Electricity Interconnection Opportunities for Ireland
The Irish Single Electricity Market has interconnection with Britain in place and will also connect shortly with France with the planned Celtic interconnector, under construction, due to go live in 2026. Given the variability of Irish electricity supply and the increasing demand, interconnection will be a key ingredient in reaching the 80% renewable 2030 target. Both Northern Ireland and Ireland are connected to Britain by electricity interconnectors; the Moyle Interconnector connects Scotland and Northern Ireland, while the East West Interconnector between Wales and Ireland enables electricity to flow between the islands of Ireland and Britain.
To make interconnection viable, it needs to be mutually beneficial for both parties. A case in point is where the proposed Scottish/Norwegian interconnector ran aground because it didn't offer enough benefit to the Norwegian partner.
To understand where benefit might arise, a starting point is to look at the differences in prices per Mwh. Below is a simple line chart of the wholesale prices over the past few years of a number of European countries (scraped from various sources). This is at a monthly granularity just for a first view. What is interesting is that every country’s rate per Mwh seemed to travel together until it didn’t.
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Even before the war in Ukraine, wholesale electricity prices in the European Union increased as a result of the post-pandemic economic recovery, a rise in natural gas and coal prices, and a falloff in renewable power generation due to low wind and drought.
Before we look at correlation though, it is instructive to look at the absolute wholesale prices paid per MWh over the period (Jan 2015 — April 2023). The league table shows that Denmark, Sweden, Norway and Sweden have the lowest costs (which explains why the Scots wanted an interconnector link to that cheap power). I have shown the UK costs in euro for comparative purposes. Ireland is one of the more expensive countries for power at an average price of 81.61. Interestingly, France is not that different cost wise to Ireland.
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What is a surprise is that the average wholesale price per Mwh is higher in the UK than on the island of Ireland. This is counterintuitive as according to Elexon, 63.4% of electricity on the Northern Ireland interconnector was exported out of Great Britain and 57.7% of the power on the Republic of Ireland interconnector was also exported out of Britain. So it looks like power is flowing into Ireland, despite the GB market being more expensive over the period!
A scatter chart of net impots between the UK and Ireland shows that most months exhibit outcomes consistent with classic economic theory. When Irish prices are higher than Britain’s (top right quadrant), we import loads of power in. When Irish prices are cheaper, we export loads of power (bottom left quadrant). There are no cases where Britain imports power when Irish prices are more expensive, but there are multiple months since 2015 when Ireland has imported more expensive power (top left quadrant). This is likely a result of Britain being “the only game in town” when it comes to interconnection for Ireland.
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One thing of note is that the pricing/ interconnection dynamic look more “rational” since the inception of the Irish Single electricity market in October 2018 (with fewer dots in that upper left hand quarter).
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Correlations tell us which markets offer the greatest chances of price complementarity with Ireland. Given the interconnection, its no surprise that the Ireland and GB markets are closely connected. The countries that are least correlated (with Ireland) are the ones with the lowest absolute prices (Norway, Finland and Sweden). Spain and Portugal both are also in the bottom of the table. Compared to the distance of the Celtic interconnector (575 KM), the distance to Spain is quite a bit longer at 1485 KM. Norway is 1279KM, although that opportunity is probably academic given the Scottish experience!
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