Plans for a slew of new interconnectors to better connect Britain's power grid with the rest of Europe are up in the air as regulators in France and Norway are holding off on approving billions in investment while the drama around Brexit drags on in Westminster.
The U.K. is currently connected to France, Ireland, the Netherlands and Belgium through 5 GW of subsea power cables, enabling cheap power imports and aiding the rollout of more renewables, whose intermittent production mean they benefit significantly from efficient energy trading across borders.
But a large share of planned projects is now on hold and, even though the fog around Brexit could lift in a matter of weeks, the problems encountered by the developers mean they are already "less likely to proceed," said Jason Mann, senior managing director at FTI Consulting and an expert on interconnectors.
Continued uncertainty around the U.K.'s departure from the bloc led France's energy regulator, the Commission de régulation de l'énergie, or CRE, to declare in July that it would hold off on approving three planned electricity cables between the country and its northern neighbor. A 2017 study commissioned by the regulator found that the value of new interconnectors could drop by more than 30% if trading becomes less efficient in the long run.
There is currently only one interconnector transmitting power between Britain and France, the 2-GW IFA project, built in 1986 by U.K. transmission operator National Grid PLC and its French counterpart, Electricité de France SA-owned Réseau de Transport d'Électricité, or RTE. Two more, including a private project by Channel Tunnel operator Getlink SE, are under construction and set to double that capacity by 2021.
Beyond that, the CRE said, "the benefits of these additional projects are insufficient to justify new investments." That means the Aquind, FAB Link and GridLink projects, with a combined capacity of 4.8 GW, face an uncertain future — even as the CRE is supporting a similar subsea link to Ireland.
James Dickson, the project director for FAB Link, developed by RTE together with Transmission Investment and Alderney Renewable Energy Ltd, declined to comment for this story. In a statement published in July, Dickson said the fundamentals for the project "remain sound" despite the CRE's decision. Both GridLink, owned by iCON Infrastructure LLP, and Aquind did not respond to requests for comment on their status.
In addition to the French projects, the €2 billion NorthConnect line between Norway and Britain is also up in the air after the Norwegian government asked the regulator there to reassess its viability in light of Brexit. The private development, co-owned by Swedish utility Vattenfall AB, had already been at risk of cancellation after governing parties last year proposed to only develop state-owned interconnectors, according to Reuters.
Tommy Løvstad, director of commercial and financing for NorthConnect, insisted that development has not been hampered by Brexit, but added in an email that the developers would "need more clarity about the Brexit outcome" before making a final investment decision.
Throwback to the '90s
Analysts predict that, at the very least, electricity prices could increase if the rules that govern trading on interconnectors are suspended, as the government has warned will happen in a no-deal scenario. Britain is a net importer through its existing interconnectors and regularly draws cheap nuclear power from France, for instance.
"It seems a bit odd to get rid of it," FTI's Mann said of the current trading arrangements. "But that is inevitably what we'd have to do ... if we were to go down a no-deal Brexit route without any arrangements in place."
A chaotic exit would throw the market back into the same situation it was in during the 1990s and early 2000s, when less harmonized rules made trading much more inefficient at times, he added. The operators "will still make money, and reasonable revenue, too; I just think the actual flows will be less efficient," Mann said. "Really, the impact will be more on consumers."
National Grid CEO John Pettigrew indicated last year that any disruption would be short-lived in his view, even if Britain leaves the EU's joint energy market.
"We believe the fundamentals of interconnection don't change in [the event of] Brexit," Pettigrew told analysts on a conference call, discussing the recently commissioned Nemo Link to Belgium. "The internal energy market is the gold standard, but if it's not the internal energy market, we know that we can trade on that interconnector effectively going forward."
A spokesperson for the company confirmed that National Grid's review of no-deal implications found no issues to prevent interconnectors from operating "from day one post-Brexit." National Grid is building two links to France and Norway, due to start operating in 2020 and 2021, and recently awarded contracts for another project to Denmark.
Catherine Vandenborre, CFO of Belgian grid operator Elia System Operator SA, which developed the Nemo Link with National Grid, said on an earnings call in February that the company does not foresee any financial impact from a change in the allocation of trading volumes under a no-deal Brexit.
'Firmly on track'
While the projects in France and Norway are on hold, links to other countries are still in development — at least officially.
David Inglis, CEO of the NeuConnect project to connect Britain and Germany, said the project was still "firmly on track" after launching a £1 billion procurement round. "In all potential scenarios, it is clear that as a net importer of energy the UK needs continued links with Europe to deliver a resilient, sustainable and affordable energy supply," he said in an email.
Simon Ludlam, project director for Greenlink, wrote in a blog post last November that the investment case for interconnectors will be unchanged — and could even increase if electricity prices rise because of more frictional trading — although uncertainty around the future framework is "never helpful".
"With the likelihood of rising electricity prices in Great Britain under a hard Brexit, projects like Greenlink continue to make sense for infrastructure investors," Ludlam wrote.
The privately financed £400 million project, between Ireland and Wales, is one of several interconnectors to the U.K. to have received funding from the EU's Connecting Europe Facility, which the British government has promised to pay out in a no-deal scenario.