The value of Interconnection in a Changing EU Electricity system

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ISCF
ISCF
ISCF
ISCF
ISCF

£3,365,855

March 31, 2018

March 31, 2019

Investing in new European interconnection capacity is one strategy to integrate renewables and nuclear power stations in the electricity systems of GB and Ireland, by maximising their value through exports and meeting demand peaks through imports.

This project aims to assess the value of UK interconnectors to the EU-27 and Norway, examining both the GB and the Irish Single Electricity markets, by investigating five hypotheses:

1. Expanding GB-linked interconnectors would reduce the cost of electricity for both the UK and the EU-27.
2. The operational value of interconnectors will be affected by post-Brexit market relationships (e.g. the GB relationship with the European Energy Union and the Irish Single Electricity market).
3. Balancing markets could be an important future source of revenue for interconnectors.
4. Previous interconnection modelling studies have misinterpreted spurious correlations caused by continent-wide increases in renewables and other system evolutions.
5. The optimal level of investment in GB and I-SEM interconnectors, and between Northern Ireland and the Republic of Ireland, in terms of both security and cost, will be affected by the outcome of Brexit negotiations.

The ETM-UCL European energy system model and the ANTARES European electricity dispatch model are being used to assess the potential benefits of existing and new interconnection between the UK and the EU-27 and Norway, for a range of post-Brexit policy environments. The impact of interconnectors and renewables on electricity system stability is being assessed.

The GCDCN model, adapted from neuroscience, is being developed to identify causal relationships between interconnection investments and price variations across UK and EU-27 markets. This provides a foundation for improving regulatory models and investment business case analyses.

Potential Impact:
Renewable and nuclear electricity generation is expected to have an important role in reducing UK greenhouse gas emissions to achieve the 80% reduction by 2050 enacted by Parliament. The Lords Science and Technology Committee 2014-15 Session highlighted evidence that increased interconnection could bring significant benefits to the UK electricity system, by enhancing resilience and decreasing the costs of electricity in the wholesale market. The UK Parliament and the UK Government are interested in more detailed analysis of the potential value of interconnection.

The UK has large potential renewable resources and interconnectors could facilitate a thriving electricity export industry in the future, underpinning green jobs in renewables and potentially increasing UK energy independence. The Scottish and Welsh Governments will benefit by understanding whether interconnectors can underpin greater investments in renewable generation in their jurisdictions, where renewable resources are particularly large.

The UK Government has specifically identified the "potential contributions to system balancing [by interconnectors]" as an area in which they need further scientific evidence. This project will provide evidence about adequate levels of interconnections for the GB and Irish systems in the longer term, how these would be affected by political decisions and the transition to low-carbon electricity systems in different countries, and what the implications would be for security of supply. The system operator, National Grid, will benefit from understanding the implications of interconnectors for system stability and are keen to better understand the uncertainty that they identify about future interconnectors in their letter of support.

The Government faces challenging Brexit negotiations with the EU-27 about the future relationship between the GB, Irish and continental electricity markets. Parliament has asked BEIS to open an inquiry on negotiation priorities and has recommended that these include interconnections. Little evidence is available to inform investment decisions in the long term. This proposal will provide evidence on the implications of different options for both the UK and EU-27, including the potential for UK electricity exports to EU-27 markets in the medium to long term under different political and market environments.

Interconnectors are an important area for electricity regulators, with Ofgem having a statutory role in regulation and UREG co-regulating the Ireland Single Electricity Market. Both organisations have joined the Advisory Board of this project because of the potential for it to produce important insights to underpin their work.

The analysis of interconnection business cases will be more comprehensive than was previously possible due to the use of the innovative GCDCN model, to enable better investment decisions that reduce the future cost of low-carbon electricity to consumers. This will benefit large industrial owners and operators of interconnectors such as National Grid Ventures, Scottish Power and Transmission Investment, who are all project partners. The research on public and private benefits will provide the appropriate information to the UK Government so it can ensure that consumers do not lose out from interconnector investments.