Electricity interconnection: free-flowing energy or high-wire act?

Electricity interconnection: free-flowing energy or high-wire act?

Matthew Brown, energy lawyer at LexisNexis and Andy Compton, director at Compton Energy Associates, examine the opportunities and challenges presented to the energy sector by interconnection. 

The publication of National Grid’s 2018 Future Energy Scenarios (FES) document, together with the latest GB Capacity Market pre-qualification process kicking-off, provide ongoing impetus for debate on the role of electricity interconnection in the GB market.

Unsurprisingly, FES continues to predict significant increases in the proportion of GB’s overall generation capacity which is derived from imported electricity. National Grid models a rise to as much as 19.8 GWs installed interconnection capacity by 2030 as new projects currently at the planning/construction phase are commissioned. By the mid-2020s FES models that in certain scenarios GB could be taking up to circa 50 terawatt hours (TWhs ) of its electricity from overseas;  a stark change, representing a potential increase of net imports from circa 6% of GB’s total electricity consumption in 2017 to a high of circa 17% (taking into account National Grid’s assumed changes in total electricity consumption in the relevant scenarios).

Historically, the various limbs of GB’s energy policy have (intentionally or otherwise) offered strong incentives to this increased penetration of interconnection and in many cases heightened the extent to which further interconnection comes instead of domestic generation rather than as a back-up insurance policy.

First, interconnection (both prospective and existing) is of course able to bid for GB Capacity Market support. As has been widely reported, in recent auction rounds the wider economics of interconnection has enabled it to accept support at a relatively low level. This has contributed to clearing prices being set at too low a level to support the delivery of certain new domestic generation projects (in particular new build gas), meaning interconnection capacity replaces rather than supplements the construction of such generation projects.

Furthermore, the derating methodology (through which the Capacity Market establishes the level of capacity which each technology type can be relied upon to deliver) appears r

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