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Elecxit: the cost of bilaterally uncoupling British-EU Electricity Trade

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Title: Elecxit: the cost of bilaterally uncoupling British-EU Electricity Trade
Authors: Geske, J
Green, R
Staffell, I
Item Type: Journal Article
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.
Issue Date: Jan-2020
Date of Acceptance: 22-Nov-2019
URI: http://hdl.handle.net/10044/1/75391
DOI: 10.1016/j.eneco.2019.104599
ISSN: 0140-9883
Publisher: Elsevier
Start Page: 1
End Page: 16
Journal / Book Title: Energy Economics
Volume: 85
Copyright Statement: © 2019 The Authors. Published by Elsevier B.V. This version is available open access under a CC-BY Licence (https://creativecommons.org/licenses/by/4.0/)
Sponsor/Funder: Engineering & Physical Science Research Council (EPSRC)
Funder's Grant Number: EP/L024756/1
Keywords: 0906 Electrical and Electronic Engineering
0913 Mechanical Engineering
1402 Applied Economics
Energy
Publication Status: Published
Article Number: ARTN 104599
Online Publication Date: 2019-11-28
Appears in Collections:Imperial College Business School
Centre for Environmental Policy
Grantham Institute for Climate Change
Faculty of Natural Sciences