The cost of interconnector capacity to Britain is the most expensive in Europe, according to new research from EnAppSys.
In May, the export of energy from Belgium to Great Britain was 19.42€/MW/h within the monthly auctions hosted on the Joint Allocation Office (JAO) trading platform, the most expensive in the continent. This was followed by the IFA1 interconnector, which connects France and Great Britain and saw costs of 18.53€/MW/h for capacity.
There is a systemic price difference between the British market and that in the rest of Europe according to Phil Hewitt, director at EnAppSys. This is created by the carbon price support being set at £18/tce as well as power plants contributing more to National Grid’s costs of managing the system than their counterparts in Europe do.
“The merit order determines which fuel source will deliver power to the grid and is ranked by the price and amount of electricity generated,” he continued.
“Solar and wind are often at the top of the merit order due to no fuel cost for generation, followed by nuclear generation. Fossil fuels such as gas are often at the end of the merit order. The fuel mix in Britain is still influenced by a high amount of gas generation and in May, 48% of the energy demand was covered by gas.
“As gas is the marginal plant in GB and operators of gas plants are spending around £8 to £9 more on carbon than their counterparts in the EU alongside an average of £4 to £5 for balancing costs, this means that the price for interconnector capacity can be explained by the interconnectors capturing the regulatory divergence price between the two markets.”
There is a large amount of electricity generated at low marginal fuel costs and zero carbon cost in both Belgium and France due to their large nuclear fleets, which drives cross-border transmission capacity and price between the countries and Britain.
It follows research from RIDG (Renewable Infrastructure Development Group), a member company of RenewableUK, in May that suggested green energy infrastructure investment is being jeopardised by British transmission charges that favour EU electricity imports.
Italy was the second most expensive country to export energy to, with prices that ranged from 5.01€/MWh to 9.11€/MWh for all connected markets. This is due to it having high gas costs an poor energy efficiency. The average price for the monthly auction in May 2021 was around 2€/MW/h across Europe, with half concluded with a price under 1€/MW/h.
There are ways in which energy traders can profit from the price differences across markets in Europe added Hewitt.
“One example can be seen within the day-ahead market. For instance, on the 9th May at 2pm the day-ahead price in France was -66.18€/MWh. By purchasing power in France via the day-ahead auction and buying cross-border transmission capacity in the monthly JAO auction for France to GB for 18.53€/MW/h, energy traders could have made a profit by selling the energy in the GB day-ahead market.
“If the energy had been sold via the EPEX GB auction, a profit of 130.66€/MWh could have been realised.”
