Nemo Link intra-day product to boost liquidity and flexibility in Belgium and UK power markets

LONDON (ICIS)–Auctions for intra-day capacity on the Nemo Link interconnector will bring greater flexibility to British and Belgian power markets and opportunities for cross-border arbitrage, market participants told ICIS.

Nemo Link’s intra-day capacity would be auctioned explicitly through four auctions a day, each one offering capacity for a forthcoming six-hour fraction of the day.

Currently, capacity on the Nemo Link is offered implicitly on the day ahead market through Multi Regional Coupling, or market participants may acquire long term products through explicit auctions on the JAO Single Allocation Platform.

Nemo Link and Belgian transmission system operator (TSO) Elia opened a consultation requesting feedback on the launch of an intra-day product in July. Said consultation has now ended and the intra-day product should be introduced by the end of 2019.

INCREASED FLEXIBILITY

Jean-Paul Harreman, analyst at EnAppSys, said the intra-day product would “increase the market’s ability to react to changes from day-ahead to intraday and help balance the grid. Until this goes live only TSOs can use this cable to cure any situation in both markets.”

He added this could increase traded volumes on the Belgium power market.

“If non-physical traders are allowed to settle open positions in the balancing market, Belgium may see a fantastic increase in liquidity as we’ve seen in Great Britain, the I-Sem market and France,” he said.

The ability to reduce flows coming from Belgium via the intra-day product would be very beneficial to British grid operator National Grid, EnAppSys director Phil Hewitt said.

Spikes in inflows of power, especially in the southeast of the UK, can sometimes flood the British grid, therefore having flexible intra-day auctions would allow greater balancing actions.

One trader at a European commodity trading company said the product would bring greater liquidity to the Belgium power market and help increase power exchange between the UK and the continent in general.

He said energy could flow from the UK to Belgium during the winter months when France’s power system gets tighter. The UK could also export power to Holland via Belgium as soon as demand picks up and Belgium start to couple with Holland rather than France.

BELGIAN-UK SPREADS

British prices are generally more expensive than Belgian ones due to the UK having a carbon tax which boosts the price of UK electricity. This means that typically power flows from Belgium to the UK.

But based on average intra-day hourly prices from the past two months, energy flows could go from the UK to Belgium in the early hours of the morning or in the evening, when Belgian and British prices converge the most.

The prices are from the past two months, when Belgium has had significantly above average nuclear availability.

This will have contributed to widening in the intra-day hourly price spread between Belgium and the UK.

In the winter, Belgium as well as France have tighter supply systems due to more uncertain nuclear supply.

This could lead the UK to export power to Belgium during those hours where the prices most converge during the winter months, once the intra-day product is introduced.