Hard ‘elecxit’ could cost consumers £270m each year

A hard “elecxit” that sees the UK decoupled from EU’s internal energy market could cost consumers in Great Britain roughly £270 million each year, a new report from the UK Energy Research Centre (UKERC) has cautioned.

The study, conducted by researchers at Imperial College London, says if the UK crashes out of the EU without a deal or with third country status, inefficient energy trading could lead to a substantial increase in generation costs.

“Electricity traders sometimes make mistakes, and they know it,” the report explains. “To reduce the expected cost of mistakes, risk-averse traders scale back their actions when the direction of trade that maximises profit is unclear.”

Prior to the coupling of electricity markets in Europe, different market closing times forced traders to buy or sell based on anticipated, rather than actual, prices.  With traders guessing the price of electricity, errors were made, capacity went underused and electricity flowed in the wrong direction up to a third of the time.

The report says reverting to the old system would bring the return of large trading errors. But the growth of intermittent renewables could mean these errors are both larger and more common.

It estimates that generation costs in France and Great Britain would rise by £500 million per year – or 1.5 per cent of the total market value. The majority of these extra costs – £270 million – would be borne by British consumers.

Source: Elecxit: The Cost of Bilaterally Uncoupling British-EU Electricity Trade, UKERC and Imperial College London

“EU rules prevent electricity traders from buying expensive electricity in France and selling it at a loss in Britain,” said report author and professor of sustainable energy business Richard Green.

“With a no-deal Brexit, traders could take back control and make bigger mistakes than in the past.”

Iain Staffell, another of the report’s authors, said: “Britain leads the world in how it has decarbonised its power system, and recently passed the point of having more renewables installed than it does fossil-fuelled power stations.

“With ever more electricity coming from variable sources, having inefficient trade with our neighbours would cause real harm to consumer electricity bills, not to mention the security and stability of electricity supply.”

Another report from Imperial College London warned recently that a hard Brexit could add £1.5 billion to energy bills over the following year due to a collapse in the value of the pound. It said the depreciation of sterling had already cost consumers nearly £2 billion in the year following the vote to leave the EU.

Last month, National Grid gave assurances that there will be no legal barriers to continued cross-border electricity trading in the case of a no-deal Brexit.

However, the company warned that Great Britain will be forced to return to the “explicit” day-ahead trading of electricity interconnector capacity.

Since the coupling of day-ahead power markets in north west Europe in 2014, interconnector capacity in the region has been traded “implicitly” through exchanges.

Exchanges use the available capacity to minimise the price differentials between national markets. Operators are then paid for flows on the basis of the remaining spreads.

National Grid also said Great Britain would be unable to participate in the ongoing coupling of intraday power markets.