Getting Interconnected: How can interconnectors compete to help lower bills and cut carbon?

Thursday, 12 June 2014

Getting Interconnected: How can interconnectors compete to help lower bills and cut carbon?

Synopsis

Power stations based in other countries should be allowed to bid for UK energy subsidies to help bring down electricity bills and meet our decarbonisation targets.

Getting Interconnected encourages the government to open up the new capacity market to overseas power stations. The electricity would then supply the British market via undersea power cables - interconnectors.

By tapping into electricity from cheaper European markets, British consumers could save money. There are different estimates of the scale of these benefits, ranging up to £1 billion per year according to a National Grid estimate. Interconnectors could also help the UK reach its ambitious climate targets more cost-effectively by making zero-carbon electricity generated by countries such as Iceland and Norway accessible to British consumers. This imported power is likely to be cheaper than subsidising expensive local power sources. For example, while offshore wind currently costs the UK £85 per tonne of carbon that is saved, an interconnector between Great Britain and Norway would cost just £17. Costs for newer technologies may fall over time, and this underlines the importance of getting different technologies to compete as soon as possible.

Despite the promise, unnecessary regulatory and policy barriers are preventing the rapid expansion of new interconnection. These include:

  • European regulations which limit profits on interconnectors make investing in interconnection less attractive to potential backers. 
  • The new market Britain has introduced to subsidise generation capacity. Neither interconnectors nor overseas power stations are able to enter the first auctions this year. The government is looking for ways to allow overseas participation in the future. The report recommends that overseas generators, rather than interconnectors, should be allowed to compete in the capacity market, and endorses ways to ensure that revenue supports development of new interconnector links.

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getting interconnected: how can interconnectors compete to help lower bills and cut carbon?