‘Hard elecxit’ could raise annual energy costs by €692m

The UK’s departure from the EU internal energy market could raise annual generation costs in Great Britain and France by €692 million (£590 million) – or 2 per cent – by 2030, a new study has warned.

The paper authored by researchers at Imperial College London says this would be the result of a less efficient power market and the abandonment of some planned interconnectors.

“Before European electricity markets were coupled, different market closing times forced traders to commit to cross-border trading volumes based on anticipated market prices,” the study explains. “Interconnector capacity was often under-used, and power sometimes flowed from high- to low-price areas.”

It says the coupling of day-ahead markets in 20 countries across Europe has helped ensure that electricity flows from low- to high-priced areas until prices are equalised or interconnector capacity is full used, bringing “significant welfare gains”.

If the UK departs the EU without a withdrawal agreement in place, then it would also leave the internal energy market. “As consequences of this, the European Commission foresees not only market uncoupling, but also the necessity to charge an interconnector usage fee for trade with Great Britain,” the paper notes.

It says even if the UK exits the EU with an agreement in place, the country could still have to leave the internal energy market if it refuses to accept the jurisdiction of the European Court of Justice.

The authors say the figures they have produced are “not simply the inverse of the welfare benefits previously gained” as they would not reflect the changing nature of the energy market.

The growth of renewables will make “coordination more valuable and a lack of coordination costlier”, whilst rising interconnector capacity will increase the potential losses from inefficient trading.

They are instead based on modelling of uncoupled energy markets, which can factor in these changes.

The headline figure compares a business-as-usual “soft elecxit”, characterised by continued market coupling and an increase to 10GW of interconnector capacity, with a “hard elecxit”, whereby British and French markets are decoupled and interconnector capacity rises only slightly to 5GW.

But the study says the results are highly sensitive to how their respective electricity systems develop over the coming decades. For instance, if France retains substantial nuclear capacity with low marginal costs, then the price spread between the two markets would widen and a “hard elexcit” would increase generation costs by around €2.7 billion per year by 2030.

Conversely, if the carbon price in Great Britain were lowered, then the price spread would narrow and the annual cost of a hard elexcit would be €217 million. If the EU introduced a carbon border tax, as it has suggested it may, then a hard elecxit would cost €816 million.

The paper, titled ‘Elecxit: The cost of bilaterally uncoupling British-EU electricity trade’, was published in the journal Energy Economics.