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UK power prices may fall as links tighten to European markets
June 14, 2013 / 3:41 PM / 4 years ago

UK power prices may fall as links tighten to European markets

LONDON, June 14 (Reuters) - British power prices may fall after its electricity market links more closely with others in Europe later this year, increasing cross-border trading, one of the project leaders said on Friday.

From November onwards, Britain’s electricity market will be directly linked to those of Germany, France, the Netherlands, Belgium and the Nordic states via a mechanism that will distribute power automatically and more evenly between major delivery points as it is needed.

The so-called market coupling project aims to eventually integrate all of Europe’s power markets to create one price for European energy consumers and to hedge against supply shocks.

Britain’s power market has fewer connections to its neighbours and is less liquid than most others in western Europe, and its power prices have recently been higher.

For Britain, market coupling will bring a boost to the number of trades on its short-term market, said Bente Hagem, co-chair of the coupling project.

“Liquidity in the UK will increase for the day-ahead market through coupling. That will be positive for the price formation,” she told journalists at a news conference.

Exposure to the wider market is likely to bring Britain’s prices more in line with those on the continent.

The Dutch, German, French, Luxembourg and Belgian electricity markets were already coupled in November 2010, which has helped their prices converge.

Closer ties will also mean, however, that British consumers may be more prone to price changes in surrounding markets, for example those caused by extreme swings in German renewable energy production.

The European Union has set an end-2014 target for Europe’s electricity markets to be fully integrated to distribute renewable energy flows and prevent energy supply crises.

The complexity of uniting trading and capacity allocation systems, however, has made meeting that deadline unlikely, said Jean-Francois Conil-Lacoste, the second co-chair of the project and head of European day-ahead power bourse EPEX Spot.

“We have a deadline of end-2014, which is very ambitious, and we can probably safely say that unfortunately we will not meet the deadline for all of Europe,” he said at the same conference.

Markets in central-eastern Europe have taken the first steps to couple their regions, and south-eastern markets are also gearing up to eventually join the creation of a Europe-wide integrated market. (Reporting by Karolin Schaps; editing by Jane Baird)

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