Elecxit: the cost of bilaterally uncoupling British-EU Electricity Trade
File(s)
Author(s)
Geske, Joachim
Green, Richard
Staffell, Iain
Type
Working Paper
Abstract
The UK's withdrawal from the European Union could mean that it leaves the EU's Internal Energy Market for electricity (Elecxit). This paper develops methods to study the longer-term consequences of this electricity market disintegration, especially the end of market coupling. Before European electricity markets were coupled, different market closing times forced traders to commit to cross-border trading volumes based on anticipated market prices. Interconnector capacity was often under-used, and power sometimes flowed from high- to low-price areas. A model of these market frictions is developed, empirically verified on 2009 data (before French and British market coupling) and applied to estimate the costs of market uncoupling in 2030. A less efficient market and the abandonment of some planned interconnectors would raise generation costs by €700 m a year (2%) compared to remaining in the Internal Energy Market. This result is sensitive to how the British and French electricity systems develop over the coming decades. Economic losses are four times greater (€2700 m a year) if France retains substantial nuclear capacity due to its low marginal costs. Conversely, losses are reduced by two-thirds if UK weakens its decarbonisation ambitions, as lower carbon prices subsidise British fossil fuel generation, allowing electricity prices to converge with those in France. A Hard Elecxit would make British prices rise in three of our four scenarios, while those in France would fall in all of them.
Date Issued
2020-01
Date Acceptance
2019-11-22
Citation
Energy Economics, 2020, 85, pp.1-16
ISSN
0140-9883
Publisher
Elsevier
Start Page
1
End Page
16
Journal / Book Title
Energy Economics
Volume
85
Copyright Statement
© 2019 The Authors.
Sponsor
Engineering & Physical Science Research Council (EPSRC)
Identifier
https://www.eprg.group.cam.ac.uk/eprg-working-paper-1916/
Grant Number
EP/L024756/1
Subjects
Electricity Trading
Market Coupling
Brexit
Publication Status
Published
Article Number
ARTN 104599
Date Publish Online
2019-11-28