This article was first published on BusinessGreen.
The UK’s electricity system is increasingly connected to our European neighbours. In the past half decade, we’ve built two new electricity interconnectors, linking us to the Netherlands and Ireland. Earlier this year, the Treasury’s own National Infrastructure Commission endorsed a plan to roughly triple our capacity to import power, mainly from our EU neighbours. In 2014, we imported 21 TWh to the UK, nearly as much power as Hinkley C will provide per year, should it ever be built. In five years’ time, we could be importing a quarter of our power from our European friends: more than the UK’s whole coal fleet provided in 2015. This is a faster change than even the famed ‘dash for gas’ in the 1990s.
Why the sudden EU energy love in? It is a relationship driven not by fawning europhilia, but by something only a nation of shopkeepers could truly love: a bargain. In the short run, power from the continent has been cheaper than British power, partly because renewables have pushed power prices down. So we are taking advantage while we can.
Closing the coal gap
In the medium term, we’ll need to fill the gap created by the closure of the UK’s dirty old coal plants, and it turns out that importing power when the UK needs it is cheaper than building our own back up plants. Sharing assets makes economic sense, and the EU’s linked power markets (something the UK pushed for) make it easy.
Shortly before Easter, Vivid Economics costed these benefits at around £420 million a year. Looking further ahead, the benefits rise to the low billons per year: being better connected would enable us to get more from the offshore wind we’re building, by selling our excess power at times when the wind is blowing and sharing backup capacity across northern Europe.
But what happens if we leave the EU? The answer depends very much on what we do after we leave.
The Norwegian option
If we choose the so-called ‘Norwegian option’ and decide to join the European Economic Area (EEA), very little would change. We would stay in the EU’s internal energy market and follow the same state aid rules as today. We would be subject to 2030 EU carbon targets, and would probably continue to build interconnectors as planned. But we would lose much of our ability to set the rules which govern these markets.
If we choose the ‘Swiss option’, there would be much greater disruption. Political barriers have kept Switzerland out of the EU’s internal energy market, despite the Swiss having agreed the appropriate technical standards in 2014. Outside the internal energy market, power flows across existing UK interconnectors could go in the wrong direction between ten and 20 per cent of the time, meaning we might buy expensive power from the continent when domestic prices are cheap. The case for new interconnection would also be harder to make: a very large proportion of the benefits would be enjoyed by the UK, limiting the appeal for our European neighbours, who might end up paying more for power at times in a more interconnected system. The alternative to more interconnection is to spend more on backup power stations at home: losing the 10 GW of additional planned interconnection would mean building 7 GW of more expensive new power stations at home.
The Swiss option
The ‘Swiss option’ (or the Canadian or Albanian options) would give us certain freedoms: we could more easily give state aid subsidies to coal and gas power stations, for example. We could renege on our domestic climate commitments and not worry about undermining the shared climate agreements we’ve helped to forge within the EU. We could continue to let old power stations pollute our air. Or we could ignore EU competition rules and sign contracts for new power stations based on something other than fair competition. But that wouldn’t be very British.
Of course, we could manage perfectly well if we decided to disconnect ourselves from the continent. Britain helped to invent the modern electricity system, and there’s no question we can go it alone. But the question isn’t whether we can, it’s whether we should.
The clear answer is that we shouldn’t. Leaving the EU but staying within the internal energy market means accepting all the EU’s rules without having any say over them. Leaving the EU’s internal energy market would only give us the freedom to pay and pollute more. In energy terms at least, we’re better off if we’re better connected.