The Department for Business, Energy and Industrial Strategy (BEIS) has launched a consultation into the potential of re-coupling Great Britain’s electricity auctions.
Following Brexit, the country’s electricity market became decoupled from the EU Internal Energy Market.
Trading with the EU takes place via Britain’s nominated electricity market operators, European Power Exchange SE (EPEX) and Nord Pool AS (NP), but prices are no longer determined by the coupling process. Instead interconnector capacity is sold to the market separately and independently of the electrical energy through explicit auctions. This has meant that there isn’t a single GB clearing price.
A Trade and Cooperation Agreement (TCA) was provisionally applied from 1 January and formally entered into force on 1 May 2021, which ensures the efficient use of electricity interconnectors. It is designed to coordinate robust and efficient agreements between Britain and the EU.
UK and EU TSOs published a Cost Benefit Analysis (CBA) in April 2021, showing that a single GB clearing price – that was determined the subsequent GB price coupling following the multi-region loose volume coupling (MRLVC) – would be “highly desirable”.
As the system currently stands, there may be issues with implementing an effective MRLVC, such as incomplete optimisation, a negative impact on price formation and increased complexity of fallback and coordination procedures.
Constraints within the MRLVC due to inefficiencies could lead to fragmented market liquidity, the BEIS consultation continued, which could increase price volatility, and undermine price signals for market participants.
Following on from the CBA analysis, a number of market participants and trade associations threw their weight behind the creation of a single clearing price. In March, the House of Lords EU Environment sub-committee released a report which similarly raised concerns about consumer electricity prices and the risk of increases due to the inefficiency of the initial cross-border electricity trading arrangements.
As such, BEIS is consulting on the creation and implementation of a single GB clearing price. It laid out a number of approaches for the coupling of specific daily day-ahead auctions, taking into account the TCA, the recommendations of the CBA and reflecting the Joint Declaration made by the UK and the EU at the beginning of 2021.
The consultation, which opened today, lays out 18 questions of the potential forms of recoupling. It is open to stakeholders for the next four weeks.
To find out more, or respond to the consultation, see here.