EU, UK to open door to recouple electricity trading arrangements

The European Union and the UK plan to explore ways for the UK to participate in the EU's internal electricity market after Brexit led to a decoupling of trading across interconnectors since 2021, the two parties said in a joint statement May 19.

The partners "share the view that close cooperation on electricity is in the interest of both," according to statements following the UK-EU summit in London.

There are currently nine interconnectors between Great Britain and EU power markets with almost 10 GW capacity, which could transmit up to 80 TWh/year.

"The European Commission and the United Kingdom should explore in detail the necessary parameters for the United Kingdom's possible participation in the European Union's internal electricity market, including participation in the European Union's trading platforms in all timeframes," it said.

In the meantime, current electricity trading arrangements will continue to apply, it said.

Complex markets

EU cross-border power trading arrangements are highly complex, but also very efficient, maximizing available transmission capacity and reducing overall power prices.

Currently, Great Britain is a net importer from Continental Europe (France, Belgium, Netherlands, Denmark and soon Germany), but a net exporter to Ireland.

Any future agreement should include "dynamic alignment with European Union rules where relevant, giving due regard to the United Kingdom's constitutional and parliamentary procedures and respect the role of the Court of Justice of the European Union within an arbitration-based dispute resolution mechanism," the official statement added.

An "appropriate United Kingdom contribution to decision-shaping" was also mentioned by the statement without providing any details.

Changing flows

Analysts at S&P Global Commodity Insights forecast rising exports from the UK to the Continent, but GB will become a net export market only around 2035.

Flows on the interconnectors already change direction frequently, depending on hourly spot market signals, based on supply and demand fundamentals.

The UK's exit from the EU in 2021 led to a decoupling of trading on those cables with transmission capacity secured explicitly (mainly via the Joint Allocation Office), rather than implicitly under market coupling arrangements.

In addition, daily auctions on spot exchanges are held at different times, making trading less efficient.

The 2020 Brexit agreement envisaged so-called 'multi-regional loose volume coupling' (MRLVC) to be implemented for EU-UK cross-border electricity flows, but progress has been very slow with stakeholders also considering MRLVC as less efficient than market coupling.

In addition to a potential recoupling of electricity trading arrangements, the planned linkage of the EU and UK emissions trading systems is also expected to waive any potential CBAM penalties on future GB exports into the EU.

The EU's carbon border adjustment mechanism, starting in 2026, includes electricity, while the UK's CBAM, starting in 2027, does not include electricity.

GB electricity is generally at a premium to Continental European markets, but at a discount to Ireland.

British generators have to pay the UK's GBP18/mtCO2e CPS carbon tax in addition to UK carbon allowances, which more than offsets the slight discount of UKAs over EUAs in terms of electricity trading.

Platts, part S&P Global Commodity Insights, assessed UK baseload power for 2026 at GBP76.56/MWh (Eur91.09/MWh) on May 16.

German 2026 power settled May 16 at Eur88.58/MWh, while French Cal 2026 settled lowest on EEX at Eur58.50/MWh.