In Europe, electricity is a commodity traded on an hourly or half-hourly basis, often months ahead of its actual use in homes or businesses.
Every unit of electricity that we consume is traded several times before it is delivered. There is a single electricity market in Europe (the biggest in the world), but not a single price for electricity.
There are still barriers to trade, some to do with regulation and others created by missing physical infrastructure. This is also the case for Britain.
Towards Ireland, there is a submarine electrical cable running from Scotland to Northern Ireland, and another from Wales to the Republic of Ireland. Towards the continent, there is a submarine cable connecting England to the Netherlands, and another between England and France.
But the combined capacity of these cables is less than 5% of the total electricity production capacity of Britain. In other words, when the British electricity market is short of power there are very limited possibilities for import.
And when there is an excess of power, there are few opportunities for export. However, opportunities for electricity trade in Europe are growing as the continent moves towards a more sustainable power system.
The wind does not always blow and the sun does not always shine in the same country at the same time, so demand for sale and purchase of electricity grows in a market with more renewable energy sources.
Even though there is a market for electricity in Europe, with competing producers and suppliers, the infrastructure is still developed by regulated monopolies that own and operate the electricity networks. Most cross-border infrastructure are joint ventures by national monopolies that need to be approved by regulatory authorities.
The integration of the electricity market depends on how well the authorities on both sides of the border work together, which can be challenging, especially when it involves multiple organisations. Last year a new EU regulation was introduced to speed-up energy infrastructure investments in Europe.
It focuses on a list of more than 200 ‘projects of common interest’, half of which deal with electricity and half which are gas projects.
The list includes more GB links with Ireland and the rest of Europe, including Norway. Connecting with Norway is expensive because it is a long distance to cover but it is also attractive because Norway has a fleet of hydropower plants, unique in Europe.
In wet years Norway typically has an abundance of cheap electricity while in dry years it needs to import to avoid shortages, creating opportunities to trade in both directions.
If all the projects are built, Britain will no longer be an electrical island. It will be able to import or export more than 30% of its total production capacity.
This would move it from one of the least integrated electricity markets to a member of the cluster of best integrated markets in Europe, alongside other countries such as Denmark.
The new regulation also gives an important role to the pan-European Agency for Co-operation of Energy Regulators, which decides how countries should share the costs of these infrastructure projects if national authorities cannot come to an agreement within six months.
This year, 13 projects have reached an investment decision. Only one project, a pipeline to transport natural gas between Poland and Lithuania, was not successfully negotiated by national authorities within the six month window.
In this case the decision of the agency requires the Baltic States to compensate Poland for the development of the pipeline, because most of the investments need to be done on Polish territory, while many of the benefits are for the Baltic states. Without compensation the project would imply a net loss for Poland, though overall there is a clear net benefit.
We can therefore be confident that, if Britain goes forward with its ambitious plans to integrate its energy market with the rest of Europe, it can count on the agency to ensure that the main beneficiary of the planned infrastructure investments will pay their share. In some cases this will be Britain itself, but in others the cost will fall to countries across the European mainland.
theguardian.com
Every unit of electricity that we consume is traded several times before it is delivered. There is a single electricity market in Europe (the biggest in the world), but not a single price for electricity.
There are still barriers to trade, some to do with regulation and others created by missing physical infrastructure. This is also the case for Britain.
Towards Ireland, there is a submarine electrical cable running from Scotland to Northern Ireland, and another from Wales to the Republic of Ireland. Towards the continent, there is a submarine cable connecting England to the Netherlands, and another between England and France.
But the combined capacity of these cables is less than 5% of the total electricity production capacity of Britain. In other words, when the British electricity market is short of power there are very limited possibilities for import.
And when there is an excess of power, there are few opportunities for export. However, opportunities for electricity trade in Europe are growing as the continent moves towards a more sustainable power system.
The wind does not always blow and the sun does not always shine in the same country at the same time, so demand for sale and purchase of electricity grows in a market with more renewable energy sources.
Even though there is a market for electricity in Europe, with competing producers and suppliers, the infrastructure is still developed by regulated monopolies that own and operate the electricity networks. Most cross-border infrastructure are joint ventures by national monopolies that need to be approved by regulatory authorities.
The integration of the electricity market depends on how well the authorities on both sides of the border work together, which can be challenging, especially when it involves multiple organisations. Last year a new EU regulation was introduced to speed-up energy infrastructure investments in Europe.
It focuses on a list of more than 200 ‘projects of common interest’, half of which deal with electricity and half which are gas projects.
The list includes more GB links with Ireland and the rest of Europe, including Norway. Connecting with Norway is expensive because it is a long distance to cover but it is also attractive because Norway has a fleet of hydropower plants, unique in Europe.
In wet years Norway typically has an abundance of cheap electricity while in dry years it needs to import to avoid shortages, creating opportunities to trade in both directions.
If all the projects are built, Britain will no longer be an electrical island. It will be able to import or export more than 30% of its total production capacity.
This would move it from one of the least integrated electricity markets to a member of the cluster of best integrated markets in Europe, alongside other countries such as Denmark.
The new regulation also gives an important role to the pan-European Agency for Co-operation of Energy Regulators, which decides how countries should share the costs of these infrastructure projects if national authorities cannot come to an agreement within six months.
This year, 13 projects have reached an investment decision. Only one project, a pipeline to transport natural gas between Poland and Lithuania, was not successfully negotiated by national authorities within the six month window.
In this case the decision of the agency requires the Baltic States to compensate Poland for the development of the pipeline, because most of the investments need to be done on Polish territory, while many of the benefits are for the Baltic states. Without compensation the project would imply a net loss for Poland, though overall there is a clear net benefit.
We can therefore be confident that, if Britain goes forward with its ambitious plans to integrate its energy market with the rest of Europe, it can count on the agency to ensure that the main beneficiary of the planned infrastructure investments will pay their share. In some cases this will be Britain itself, but in others the cost will fall to countries across the European mainland.
theguardian.com
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