Brexit Comes to U.K. Power Market With a Risk of Higher Costs

Australian dollars in Sydney, Friday, Jan. 15, 2016. (AAP Image/Joel Carrett) NO ARCHIVING

The first signs of how the U.K. electricity market will look from next year have emerged, with different daily prices potentially hiking costs for homes and industrial users.

For almost a decade, the U.K. has operated with two foreign-owned exchanges jointly setting a national price used to decide everything from flows to the continent to industrial rates. This co-operation will end next year when the nation isn’t bound by the European Union’s internal energy market rules. Each exchange will then produce its own daily reference price.

“This will lead to inefficiencies in the market, and overall higher prices,” said Diego Marquina, an analyst at BloombergNEF in London.

Nord Pool AS has the biggest share of the U.K. day-ahead market, compared with its Paris-based competitor Epex Spot SE. The Oslo exchange company was still looking for a solution for a joint price, but has accepted that it would probably not be done in time.

“We must now focus on operating a standalone auction while encouraging our customers to prepare accordingly,” Emma McKiernan, a director at Nord Pool, said. The company had been investigating continued co-operation but that “no such arrangements are in place at this late stage.”

READ: How a Hard Brexit Could Cause Chaos in the British Power Market

Splitting the day-ahead power market will lead to inefficiencies, but how much more consumers would pay or how the prices would differ between the exchanges, isn’t yet clear, according to Marquina. One Imperial Collegepaper from earlier this year estimates that a less efficient market and lower trade with the continent could raise costs by 700 million euros ($827 million) a year. By comparison, U.K. households spend just over 33 billion pounds ($39 billion) per year on energy.

Epex Spot said it was “well-prepared” for calculating its own auction results independently of both cross-border capacity and other exchanges. It is supporting as fast transition to a new trading agreement between U.K. and the EU.

— With assistance by Rachel Morison

Source: Read Full Article