Great Britain – state of play in a post-Brexit power market

Great Britain – state of play in a post-Brexit power market

As of 1 January 2021, Great Britain officially left the European Union. Therefore, GB’s electricity market is no longer part of the EU Internal Energy Market, into which it had been fully integrated since 2014.

Since the decoupling of GB, all EPEX SPOT Day-Ahead and Intraday markets have been running smoothly, but the market has been confronted with two separate Day-Ahead reference prices. EPEX SPOT has identified a quick and simple way to swiftly return to a single price in GB, and cross-border trading arrangements play a key role in this.

A decoupled market…

With the end of the Brexit transition period on 31 December 2020, the interconnectors on the borders of GB and continental Europe started running explicit auctions for their capacity. This means that the cross-border capacity at the interconnectors has to be bought separately from the traded electricity by market participants.This is less efficient than the setup in Market Coupling, where electricity and available cross-border capacity are traded simultaneously.

...with two separate reference prices

The decoupling also lead to two separate reference prices published by two Power Exchanges in GB. Before Brexit, the European regulatory framework set the rules and processes that enabled GB’s power exchanges to compute a single Day-Ahead reference price. Since January 2021, each power exchange runs and calculates their own Day-Ahead auction results, independent of any cross-border capacity allocation process and of each other.

Since then, market participants have been calling for a quick way back to a single price.

EPEX SPOT has identified a quick and simple way to swiftly return to a single Day-Ahead price in GB, and cross-border trading arrangements play a key role in this.

New timings for a robust price signal

In order to best adapt the trading schedule to the new market conditions, EPEX SPOT decided, in close cooperation with the trading community, to move the hourly Day-Ahead auction from 11:00 GMT to 9:20 GMT, with results available at 9:30 GMT. Since the shift happened, a growing number of members have been active on the UK market, resulting in sustained volumes and a robust price signal. Especially in the turbulent political context of Brexit, ensuring the robustness of the price signal was our top priority. 

Great Britain – state of play in a post-Brexit power market
Great Britain – state of play in a post-Brexit power market

Coupling continues to be in place on our GB Intraday auctions coupled with Ireland where the cross-border capacity between the Island of Ireland and Great Britain remains implicitly allocated.

The way forward – Loose volume coupling and quick return to a single price

These current trading arrangements are transitional. We are working jointly with TSOs and regulators on a future framework for an efficient long-term connection between the UK and the European Internal Energy Market. The enduring trading arrangements are expected to be based on multi-region loose volume coupling. This would ensure to allocate capacities more efficiently, but still not as optimally as if part of the Internal Energy Market. This should deliver an efficient, non-discriminatory implicit allocation of cross-border capacity, preferably supported by a single Day-Ahead reference price.

Interconnectors that will participate in Market Coupling to allocate capacity to or from GB should have to ensure that their capacity benefits all consumers. This means that auction marketplaces should be guaranteed equal access to such capacity, so that the entire energy community can benefit from it.

The quick fix – a single price within reach

With the go-live of the new interconnector North Sea Link (NSL) between Great Britain and Norway in October 2021, capacity is allocated implicitly between the two countries. The current market setup, however, excludes a large group of the trading community from this capacity. If all market participants could fairly access the capacity on this new interconnector, a single reference would be re-established in GB.

Great Britain – state of play in a post-Brexit power market

NSL setup also splits the Norwegian power market

NSL is strategically very important but the curent market setup excludes a large part of the trading community. By allowing all relevant market places access to the capacity, the whole energy community benefits from the interconnector. This ensures fair competition in GB and Norway.

A solution is readily available

EPEX SPOT operates two Intraday auctions in Great Britain, both implicitly coupled with Ireland through the Irish Sea interconnectors. These auctions have a non-discriminatory setup, i.e. all market operators active in GB and Ireland can access the capacity. The technical solution used here can be used as blueprint for the Day-Ahead auction setup at NSL and enable a rapid return to a single price in GB.
Over the past two years, EPEX SPOT has repeatedly reached out to parties involved in NSL as well as regulators, to develop a non-discriminatory setup.

Great Britain – state of play in a post-Brexit power market

Regulators acknowledge that making cross-border capacity at NSL available to all market participants would be beneficial. Unfortunately, to date, there are no binding commitments or timetable to make this happen. Market participants, and subsequently the British and Norwegian end consumers, will suffer from the inefficiency of two separate Day-Ahead auctions in the long-term.