Energy costs for consumers could be lowered by £1.1bn a year if the UK pursued greater co-operation with Europe on electricity trading and carbon pricing, according to an industry body.
Energy UK, which represents power generators and traders, said UK households were paying the price for “inefficient trading” arrangements since 2021, with electricity no longer exchanged through the EU market coupling regime.
Although a new trading arrangement had been expected by April 2022, the deadline had passed without progress and the UK-EU specialised committee on energy has met only three times since it was established in early 2021, the lobby group said.
A “mismatch of different trading arrangements has led to a less efficient, more complex and costly model for the trade of electricity over the interconnectors between the EU and GB, as well as adding to the regulatory and administrative burdens of energy traders”, Energy UK said.
The industry body said Brexit had introduced barriers to the way electricity was traded across interconnectors — high-voltage cables on the seabed that export surplus power and import it when supplies are scarce, which provided almost 9 per cent of the UK’s electricity last year.
As an EU member the UK had been part of the internal energy market regime, which created a single price by automatically balancing the needs between countries using computer algorithms to match bids and offers. But since leaving the EU single market in January 2021, the UK has moved to a back-up system that involves running daily auctions.
Traders — big suppliers as well as independent commodity and power businesses — are now being required to purchase or sell energy separately in each geographical market, adding to the complexity and cost of the system.
Energy UK said power exchanges and order books should be recoupled as inefficient cross-border trading arrangements may also reduce investment in joint renewables projects between the UK, neighbouring EU member states and Norway.
The situation is expected to be heightened as UK electricity exports increase due to the volume of offshore wind being built around the British Isles, it added.
The UK became a net exporter of electricity for the first time in more than 40 years in 2022, driven by nuclear outages in France, according to official statistics.
The UK has 7.9 gigawatts of electricity interconnection capacity, with at least 18GW planned by 2030. There are eight interconnectors joining the UK, all privately owned, with another between the UK and Denmark expected to start operation at the beginning of 2024 that will boost capacity to 9.8GW.
Duncan Sinclair, analyst at consultancy Baringa, agreed that action was needed: “Ensuring that interconnectors operate as efficiently as possible will be crucial for running a secure and low-cost decarbonised power market in GB and neighbouring markets.”
National Grid, which owns five of the interconnectors, said: “We agree that positive proactive engagement with the EU in this area is key to both regions reaching net zero efficiently, supports UK energy security and avoids unnecessary barriers to trade in energy.”
The Department for Energy Security and Net Zero said: “The UK government has been consistently calling on the EU to implement the Trade and Cooperation Agreement’s Energy Title in full and more quickly, including developing and implementing more efficient electricity trading arrangements over the interconnectors.
“This can deliver greater energy security, reduce energy bills and lower carbon emissions for both the UK and EU.”
