Report on the impact of EMR on interconnection

Ed: This article predates November 2019, when ÅF and Pöyry came together as AFRY.

The Electricity Market Reform (EMR) in the UK is the largest change to the electricity market in a generation.

In this report commissioned by DECC, Pöyry Management Consulting have looked at how the EMR will impact interconnection to other countries. In particular we have examined how UK electricity prices will evolve, how interconnectors contribute to system security, and how the value of interconnectors change with different market arrangements. Using DECC input assumptions, the study concluded that:

• A Contract for Difference (CfD) for nuclear and CCS leads to lower GB prices and lower interconnector revenues, but little impact on interconnector flows.
• A Capacity Mechanism leads to a drop in GB prices and a fall in interconnector revenues by 15%-20%
• The impact of cash-out reform depends on whether GB has a Capacity Mechanism or not, although the impact on GB prices is relatively limited.
• Increasing interconnection from GB to other countries reduces the amount of new build required in the UK, and causes annual average prices to fall by around 3%.
• The capacity credit of interconnection varies substantial depending on where it connects to: Norwegian interconnection has a contribution to system security of almost its entire capacity (96%), whilst to the Irish market is 23% and France is 44%.

The study is available to download below. Further details on the EMR consultation are available.