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The private and social value of British electrical interconnectors

Newbery, D; Gissey, GC; Guo, B; Dodds, PE; (2019) The private and social value of British electrical interconnectors. Energy Policy , 133 , Article 110896. 10.1016/j.enpol.2019.110896. Green open access

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Abstract

Interconnectors have value for Britain, providing access to cheaper Continental power, security of supply, and managing increased renewables, prompting proposals for substantial new interconnectors. The EU Target Electricity Model requires interconnector market coupling via Day Ahead and IntraDay Markets. We examine the efficiency and value of uncoupled and coupled trading for the four DC interconnectors to GB, over different timescales from year ahead to intraday, and the social costs and benefits not reflected in the private benefits. Because the GB carbon tax is not replicated abroad it transfers some €65 m./yr to the foreign interconnector part-owners and creates distortions when trade flows change. IFA and BritNed have a commercial value of about €500 million/yr, create additional infra-marginal surplus of €25 m./yr, but suffer €30 m./yr deadweight loss from the asymmetric GB carbon tax. The island of Ireland was coupled in Oct 2018, dramatically reducing trading inefficiency. While further investment in interconnectors appears socially profitable, it is important to harmonise carbon taxes across the EU. If GB leaves the EU and is uncoupled, some of these trading gains would be sacrificed, but other financial markets may alleviate the cost of Brexit, making policies to enhance liquidity desirable.

Type: Article
Title: The private and social value of British electrical interconnectors
Open access status: An open access version is available from UCL Discovery
DOI: 10.1016/j.enpol.2019.110896
Publisher version: https://doi.org/10.1016/j.enpol.2019.110896
Language: English
Additional information: This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions.
Keywords: Interconnectors, Market coupling, Hedging, Social value
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment > Bartlett School Env, Energy and Resources
URI: https://discovery.ucl.ac.uk/id/eprint/10082921
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