Brexit and the all-island electricity market

The Withdrawal Agreement’s inclusion of the Northern Ireland Protocol offered some security to the continued operation of the all-island electricity market. However, challenges remain given the levels of interconnectivity with Great Britain.

Prior to the Protocol being agreed by the UK and the European Union, concerns were raised about the level of threat to the all-island Single Electricity Market (SEM) in Ireland in the event of a no deal Brexit.

While the need for the SEM’s continued operation after the UK left the EU has been one of the least contentious issues regarding the barriers that would exist between both jurisdictions on the island of Ireland, it had been feared that a cliff edge exit would collapse the SEM and potentially lead to blackouts and electricity price spikes in Northern Ireland.

Contingency plans, including the “flow over” of power from the Moyle interconnector, were being worked on, according to the UK Government, should a no deal Brexit cause problems with Northern Ireland’s power supply.

That scenario was avoided following agreement on the Northern Ireland Protocol, the element of the Brexit Withdrawal Agreement that will see Northern Ireland operate under different trading rules to the rest of the UK.

Northern Ireland will be part of the UK’s customs territory but will still follow EU customs law and administer the EU’s customs rules at its ports. Northern Ireland will also follow the EU single market regulations on goods.

Included in the protocol, Article 9, alongside Annex 4, secures the continuation of Northern Ireland’s participation in the SEM.

In its technical note, the European Commission interpreted the provisions in Annex 4 as:

• Internal energy market rules must apply in Northern Ireland insofar as they concern the generation, transmission, distribution, and supply of electricity, trading in wholesale electricity or cross-border exchanges in electricity; and
• EU rules concerning industrial emissions and greenhouse gas emissions must apply in respect of the generation of electricity in Northern Ireland.

With the UK now just months away from crashing out of the EU without an agreed future trading arrangement, the Protocol’s protection of the SEM will be welcomed, but disruptions are still probable in that the UK.

Recent guidance published by the UK Government for those working in the UK electricity market and other stakeholders about changes to the cross-border trading and supply of electricity in the event of a no deal Brexit states: “In Northern Ireland, electricity market participants should continue using the SEM processes and arrangements from 1 January. However, market participants should be aware there may be alternative trading arrangements between Great Britain and the SEM.”

The SEM’s ability to continue to operate lies in its separation from the electricity market in Great Britain. However, the SEM does trade with the Great Britain market via interconnection. In 2019, interconnection between the SEM and Great Britain accounted for approximately 6 per cent of Northern Ireland’s generation capacity. From 1 January 2021, the Great British market will no longer be required to transpose and implement new EU directives on SME-related wholesale electricity. It’s likely that any new trading arrangements would result in less efficient trade.

The UK Government, in its command paper published in February 2020, acknowledged that an energy agreement covering both electricity and gas trading with the EU could improve the baseline arrangements being prepared in the event of a no deal. Negotiations between the EU and the UK under the political declaration, which sets out the framework for the future relationship between the two, began in March and would need to be concluded and ratified before the end of the transition period.

In Northern Ireland, electricity market participants should continue using the SEM processes and arrangements from 1 January. However, market participants should be aware there may be alternative trading arrangements between Great Britain and the SEM.

Despite the existence of the Protocol, a number of matters still require agreement between the EU and UK before the end of the transition period. Most notably, how the UK-EU Joint Committee, which only met for a second time on 12 June 2020, and the related Specialised Committee for Northern Ireland, bodies with oversight functions when implementing the Protocol while ensuring the functioning of the SEM, are to be scrutinised remains unclear, as does the process by which I-SEM participants, operators and regulators are to feed into the work of these committees.

Similarly, the Joint Committee will hold responsibility for adopting new EU directives in relation to the Protocol. If Northern Ireland is to remain aligned to EU wholesale electricity law, it will require implementation of any changes and the addition of newly adopted EU directives to the list already agreed under the Protocol, which will require Joint Committee agreement. Therefore, uncertainty exists in what role Westminster or the Northern Ireland Assembly will have in scrutinising the creation of new EU law in this regard.

While the security offered by the Protocol for the continuation of the SEM’s operations were welcomed, it’s recognised that the interconnected nature of wholesale electricity trading, coupled with the UK’s decision to potentially exit the EU’s electricity market, could have negative impacts on security of supply and the costs to consumers.

These threats build on existing concerns around the sustainability of the all-island electricity market in the long-term if greater interconnection is not facilitated. It’s estimated that, given falling levels of spare electricity generating capacity in recent years, the Republic of Ireland could face a capacity deficit of over 220 MW by 2024 and Northern Ireland’s capacity margin could be as low as 50 MW in 2025. The North South Interconnector, which has now been in planning for over a decade, would greatly reduce these deficits and is recognised for its potential to improve security of supply and reduce energy costs. However, planning permission has yet to be granted on the Northern Ireland section of the project.