Aurora Energy Research has undertaken an investigation to assess the impact that a build out of interconnection capacity would have on the Great Britain (“GB”) power market. This report documents the main findings to emerge from the analysis. While not conclusively endorsing or rejecting the ‘dash for interconnection’ that now characterises much of European energy policy, it highlights three key drawbacks of more interconnection that we believe have received inadequate attention in the GB debate so far.
- Consumers incur significant costs, as interconnector subsidies and charge exemptions need to be financed through taxes and electricity bills. We estimate that these costs are big enough to make the net GB welfare impact of most new interconnector projects negative.
- Total European CO2 emissions increase as gas-fired generation in the GB market is undercut by dirtier coal-fired generation in mainland Europe, which faces a lower carbon price.
- More interconnection does not provide additional security of supply, as it displaces an equivalent amount of domestic base load capacity which is at least as reliable as interconnection and potentially more so.
These findings should not be taken to imply that domestic generation is always a better option for the GB market than interconnection. Given the right policy and market conditions, interconnection has the capacity to contribute towards the three principal objectives of energy policy: affordability, decarbonisation and energy security. Yet, Aurora’s analysis shows that the disadvantages can be substantial too, and excessive interconnection buildout can in fact detract from affordability, decarbonisation and energy security.