The Contribution of Electricity Interconnectors to GB Security of Supply

A Report on Behalf of National Grid Ventures

Economic Consulting | Energy & Utilities

April 4, 2019

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Interconnectors are high voltage transmission cables that allow electricity to flow between electricity markets. They bring many benefits to GB consumers, including allowing imports of lower-cost electricity into the GB market (thereby reducing consumer prices) and supporting the decarbonisation agenda. They also contribute greatly to GB security of supply by enabling the import of electricity at times of so-called 'system stress', when GB might have insufficient generation available to meet the country’s needs.

BEIS have recently consulted on the GB Capacity Market, which rewards providers of electricity capacity for their contribution to GB security of supply. In this context, National Grid Ventures asked FTI to assess the contribution of interconnectors to GB security of supply – expressed as a ‘de-rating factor’ – and to comment on whether the existing methodology for assessing this remains appropriate.

We used ‘price’ and ‘margin’ as our key proxies of system stress and analysed the historical coincidence of system stress between GB and connected or potentially connected countries (on the basis that electricity is likely to flow from countries with lower stress to those with higher stress at a given moment). Our results showed that when the GB electricity market has been most stressed (i.e. in conditions that are most relevant to GB security of supply), the market conditions that drive interconnector flows are almost always such that flows to GB would be expected. In our view, the current ‘de-rating’ methodology is therefore overly conservative, and we have suggested some alternative options.

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