Last week Will Gardiner, chief executive of Drax Group, told the Guardian newspaper that Britain’s increasing reliance on electricity imports through the use of interconnectors is a threat to energy security, and will result in the country importing carbon emissions. He also said that interconnectors would fail to deliver the aims of the government’s industrial strategy.

With 3 GW of new-build interconnectors securing agreements in the 2018 T-4 capacity auction and up to another 18 GW forecast to come online by the mid-2020s, Britain will be significantly more dependent on interconnectors during system stress events.

That the CEO of a huge coal-fired power station should cast doubt on the use of interconnectors is hardly surprising – interconnector participation in recent capacity auctions contributed to lower prices which pushed Drax’s planned new gas plants out of the auctions. It is also not surprising that the CEO of Eleclink, which is developing one of the new interconnectors disagrees:

“We believe the argument that interconnectors import carbon emissions to be unfounded as the majority of interconnectors connect, or will connect, the UK to countries with a lower carbon intensity,”
– Steven Moore, CEO, ElecLink

The comments by Gardiner are the latest negative remarks from Drax on the subject of interconnectors, and coincide with a new report from Aurora Energy Research questioning the reliance on interconnectors for security of supply.

“The contribution of interconnectors to security of supply is unknown, and, to a significant extent, unknowable. Government has so far overlooked this inconvenient fact,”
John Feddersen, CEO, Aurora Energy Research

Aurora’s analysis shows that interconnectors have often delivered less power than National Grid assumed they would when demand was at its highest, even undermining security of supply by exporting during peak demand periods. This is nothing new, in previous posts, I described how IFA, the 2 GW interconnector with France, often exports at times of high GB demand.

 

The contribution from interconnectors in times of system stress is uncertain

The ability of interconnectors (or any other form of supply) to deliver in the event of system stress is reflected in the de-rating factors assigned to each technology in the capacity auctions, which go on to determine the level of income earned by each asset. However, it is not straightforward to calculate de-rating factors for interconnectors given the very limited data on the historical performance of interconnectors during genuine system stress events.

Aurora’s analysis calls into question the use of long-term historical average flows in determining de-rating factors since being secure on average does not ensure security during a rare 1-in-5 year event. The report identified a number of risks, suggesting a more conservative approach should be taken in setting de-rating factors for interconnectors:

  • Interconnector performance varies significantly from year to year in response to policy and market changes – for example, IFA’s contribution to GB security of supply during winter peaks has been anywhere between 20% and 80% since 2010. Interconnector imports during periods of peak demand in GB have consistently failed to match their de-ratings, falling short as much as 50% of the time from France and close to all of the time in the case of the East-West link to Ireland.

  • Interconnectors can make a negative contribution to security of supply by exporting at times of high GB demand, something that is not currently captured in the de-rating methodology. The fact that interconnectors can export as well as import means the range of possible de-rating is from -100% to 100%, rather than having a minimum of 0% as for generation assets. The risk that interconnectors undermine system security by exporting at times of stress could increase in the future with the introduction of more generous capacity market remuneration in neighbouring markets, particularly since weather correlation means instances of system stress may well occur in interconnected markets at the same time.

  • Interconnector dispatch based on half-hourly price differentials is difficult to forecast with any degree of certainty, particularly since policy and technology change occur faster than data can be collected on extreme stress events, which are rare (there has yet to be a stress event in GB since the introduction of the Capacity Market). There are also questions around the extent to which the limited available data are relevant for future stress events, particularly after the introduction of the new Irish Capacity Market, with its substantial penalties for non-delivery of electricity from GB to Ireland during system stress.

  • Policy developments in GB and other European countries have the potential to fundamentally alter the underlying economics on which current de-rating factors are based, for example, the introduction of Capacity Markets in other European countries means that interconnectors could be “over-committed” in two different markets. The 500 MW East-West interconnector is de-rated at 59% in the UK and 46.9% in Ireland – if it is exactly meeting its obligations in Ireland by delivering 46.9% of total capacity, its contribution to GB supply will be negative: an outflow of 46.9% of total capacity, which is a substantial 105.9% (529.5MW) in deficit on its GB obligations. Differences in capacity market penalty regimes have the potential to distort interconnector behaviour during correlated stress events, while trade between Transmission System Operators in interconnected markets adds a further layer of uncertainty.

  • Increased reliance on renewables exacerbates the impact of low-wind periods across Europe – plausible future scenarios involving faster-than-anticipated renewables build-out, correlated renewables output, and higher interconnection between countries with correlated demand all compromise security of supply in GB.

  • Higher levels of interconnection call for lower de-ratings as the additional marginal unit of interconnection contributes less to security of supply. The existence of more interconnectors increases the likelihood of unexpected exports during periods of system tightness.

  • The risks described above are not independent, increasing the uncertainty around the ability of interconnectors to deliver during stress events. In plausible scenarios combining low wind output, high demand, and a harmonised carbon price, interconnector flows could easily fall to zero, or become negative (ie exporting).

“With existing and contracted interconnector capacity, GB will be reliant on 7.4 GW of interconnectors to meet our peak demand of approximately 60 GW by 2021/22. Given the need for a surplus capacity margin during peak periods of approximately 5% — or around 3 GW — interconnector performance is already critical. If interconnectors fail to deliver power during peak demand in 2021/22, substantial load will need to be shed.”

Aurora assesses that current de-rating factors are at the upper end of potential future interconnector contributions during system stress events. In calculating the de-rating factors, National Grid analysed interconnector performance between 2010 and 2016 during the top 50% of peak demand periods (7am-7pm on business days between November and February). The probability that an interconnector was importing during these periods was used to set a lower bound on de-rating, with an upper-bound established by forward looking modelling of interconnector flows during tight capacity margins (<500 MW) and winter evening peak periods.

 

interconnectors

De-rating factors for thermal technologies are based primarily on technical availability and tend to be fairly constant over time since the probability of outages does not change significantly from one year to the next. Interconnector de-ratings on the other hand can be much more variable given the volatility of the price differentials on which interconnector use is generally based – this can have a significant impact as the de-rating factors are calculated 4 years ahead of delivery.

interconnectors

It is also far from clear that examining the likelihood of imports based on price differentials during weekday peaks in the winter provides any useful information about the likelihood of imports during a period of system stress. The choice of time period over which these probabilities is analysed is also arbitrary, further undermining the usefulness of the results.

 

Behaviour of TSOs may also threaten the use of interconnectors in times of system stress

The price difference between the interconnected markets is the main driver of interconnector use, with electricity flowing from the lower priced to the higher priced market, however transmission system operators (“TSOs”) also engage in interconnector trading after gate closure, based on bilateral agreements whose terms are not public.

Weather correlation between GB and its neighbours is fairly high, meaning that periods of high demand will often occur at the same time in nearby, interconnected markets. If those markets have a higher level of temperature sensitivity than GB, as is the case with France, demand would rise faster in those markets, leading to pressure for the interconnectors to switch into export mode.

Although TSOs are not generally responsible for security of supply, they are responsible for ensuring their systems are balanced, so when demand rises, it is the responsibility of the TSO to call on available capacity to meet that demand. It is far from clear that any TSO would allow exports to occur when its own supply and demand balance is tight.

“The reasons for this trading are opaque and it is therefore difficult to identify how the TSOs at either end would trade in the case of a system stress event. Absent past data, it is conceivable that during a correlated system stress event, neither TSO would be willing to export power and flows would fall to zero,”
– Aurora Energy Research

These suspicions have not been tested in a stress event, however the behaviours of TSOs within the flow-based market coupling (“FBMC”) region illustrates that TSOs will seek to protect their own markets even if their actions are contrary to agreed market norms (or even EU law). As the EU moves towards intraday market coupling, these factors may have even greater impact on interconnector use, potentially reducing their utilisation even in normal market conditions, as is currently being observed with day-ahead FBMC. Although Britain will not be part of intraday coupling before the next decade, it is unlikely to be immune from the effects of such behaviours.

 

 

Despite the doubts over security of supply, new interconnector projects continue to move forwards. In the past two weeks, the first cable that will form part of the North Sea Link interconnector with Norway was winched ashore at Browns Farm, Cambois, and the public consultation on the Greenlink project with Ireland opened.

However, project developers should be aware of a changing tone about the contribution of interconnectors to system security. This change is welcome, and policy-makers should take note – assumptions to date that interconnectors are unambiguously positive for security of supply are not supported by the data, and therefore a conservative approach should be taken in assessing their contribution.

 

 

 

 

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10 thoughts on “Relying on interconnectors for security of supply carries risks

  1. New interconnectors are worthwhile on economic grounds, but they do not materially add to supply security.

    What Britain needs is solid reliable cheap baseload – and if coal is out, that means new nuclear – plus flexible peak following capacity – which means gas. Plus whatever hydro, pumped or otherwise we can cheaply build.

    10 years of stockpiled nuclear fuel gives plenty of security but gas is an issue with north sea gas running out.

    It remains to be seen whether frackable UK gas fields meet expectations or not.

    One thing is certain.

    Renewables add nothing but trouble and expense to the UK energy mix,

    Which government will have the courage to phase them out?

    1. I’m not even convinced new interconnectors make sense economically – some might, but returns will be diminishing as more interconnection will increase price convergence between markets (at least, it will in theory if they can eliminate distorting TSO behaviours).

      I absolutely agree on the need for new nuclear – if subsidies should be used anywhere it is in nuclear, and specifically ABWR. I’m on the fence about fracking – definitely worth exploring but it might not be economic to extract in the UK.

      I’m not holding my breath on renewables though…. I think without an actual crisis such as a major transmission system outage or failure of one of the Big 6, there will be no incentive to change – current policy puts us on a trajectory to both, but not before ££££ of public money is spent

  2. Interconnectors are a two edged sword. When there is a continent wide energy shortage, we will find ourselves linked into a bidding war to keep the lights on – or for who gets the blackout. In fact, that’s exactly what happened during the Beast from the East, when the System Buy price hit almost £1,000/MWh in order to persuade the French to supply 2GW via the IFA while we had a shortage of supply, rather than importing from the UK as they had been hours earlier, as this chart shows:

    https://uploads.disquscdn.com/images/32c83fa0df26d49c0aa7237552b119f9dfc6c95fc8b1c77b93859e2a6b0b4b4e.png

    As we and the Continental countries move towards a massive peak capacity excess of renewables, we will also find that every Tom Dick and Harry tries to dump surplus solar and wind wherever they can, and prices will go negative on windy/sunny days. Oddly, we actually saw negative system prices on 2nd March between 6 and 7 a.m. – presumably because too much capacity was attracted into starting up. Of course, consumers will be on the hook for CFD price guarantees, while conventional and other generation not on CFDs will be badly hit. Even if we adopted a more sensible policy on limiting future unrelaibles investment, we would find ourselves linked into the Continental folly, with France becoming increasingly unreliable if they proceed with replacing nuclear capacity with wind, and Belgium becoming a permanent shortage country as it closes Doel and Tihange (I seem to recall Europool hitting €4,000/MWh during a Doel outage in cold weather a few years back).

    Incidentally, the Irish connectors already operate to balance their grid according to wind generation surpluses and deficits. They operate with a minimum level of inertia providing generation. When export limits are reached they are forced to curtail wind. When the wind dies, they import. They do not operate for the benefit of GB. All illustrated in this chart of the Irish grid around the time of Storm Ophelia:

    https://uploads.disquscdn.com/images/12fcfe6e695b58a2a497ed4521dd30b631cb058268799591829498342f4e951b.png

    Extreme price volatility will make hedging expensive – someone will have to pay for the hedges that generators need against negative prices, and again for the retailer hedges against upward price spikes in shortages. Price insurance will become expensive – and also difficult to explain to consumers. Indeed, part of the current round of increases will doubtless be the consequence of more expensive hedging or trading losses because of inadequate hedging.

    The BritNed connector is of course connected into the coal fired power station switchyards at Maasvlakte, so unless those are all shut down, anything we import on that route will be coal fired, or at best (!) more US woodchips chucking out even more CO2 from their Drax-like conversion.

    1. I agree. Added to that, TSO behaviour is not transparent, so when there is a system shortage there can also be a sudden critical infrastructure issue that limits interconnector capacity – TSOs are responsible for balancing their own systems, not the entire interconnected system. And, as you say, with high levels of interconnection, we’d see a lot of negative pricing as in Germany. Good luck with explaining to consumers how their bills are going up while wholesale prices are mostly negative!

      I’d actually prefer coal to more US wood pellets – I can’t quite get my head around the idea that cutting down trees (I know, it supposed to be dead wood/brush etc, but don’t really believe it), drying them, and bulk shipping them across the Atlantic to burn them is in any way a good thing!

      1. If you’ve not seen it, this is hilarious:

        https://www.youtube.com/watch?v=xW-VLPyxqAM

        Dutch satire programme (English subtitles available, which mostly translate well enough to convey the jokes, although some are Dutch in-jokes) on “Groene stroom” – green electricity. Excellent section on “biomassa” ending with a risqué joke about the former energy minister’s willingness to believe anything the EU say.

        Useful to know is that most Parma ham production is based on pigs imported from the Netherlands these days.

        1. Funny and tragic at the same time…thanks for sharing!

  3. Is there something else?

    Thanks for this post and the comments. It does put a few more issues on the table about building more interconnectors and then relying on them.
    I would like to add one more issue depending on how BREXIT pans out:- crash out, a punitive deal or stay in.
    The EU have something to say about it in:-

    https://ec.europa.eu/info/sites/info/files/notice_to_stakeholders_brexit_energy_market_final.pdf

    Can I enlist the skills of you Kathryn and commenters to evaluate any impact on GB in the various ‘exit’ scenarios.

    Nick

    1. Hi Nick,

      I don’t know what the negotiators have in mind, but being outside the EU is not in itself a barrier to participating in European energy markets, as the example of Norway shows, although I assume they have to abide by all EU energy-related rules. This wouldn’t be a terrible option for GB – I don’t think energy is an area where there are significant differences between EU poicy and what we might want to do here with a free hand, the main exception being around state aid.

      GB doesn’t need interconnection for electricity – the market is large enough to operate on its own. Gas is a different matter as the UKCS declines and fracking is not likely to provide like-for-like replacement, which means we need imports either from the EU or via LNG. The other interesting thing to consider is that Ireland relies on its interconnectors with the UK for both gas and elecricity, so there is certainly scope for some give and take.

      I plan to write about this later in the year when more details are known, but so far there hasn’t been much news other than the Euratom decision….

      1. UK gas imports history:

        https://uploads.disquscdn.com/images/bc775e32f13e7bd9ff67b4104a35aaf8f3e46bba9d64c563810c0fe01f82e250.png

        We rely on pipeline gas from Norway. Dutch gas imports are now insignificant (and in any case are really Norwegian supply landed across the border in Emden – not low CV gas from Groningen, just as Belgian supply also relies on Zeepipe and Dunkirk LNG). We’re reselling LNG we bought from Qatar into Asian markets. There’s a lot of unused LNG import capacity, and more gas contracted for from the US that we are again shipping to Asia. Longer term, Norwegian supply may well decline. It remains to be seen what the Bowland shale can produce: the British Geological Survey estimate the resource at 1300Tcf in place, so even at 10% recovery that’s quite a few decades of supply. I don’t see us depending on the EU – which in reality just depends on Russia, although perhaps Russian LNG may be more than a few emergency cargoes when we run out, as happened during the cold weather at Christmas/New Year and the Beast from the East.

        1. You’re right, we get far more from Norway than the EU….I was thinking in terms of what changes with Brexit as UKCS production declines, and was assuming Norwegian flows wouldn’t be affected. I think we wouldn’t want to rely on the EU/Russia, but am not sure how much shale we could produce, and while there is a lot of LNG now, the market is expected to tighten into the next decade.

          I will be interested to see how our reliance on LNG changes – although we have plenty of unused terminal capacity, we have very little storage so unless we build some more, we’d need to manage LNG on a JIT basis, which is fine until demand spikes up or there is more competition for cargoes. That might make the interconnections with the EU more important than they would otherwise be.

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