Thinking the Unthinkable

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Thinking the Unthinkable

 

Last night the House of Commons once more rejected the proposed Brexit Withdrawal Agreement, even with accompanying Legal Opinions, Joint Declarations and Unilateral Declarations. Later on today the UK parliament will vote on whether “No Deal” Brexit should be positively embraced, a prospect which seems destined to fall similarly short of a majority. “No Deal” doesn’t need to be positively embraced, however, to occur. All that needs to happen is a lack of a positive parliamentary-majority-galvanising alternative.

The attitude within the electricity industry on the island of Ireland to “No Deal” has largely been that it doesn’t bear thinking about, but from the position we are in this morning that is obviously not sustainable for much longer (but let’s wait for a few more votes, hey…).

In this post we will examine what we know about the Single Electricity Market in a “No Deal” scenario.

Governments, regulators and system operators have generally been tight-lipped on that topic, but the first public material has begun to appear, particularly after the SEM Committee Senior Stakeholder Forum on 18 February. The regulators have posted slides and notes as follows:

 

CRU, 5 March:

Utility Regulator, 11 March:

 

The coordinated wording used by the regulators states that, “In the event of a ‘no deal’ Brexit, [the Day Ahead Market] will almost certainly be less efficient than today as Great Britain will no longer be part of the pan-EU market and the SEM will become an isolated market.”

Rodney Doyle’s presentation, provided by the regulators above, similarly explains: “The market will continue as it is today but the day ahead market will no longer be a cross border market.”

And whilst the first quote only talks about GB/SEM borders, the second covers the border within SEM.

Why is this? Well the European Commission considers the Internal Energy Market to be part of the Single Market, which should not be available on a sectoral basis. In recent months one continental TSO did raise the possibility of continuing to couple with GB, only to be told by the Commission that it was out of the question.

 

The Commission published a notice to stakeholders in April 2018 which contained the following statement:

“United Kingdom based operators will cease to participate in […] single day-ahead and intraday coupling. United Kingdom based NEMOs will become third country operators and will no longer be entitled to carry out market coupling services in the EU.”

 

The basis for the Commission’s statement that market coupling would no longer be available to the UK has never really been elaborated on – much of coupling is after all based on contractual arrangements between Transmission System Operators, interconnector operators, power exchanges, and so on, rather than EU legislation. Indeed much of the coupling pre-dates the regulations cited by the Commission, but this is perhaps academic because the UK has never challenged the interpretation.

Indeed in Great Britain there has been wholesale rewriting of the retained EU legislation to remove references to the codes, guidelines and regulations that govern the IEM. On the English Channel borders the interconnector operators are preparing for “No Deal” contingencies with new interconnector rules stripped of EU references.

Interestingly this is NOT the case (for the most part) in relation to Northern Ireland. References to EU law haven’t been totally removed, and SONI for instance appears to have EU-derived obligations that mirror its current ones. Similarly the definition of the Single Electricity Market in the NI legislation still points to Regulation (EC) 714/2009.

BEIS (who is driving this area in the absence of NI political functioning) has stated that this is “due to a practical need for the definitions of the SEM in Ireland’s and Northern Ireland’s legislation to continue to align”. Claire Perry similarly commented that, “In a no-deal scenario, EU regulations will oblige EirGrid, Ireland’s system operator, to endeavour to conclude a co-operation agreement with SONI because of the unique shared nature of the single electricity market. For Northern Ireland only, we are therefore retaining a similar requirement for SONI to ensure co-operation with EirGrid south of the border.”

Perry went on to say that whilst the legislation introduced in recent weeks would not provide insurance against all the risks that we would run in a no-deal exit that would “undermine the legal basis of the single electricity market”, they would “facilitate the necessary steps to ensure that such a situation is not prolonged.”

 

Are we comforted?

Finally, the talk of SEM being booted out of the market-coupling “Euphemia” algorithm on “Exit Day” perhaps isn’t strictly true. It would be very difficult to remove Great Britain and SEM from Euphemia at 23:00 on 29 March, so it is likely that GB and SEM “Available Transfer Capacities” will instead be set to zero until a future release is tested. Of course that will have a very similar effect…

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