A ‘no deal’ exit from the European Union could increase electricity generation costs by £270m a year, according to the UK Energy Research Centre (UKERC).
While the UK remains part of the EU’s single electricity market, it benefits from being able to trade electricity across borders with neighbouring countries — automatically trading electricity from lower to higher-priced markets and maximising profits and energy security.
That would all change if the UK crashes out of the EU without a deal or with ‘third country’ status as a consequence of Brexit.
Before the advent of the single electricity market, markets closed at different times and traders were forced to decide their cross-border trades based on anticipated rather than actual prices. This inevitably led to errors and underused capacity, and energy flowed the wrong way up to a third of the time.
Now, the electricity markets of the 19 countries in North-Western Europe are coupled and the markets close at the same time, with trade undertaken on the basis of market prices, avoiding these errors. As a result, power almost always flows from the low- to the high-priced market.
But with a no-deal Brexit, the UK risks returning to the old system with large trading errors.
What’s more, with an increased share of renewables and more trading capacity in the market, the frequency and size of these errors could rise.
UKERC estimates that this could result in electricity generation costs increasing by as much as £270m a year.
“Abandoning the successful system of electricity market coupling is not an inevitable result of Brexit,” said report co-author Dr Joachim Geske. “However, we wish to illustrate the costs of doing so, which are likely to grow significantly over time.”
Co-author Dr Iain Staffell added: “Britain leads the world in how it has decarbonised its power system, and recently passed the point of having more renewables installed than it does fossil-fuelled power stations. With ever more electricity coming from variable sources, having inefficient trade with our neighbours would cause real harm to consumer electricity bills, not to mention the security and stability of electricity supply.”
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