It works both ways

Energy supplies have hit the headlines again. Long-term projections highlight a narrowing margin in the supply and demand balance around the middle of the decade. Most of the reasons are widely trailed: coal plant is closing thanks to the strictures of the Large Combustion Plant Directive and nuclear is coming to the end of its life. Uncertainty over Electricity Market Reform and the Energy Bill and an increasing lack of clarity over the roadmap to green energy have not helped bring investment into the industry.

There’s an interesting issue in the projections, however. One area where investment has been forthcoming is interconnectors.

New electricity links between the UK and the Netherlands, and between Great Britain and both Northern Ireland and the Republic, have led the way. But National Grid is keen to entertain other suggestions. So is the government and the renewables industry. It’s all part of opening up the energy market in northern Europe and providing a market for our (planned) abundant renewable generation when the UK can’t soak it all up.

The projections for 2015 reveal the big uncertainty around those interconnectors: whether they will import or export.

One of the factors that contributes to the tight supply-demand balance predicted for 2015 is that capacity from interconnectors is not firm. Worse, every gigawatt of potential import is simultaneously a gigawatt of potential export for power generators and suppliers – even if, as a country, we are really rather in need of the power.

All the other actions we are taking to free the markets raise that uncertainty. Increase the amount of trading in exchanges and in the day-ahead markets? Then you increase opportunities to switch from import to export at short notice. Raise the number of independent generators in the market, or even follow up proposals to force vertically integrated companies to split? That cuts the link between generation and the only real guarantee of supply in the UK market – retailers’ supply contracts with customers.

The market will provide, we assume. If the situation in the UK is tight, prices will rise and power will naturally flow back across the connection.

Maybe it will; but maybe it won’t.

What we have learnt from gas interconnection is that just because we have done a good job of liberalising our market, it doesn’t mean we don’t need to maintain supplies here. In other countries, reliance on the market is tempered by a strategic requirement – sometimes explicit, sometimes not. So the UK can export gas to lower-priced areas, and last week Ofgem was forced to open an inquiry into “flows against price differentials” on the gas interconnector to Belgium. The UK could even be just a transit point for gas moving on to European markets, and it’s not impossible that could be the case for power too. For Irish wind companies whose business model rests on export to the UK, export through the UK is equally attractive.

It’s all speculation, but it’s not all that outlandish, as the 2015 projections attest. There can be unintended consequences, even from ­interconnectors.

Janet Wood

This article first appeared in Utility Week’s print edition of 12th October 2012.

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