Electricity market relationship between Great Britain and its neighbors: distributional effects of Brexit

Abstract

Background: Beyond Great Britain, Brexit could also have ripple effects on the electricity systems of certain other EU member states. This paper investigates the possible effects of reduced growth in interconnectivity between Great Britain and mainland Europe by 2030 on the electricity system in GB and across other EU member states in addition to the effects of Pound depreciation. Effects are analyzed across a “Green Scenario” and “Blue Scenario” in 2030, based on the ENTSO-E (European Network of Transmission System Operators-Electricity) 10-year development plans. There is a greater expansion of nuclear and renewables in Green than in Blue and, in Blue, the British CO2 price is higher than in the EU. Within each scenario, there are four variants: full vs. reduced expansion of interconnection capacity, in combination with no devaluation and 10% depreciation of the British Pound. The EMME (Electricity Market Model for Europe) is used to model these impacts across the different scenario variants. Results: Interconnector utilization is more volatile in the Green Scenario variants, leading to concerns about investor incentives, especially given the increased uncertainty under Brexit. In terms of electricity prices, GB consumers lose out across both Blue and Green scenario variants, whereas EU and GB producers both gain and lose in different variants. Across the Green Scenario variants, EU neighbors’ trade balances with GB deteriorate slightly, but the impact is far stronger in Blue due to a loss of opportunities to export power. GB sees significant increases in electricity costs across scenario variants. Green scenario variants offer potential for modest emission reductions in certain EU nations, whereas Blue Scenario variants lead to greater emission reductions in the EU neighbors which contrasts with a sharp rise in GB emissions. Conclusions: There is a significant link between NTC expansion and wholesale prices. Delayed or cancelled NTC expansion could negatively affect the GB power system’s low-carbon transition. Pound depreciation and reduced expansion of NTCs lead to shifts in generation-related CO2 emissions. A higher cost burden for electricity is a risk for GB, whereas, for EU neighbors, their trade position with the UK risks deteriorating.