LONDON (ICIS)--Flows through the new 1GW NEMO interconnector between the UK and Belgium could resemble those on the 2GW IFA cable connecting the UK and France, according to forward spread and historic data collated by ICIS.
This would mean the UK importing power at full capacity during baseload hours across the year, while exposing itself to potential exports during peakload winter hours.
Commercial operations on the NEMO cable are set to commence in January 2019, according to the current construction timetable from Belgian grid operator Elia.
Trade data reported to ICIS indicates a clear premium held by the UK Q1’19 Baseload over its Belgian counterpart. This means power is expected to flow predominantly from Belgium to the UK.
A smaller sample of trade on the Belgian Q1‘19 Peakload indicates a much narrower premium held by the equivalent UK product. With clear potential for the peakload spread to flip in favour of Belgian imports, it could stretch the UK system during peak hours in the second half of next winter if the cable’s construction remains on schedule.
While the interconnector could challenge the UK system during the winter, the flow of cheaper continental power into the UK during the summer could pose system operator National Grid balancing problems of a different nature.
Increased wind and solar capacity have combined during low demand periods to push balancing prices negative more frequently over recent summers.
According to one source at a continental trading house, the expected commissioning of NEMO has helped to depress forward summer contracts compared with near curve balance-of-summer products.
The presence of a physical link to the French power market has had an adverse effect on the UK market in recent winters.
The most notable impact was in October and November 2016 when reliability issues across some of France’s nuclear power fleet pushed up French prices and turned the IFA cable into a marginal source of supply for both UK and French markets during evening peaks. The knock-on effect was record spikes on UK wholesale electricity market.
Forward curve spreads can be a fairly reliable barometer of likely flows between countries, although the susceptibility of prompt contracts to short-term fundamental supply and demand drivers can alter the flow profile on interconnectors.
The UK Winter ’17 Baseload maintained a premium over its French counterpart throughout the six months up to expiry at the end of September 2017, according to ICIS closing assessments.
In reality, imports to the UK averaged just 1.15GW on a daily basis from the start of October 2017 to 7 March this year, when an outage reduced availability by 500MW.
On 14 days straddling November and the start of December 2017, the UK was a net exporter of power to France as reliability issues returned to afflict some of the French nuclear fleet.
UK versus continental prices
• Since the introduction of the UK’s carbon price support in 2013 – a tax paid exclusively by UK fossil-fuelled generators for carbon emissions – UK wholesale electricity contracts have typically been priced above those of their continental neighbours to reflect these additional costs.
• For much of 2015-2017, UK fossil-fuelled generators were paying four times for carbon emissions what their counterparts in the EU were, due to the depressed value of the EU emissions trading system.
• As a result, flows through the 2GW IFA interconnector with France and the 1GW BritNed cable with the Netherlands have been directed predominantly towards the UK.
• The dependency of French domestic heating on electricity compared to neighbouring countries means cold spells can push up French system demand and prices sufficiently to push power out of the UK.
• This trend is most evident during peak winter weekday evenings when temperatures drop low enough to push up French electricity demand. Despite the UK’s reliance on the IFA cable, French electricity demand can top 90GW during the winter compared to 50GW in the UK.
• Belgium is part of the flow-based market-coupling mechanism, meaning that bullish French prices typically feed directly into the Belgian market.
• Winter temperatures in France are therefore likely to dictate the profile of flows through the NEMO interconnector as well as future French cables.