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Electricity prices in the UK are already rising due to Brexit

Jordan O'Brien

Jordan O'Brien

Contributing Editor
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Brexit may already be having a significant impact on the UK’s electricity market, as prices have soared at the beginning of March compared to previous years. 

New data from EnAppSys has shown that day-ahead pricing in the market for the first week of March peaked at £683. When compared with data from the previous six years, electricity prices in the UK at the beginning of March 2021 were more than three times higher than the previous peak of £191.55. 

So, what has Brexit got to do with this? Well, as of January 1, 2021, the UK ceased to be part of the European electricity market. That means it is no longer part of the day-ahead market coupling arrangements, which could be the reason for the increased prices. 

In fact, for those thinking that March could just be an isolated case, especially given the fact that March is typically a high demand week, EnAppSys compared data for the first full three months of 2021. It found that prices in the day-ahead market were higher than in the first three month in the previous six years. 

Phil Hewitt, director of EnAppSys, commented: “Traditionally the first week in March is a high demand week, as between November 1 and February 28 the transmission charging arrangements encourage companies to reduce consumption (so called triad periods). From March 1, triad season is over and this encourages higher demand in the evening peak.

“This combined with low levels of wind generation in the first week of March this year meant that the GB electricity market was dependent on imports from the continent to meet demand in the evening peak.

“On March 2 and 3, the interconnector capacity auctions for the evening peak resulted in high prices. In these auctions the interconnectors were the marginal source of power, which meant that they could set the market price. The high capacity auction prices mean that to make a profit, the purchasers of the capacity need to clear at a price higher than the cost of the capacity and the price they can buy power at in France, Belgium or the Netherlands.

“Now that the GB market has left the EU internal energy market, it has left the day-ahead market coupling arrangements. The IEM day-ahead market coupling process with its implicit allocation of capacity on the interconnectors has meant that power flowed from the continent to the GB market at a much lower price. However, with the interconnectors now falling back to explicit auctions, this has resulted in extreme prices for capacity when the GB market is under stress.”

Whilst the recent high price events could be seen as an unusual occurrence, it appears that these special events are becoming more frequent in the power market. EnAppSys said this pattern of behaviour in the market can be firmly placed at the door of the interconnector trading arrangements.

Hewitt concluded, “The new trade and cooperation agreement between the UK and the EU has provision for a loose market coupling arrangement to be established between the GB market and adjacent EU markets by April 2022. This is an ambitious timescale for the TSOs and regulators to gain approval, so in the interim high price peaks and higher balancing costs will become a feature of the GB electricity market. With two small suppliers already going to the wall since the new year, it is an increasingly difficult market to operate in for these new entrants as credit requirements have increased.”Want to learn more about how Brexit is impacting the UK’s electricity market? Make sure to read the Gossage article ‘How the UK’s exit from the EU will impact our control over the electricity market’.

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