EU-UK power trade agreement faces delays

Author: Anne Petersen

2021/05/10

LONDON (ICIS)--The UK and the EU may struggle to find an agreement on the future power trade before the 2026 deadline, according to EU transmission system operators (TSOs).

2026 DEADLINE

Following Brexit, the UK is no longer a member of the Single Day Ahead Coupling (SDAC) market and from 1 January 2021, every interconnector linked to the UK has been trading power explicitly through the Joint Allocation Office (JAO).

This is a sub-optimal arrangement compared with the pre-Brexit arrangement, and the markets and regulators are keen to adopt a new and more efficient methodology to guide the volume and flow of power through UK-EU interconnectors.

The proposed arrangement must be covered by newly ratified Trade & Cooperation Arrangement (TCA) which introduced the concept of multi-region loose volume coupling (MRLVC) to apply between the UK and the EU bidding zones directly connected to the UK.

Just as with the arrangement of fishing rights, the TCA left the details of the agreement on EU-UK power trade to be arranged some time before 2026.

At the moment, Ireland, Belgium, France and the Netherlands have interconnectors with the UK.

Norway, which is not an EU country but tends to implement EU regulations, will get an interconnector to the UK later this year. Denmark will follow in 2023 and Germany could be linked with the UK in the mid-2020s.

NOT ENOUGH TIME

Central to the MRLVC concept is the requirement that the volume and flow of power flowing directly between the UK and EU bidding zones should be determined independently from the pan-EU SDAC market process.

According to several sources, this is to ensure that the final solution is less advantageous to the UK than the pre-Brexit market coupling.

UK and relevant EU TSOs, the European Agency for the Cooperation of Energy Regulators (ACER) and the British consultancy company CEPA examined two MRLVC scenarios and presented the results in a public webinar on 4 May.

EU TSOs and regulators agreed that none of the proposed solutions were technically feasible or desirable.

The problem is that any TCA compliant solution requires more processes to be introduced to an already tight schedule.

The complete order book is only known at 12noon CET when the day-ahead trade closes. From then on it is a tight race to finalise trade and allocate production ahead of delivery which begins at midnight.

To accommodate a separate calculation of the flows between EU and the UK and add these flows to the common order book would strain the system. This could possibly be mitigated by changing timings, but such a solution would be outside the scope of the TCA.

The European TSOs are now awaiting the establishment of a specialised committee for energy, where representatives for EU, the Commission and UK are to meet and agree on a guidance to TSOs on a way forward.

A spokesman at UK National Grid ESO said that “the recently published cost-benefit analysis represents a milestone in moving towards a MRLVC solution, and we’ll be working closely with all UK and EU stakeholders to support its development in line with the TCA’s provisions.”

This committee may be asked to recommend going outside the TCA, which could necessitate a 27-country ratification and delay a final solution.

The 2026 deadline could thus be tighter than expected and the absence of an agreed solution creates uncertainty regarding flows between the UK and surrounding countries.

IMPLICATIONS FOR WIND

There could be implications outside of the interconnector flow. A future up to 10GW energy island in the North Sea just outside the UK shelf and agreed by Denmark, the Netherlands and Germany has been considered for an interconnector to the UK and any agreement would impact this project too.

“We consider that efficient cross-border trading arrangements are a pre-requisite for developing the offshore wind potential in the North Sea,” a spokeswoman for the IFA interconnector said.

Additional reporting by Eugene Poon, Ludovico Gandolfi