance of electricity imports relative to the size of the grid, according to Phil Hewitt, director of EnAppSys, an energy data, consultancy and information services provider.
Ireland’s single electricity market (SEM) trades energy with the rest of Europe via two 500-megawatt interconnectors: EirGrid’s East West Interconnector between Ireland and Wales, and Mutual Energy’s Moyle Interconnector between Northern Ireland and Scotland.
These can supply between 15 percent and 30 percent of the 3 gigawatts to 7 GW of typical demand on the SEM. Until January, the SEM traded within the IEM via a day-ahead auction that also included the U.K., which itself has 4 GW of interconnection capacity with mainland Europe.
Final tweaks to capacity were made through two intraday auctions between the SEM and Great Britain, and a final SEM-only auction.
Since Brexit, the U.K. still trades electricity with Europe but doesn’t do it on Europe’s hyper-efficient European Power Exchange and Nord Pool N2EX exchange daily auctions. The inefficiencies are starting to show.
Goodbye EU, hello supply volatility
Auction data collected by EnAppSys shows that intraday volumes have increased as British and Irish grid operators fight to match supply and demand. Traffic across the East West and Moyle interconnectors, meanwhile, has become more erratic.
It is unclear if the problems have started to have an impact on energy pricing. At two points in January, the SEM had to import power at prices of more than 1,700 euros ($2,000) per megawatt-hour.
But David Martin, senior communications specialist at EirGrid, said in an email that: “While there has not been time to determine accurately the impact of Brexit on the SEM, our initial assessment is that the prices have been similar to that experienced pre-Brexit in similar circumstances.”
The supply problems have been exacerbated by winter weather, Hewitt told GTM in an interview, and even so may seem minor compared to the blackouts sweeping across frozen Texas.
But what makes Ireland’s case poignant is that policymakers have had almost four years to prepare for the U.K.’s departure from the IEM—and still “people hadn’t quite realized exactly what was going to happen,” said Hewitt.
European Commission officials and industry bodies warned that trading energy with the U.K. would become less efficient and more expensive after reviewing the details of the Brexit deal in early January.
Under the current arrangement, “There are now two marginal generators on the system setting different prices, rather than just one marginal generator and one price,” said Cornwall Insight wholesale team lead Tim Dixon in an email.
“It is expected that this will result in less efficient price-setting and interconnector flows, thus generally resulting in higher and more volatile energy prices. However, the precise extent to which this has occurred is difficult to quantify.”
Improvements on the horizon
The good news is that volatility is expected to calm down as the weather improves and grid operators get more used to trading under the new arrangement.
Furthermore, the last-minute Trade and Cooperation Agreement drawn up between the U.K. and the EU foresees the development of what has been termed a “multi-region, loose-volume coupling” process for interconnector trading by April 2022.
“Exactly how this will look is unclear, with more detailed outlines of proposals expected this quarter,” Dixon said.
In the meantime, the U.K. is building new interconnectors to mainland Europe, potentially easing some of the strain on exports to Ireland. Work is currently underway on a 1.4 GW interconnector between the U.K. and Norway, the longest in the world, which is due to open later this year.
Ultimately, though, Irish grid operators may have to wait until 2025 for a definitive end to their worries.
That’s the expected commissioning date for the 700 MW Celtic Interconnector, which will run from southern Ireland to Brittany in France — and once again link the Irish grid directly to the energy market that it lost touch with on January 1 this year.
Source: Greentech Media
