Energy bills lifted by failure to agree deal with EU over power cables

Hundreds of millions of pounds are being added to UK energy bills because of the failure to implement a trade deal with the EU that would allow efficient movement of power via subsea cables, according to consultancy Baringa.

Britain has seven interconnectors — high-voltage power cables that connect the country to Ireland, France, Belgium, the Netherlands and Norway — which provided almost 9 per cent of the UK’s electricity last year.

These cables, which are owned by private companies, including National Grid, lie along the seabed and are used to export surplus electricity when supplies are plentiful and import it when they are scarce.

The UK had been part of the EU’s Internal Energy Market regime, which created a single price, 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 — which may be part of large suppliers such as SSE, E.On or EDF, or independent commodity and power businesses — are being required to purchase or sell energy separately in each geographical market, adding to the complexity and cost of the system.

According to Baringa’s analysis of wholesale market prices, the loss of the integrated market added as much as £250mn to wholesale electricity costs in 2021 and is expected to add up to £440mn by the end of this year. This adds roughly 0.7 per cent to the overall wholesale electricity cost, according to the consultancy.

Duncan Sinclair, partner at Baringa, said: “A side effect of Brexit is a temporary step backwards in the way electricity flows between us and our neighbours. The system is now less efficient — leading to higher costs — at a time when concerns around rising costs and energy security are paramount.”

Although there is an existing EU-UK Trade and Cooperation Agreement, which covers trading on interconnectors, the UK and EU transmission system operators, including National Grid, are waiting on instructions from the UK government and the European Commission on how to proceed with its implementation.

National Grid, which owns five of the seven interconnectors, said: “post-Brexit we’re no longer part of the EU electricity market coupling and have moved to trading of electricity, which reduces efficiency.

“We’d like to see more efficient trading arrangements put in place as agreed in the UK-EU trade deal to maximise those potential benefits for GB consumers.”

The interconnectors are regarded as increasingly important as Britain has shut most its coal fired power plants and shifted to more intermittent renewable electricity sources, such as wind and solar farms. It also has very little gas storage after the last facility was closed by Centrica in 2017.

Since 2010, electricity imports’ share of the UK’s supply has increased, up from 2 per cent in 2010 to 9.1 per cent in 2021, according to government data published in March this year. However, since April there has been a huge swing in flows of electricity between Britain and interconnected countries, with Britain becoming a net exporter of power for the first time.