Exiting the UK’s electricity market without a deal could “turn back the clock” for Britain and cost consumers up to £270m a year, according to new analysis by the UK Energy Research Centre (UKERC).
The EU’s single market for electricity has been a “success story” for the UK and wider Europe, UKERC argues in a report released on Friday.
Crashing out of the EU without a deal and leaving the Europe’s internal electricity market – which it dubs ‘elecxit’ – would lead to inefficient cross-continent trading of energy that could significantly push up UK generation costs.
The single electricity market allows power to be traded across borders to neighbouring EU countries, creating an interconnected system between 19 countries which UKERC argues has maximised profits and energy security.
The EU is now planning on gradually expanding interconnection trading capacity even further over the next decade.
But the report warns decoupling the UK electricity market from the EU’s could mean the two markets closing at different times, forcing traders having to decide their cross-border trades based on anticipated rather than actual prices, potentially leading to trading errors.
And with more intermittent sources of renewables coming onto the grid alongside more trading capacity, the frequency and size of such errors could increase in the UK, leading to significant losses.
Comparing a “soft elecxit” scenario that couples the French and UK electricity markets, with a “hard elecxit” scenario, UKERC estimates the cost of generation for both countries could increase by £500m a year by 2030, or 1.5 per cent of the market value.
The UK, however, would carry 60 per cent of those losses, equating to £270m a year, the analysis estimates.
“EU rules prevent electricity traders from buying expensive electricity in France and selling it at a loss in Britain,” said report co-author Professor Richard Green.
“With a no-deal Brexit, traders could take back control and make bigger mistakes than in the past.”
The findings come ahead of a crunch vote in Parliament on Tuesday over whether to approve Prime Minister Theresa May’s Brexit deal.
It is widely thought the deal does not have enough support from MPs to pass, prompting widespread uncertainty as to what the next course of action will be for both Brexit and the government.
Either way, UKERC report co-author Dr Joachim Geske emphasised that abandoning the principle of electricity market coupling between the UK and EU “was not an inevitable result of Brexit”.
“However, we wish to illustrate the costs of doing so, which are likely to grow significantly over time,” he said.