Interconnection Power Capacity in Europe

Table of Contents

• DATAMONITOR VIEW
  • CATALYST
  • SUMMARY
• ANALYSIS
  • Increased interconnection is key to EU energy market integration
    • Interconnection restrictions and system balancing needs mean actual power flows do not exactly match country trade balances
    • Market integration is seriously hampered by the lack of interconnection
    • Investment in new interconnection capacity is insufficient
    • A significant increase in annual interconnection capacity investment is needed
  • Power price arbitrage between markets does not drive interconnection capacity volumes and prices
    • Interconnectors operate largely outside the scope of competitive power markets
    • Reserved British-French interconnection capacity does not respond effectively to arbitrage opportunities
    • German-French arbitrage margins affect interconnection capacity prices
  • Most interconnection capacity auctions are not determined by market factors
    • Only five interconnections show a relationship between capacity volume and prices
    • There are very few interconnection capacity auctions that function on a purely market basis
    • Several European interconnections operate on a completely non-market basis
    • For most European interconnections there is no consistent relationship between capacity prices and capacity volumes
  • In some cases overall capacity prices do serve as an effective price signal for investment
    • Not all EU high priority interconnection projects have high capacity prices that serve as a price signal for new investment
    • There are eight significant power interconnections for which high capacity prices currently signal an investment need
    • In some instances, interconnector capacity prices serve as an investment signal
    • Interconnection capacity prices to and from France highlight where new infrastructure investment is needed
    • The Czech Republic requires an expansion of interconnection capacity to support its role as a regional power exporter
    • Capacity price signals indicate Dutch and Danish interconnections with Germany should be expanded
    • Well-functioning interconnectors require full energy market liberalisation and improved EU-wide regulatory frameworks
• APPENDIX
  • Definitions
  • Methodology
  • Datamonitor Consultancy
  • Ask the Analyst
  • List of Figures
    • Figure 1: 2006 Net power trade requirements across Europe
    • Figure 2: 2006 Net annual cross-border power flows in Europe
    • Figure 3: Total EU interconnection investment with a low (5%) and high (29%) annual investment growth scenario
    • Figure 4: Impact of baseload price arbitrage on UK to France interconnection capacity prices and volumes
    • Figure 5: Impact of baseload price arbitrage on Germany to France interconnection capacity prices and volumes
    • Figure 6: Positive relationships between interconnection capacity volume and capacity prices
    • Figure 7: Negative relationships between interconnection capacity volume and capacity prices
    • Figure 8: Random relationships between interconnection capacity volume and capacity prices
    • Figure 9: EU high-priority interconnection projects
    • Figure 10: Average monthly interconnection capacity price in 2006
    • Figure 11: 2007 French interconnection capacity prices
    • Figure 12: 2007 Czech interconnection capacity prices
    • Figure 13: 2007 German interconnection capacity prices