Fascinating analysis. I've started to delve into interconnector trading. For the UK the rules differ significantly between the various links. For example, IFA1 is able to secure congestion revenues almost without limit. The adjacent Eleclink that goes through the Chunnel has a revenue cap beyond which it shares revenue with IFA1. IFA2 is subject to the OFGEM cap and floor regime.
Clearly EdF uses year ahead commitments to underpin hedge sales of production from Gravelines and Penly into the UK market, though the seasonal differences seem to be driven in part by continental solar pushing down prices. The huge arbitrage margins are in part supported by the UK no longer being part of the EU market coupling regime, so there is no implicit trading of interconnector capacity and power at each end. It leaves traders with risk arising from timing differences in auction deadlines in the DAM and interconnectors trading arrangements.
I know that before the market coupling arrangements some traders would buy capacity to block efficient trade between countries, allowing a higher price and more volume for the output of generators they owned (I was aware of such trades over NL-DE links for example). A general observation otherwise from the economics of arbitrage is that once a link (or at least the available capacity on a link) is fully utilised it no longer can influence prices at either end. Only more circuitous routes can do that.
There are potentially huge conflicts of interest for National Grid. It can make huge margins on interconnectors that are increased by having an inefficient domestic grid and connection regime. Some of these also depend on the renewables subsidy regime. I get the feeling OFGEM doesn't really understand how it all fits together to the disbenefit of UK consumers.
I'm all too aware I've only scratched the surface so far. Your analysis is a huge help in thinking about the wider implications.
This tells you how bad things have got in the UK electricity market when its still economic to pay the owners of the HVDC cable link upwards of E10/MWh to transmit power and still be cheaper than sourcing it within the UK.
The results were a surprise for me because I had started the analysis with the assumption that, for example, the prices for month-ahead transmission capacity did not vary much and were in the range €15-€20 per MWh. The outcome for May 2024 when the average transmission cost was higher than the average market price in France was not what I had expected. I suspect that almost no-one understands - or intends - the way in which the various markets in power and transmission capacity interact.
I think that there is quite a lot more to say about this so I will certainly return to it with a month or so.
Fascinating analysis. I've started to delve into interconnector trading. For the UK the rules differ significantly between the various links. For example, IFA1 is able to secure congestion revenues almost without limit. The adjacent Eleclink that goes through the Chunnel has a revenue cap beyond which it shares revenue with IFA1. IFA2 is subject to the OFGEM cap and floor regime.
Clearly EdF uses year ahead commitments to underpin hedge sales of production from Gravelines and Penly into the UK market, though the seasonal differences seem to be driven in part by continental solar pushing down prices. The huge arbitrage margins are in part supported by the UK no longer being part of the EU market coupling regime, so there is no implicit trading of interconnector capacity and power at each end. It leaves traders with risk arising from timing differences in auction deadlines in the DAM and interconnectors trading arrangements.
I know that before the market coupling arrangements some traders would buy capacity to block efficient trade between countries, allowing a higher price and more volume for the output of generators they owned (I was aware of such trades over NL-DE links for example). A general observation otherwise from the economics of arbitrage is that once a link (or at least the available capacity on a link) is fully utilised it no longer can influence prices at either end. Only more circuitous routes can do that.
There are potentially huge conflicts of interest for National Grid. It can make huge margins on interconnectors that are increased by having an inefficient domestic grid and connection regime. Some of these also depend on the renewables subsidy regime. I get the feeling OFGEM doesn't really understand how it all fits together to the disbenefit of UK consumers.
I'm all too aware I've only scratched the surface so far. Your analysis is a huge help in thinking about the wider implications.
This tells you how bad things have got in the UK electricity market when its still economic to pay the owners of the HVDC cable link upwards of E10/MWh to transmit power and still be cheaper than sourcing it within the UK.
The results were a surprise for me because I had started the analysis with the assumption that, for example, the prices for month-ahead transmission capacity did not vary much and were in the range €15-€20 per MWh. The outcome for May 2024 when the average transmission cost was higher than the average market price in France was not what I had expected. I suspect that almost no-one understands - or intends - the way in which the various markets in power and transmission capacity interact.
I think that there is quite a lot more to say about this so I will certainly return to it with a month or so.