The UK’s withdrawal from the EU exposes existing issues with Ireland’s energy infrastructure and importantly, with the security of Ireland’s energy supply. While the impact of these issues on energy consumers is indeterminate, its impact on Ireland’s energy market is clear.
Despite this, Ireland’s energy sector has developed significantly in recent years. In 2007, Ireland transitioned to an integrated all-island energy market with the introduction of the Single Energy Market (SEM) and in 2018, Ireland began integration into the wider EU energy market with the introduction of the Integrated Single Electricity Market (I-SEM).
What is an energy market?
Central to a discussion of energy post-Brexit is the concept of energy markets, at an all-island level and at an EU level. Energy markets are commodity markets – markets for ‘primary products’ or raw materials – that focus on trading energy, generally gas and electricity.
Energy markets have three primary components: energy generators, energy transport, and energy suppliers. Generators sell energy to the energy market, suppliers buy the energy from the market and then sell the energy on to consumers.
This energy is transported by two types of network; a transmission network and a distribution network. The transmission network transports energy from generators to substations at a high voltage, while the distribution network transports energy from substations to the public at a low voltage.
The energy market is unique in the sense that electrical energy is difficult to store at the levels required for distribution. For this reason, the supply of electricity must be balanced with the demand for electricity, consequently, ‘cost bids’ from generators have to be balanced with demand estimates.
At a European level, this is efficiently facilitated by ‘market coupling’ – in which control areas and market areas are linked – a process which utilises generation capacity efficiently, reducing the requirement for an abundance of idle generation capacity.
Ireland’s energy market is an all-island energy market, incorporating Northern Ireland and Ireland. The Commission for Regulation of Utilities (CRU) has has provided a helpful document.
Internal Energy Market (IEM)
The Internal Energy Market (IEM) represents the integration of EU gas and electricity markets. In essence, the IEM is designed to enable the liberalised, harmonised, tariff-free trading of electricity and gas throughout the EU.
The opening of European energy markets to free and fair competition is designed to reduce energy expenses for European consumers. According to the European Commission’s Energy Union Strategy, the IEM is intended to increase supply security, to promote energy efficiency, to facilitate climate objectives, to further innovation and research, and fundamentally, to generate a fully integrated energy market.
This process of integration began in 1996, with Article 194 and Article 114 of the Treaty on the Functioning of the EU.
On 1 January 2021, the UK’s membership in the IEM was terminated. While the UK will cooperate with the IEM, the UK’s withdrawal from the EU will have an impact on energy in Ireland and the EU, particularly in terms of the I-SEM.
Integrated Single Electricity Market (I-SEM)
The Integrated Single Electricity Market (I-SEM) is an all-island wholesale electricity market supplying Ireland and Northern Ireland with secure electricity. Introduced in 2007, the Single Electricity Market (SEM) integrated the Northern Irish and Irish electricity markets.
In 2018, the SEM system was revised to facilitate integration with the EU’s Internal Energy Market (IEM). The integration of EU markets is intended to introduce a secure sustainable energy system with free and fair competition and efficient energy prices.
The I-SEM and IEM platforms depend on two types of participants; ‘generators’, responsible for producing electricity and ‘suppliers’, responsible for supplying electricity. Generators sell to the market, suppliers buy from the market and then sell to the public.
This relationship between buyers and sellers is streamlined in the IEM. In the IEM, energy market transactions involving buyers and sellers from different regions are centrally collected to maximise efficient and effective trades.
The IEM is underpinned by a common set of rules and regulations encapsulated in the European Target Model.
While the Withdrawal Agreement (WA) provides for the operation of the I-SEM – as Article 9 of the Northern Ireland Protocol (NIP) protects the functioning of the all-island market – the terms of the Trade and Cooperation Agreement (TCA) agreed between the EU and the UK allow the UK to diverge from the European Target Model.
Trade and Cooperation Agreement (TCA)
The EU-UK Trade and Cooperation Agreement (TCA) outlines the terms of trade between the EU and the UK, including the terms of trade on energy. The TCA endeavours to replicate existing regulatory principles.
The TCA includes provisions on the promotion of competition in energy markets, on free price formation and price transparency, on market abuse and market integrity and on the requirement for independent regularisation. Additionally, Title IIIV of the Agreement includes provisions on cooperation between system operators and regulators.
While the provisions included in the TCA provide a platform for future cooperation on energy and the environment, they fail to fully clarify the regulation of energy ‘interconnectors’ in the UK.
From an Irish perspective and from a UK perspective, this is important. Ireland is bound by EU legislation on energy and Ireland’s interconnectors are connected to the rest of the EU through the UK. For the UK, an importer and exporter of energy, the regulation of energy interconnectors is equally important.
While the EU and the UK are committed to the establishment of a model of efficient energy trading through interconnectors, this model is, at present, incomplete.
Energy Interconnectors
Ireland trades energy with the rest of the EU through energy ‘interconnectors’, high-voltage cables that connect the electricity systems of Member States.
Ireland’s two interconnectors connect with the rest of the EU through the UK: The East West Interconnector (operated by EirGrid) connects an energy station in Wicklow with an energy station in Pentir, Wales, while the HVDC Moyle Interconnector (operated by Mutual Energy) connects an energy station in Antrim with an energy station in Ayrshire, Scotland.
The UK’s exit from the Internal Energy Market (IEM) means that energy traded through UK interconnectors is managed through independent platforms rather than through EU platforms.
A July 2020 communication from the European Commission noted that energy trade through UK interconnectors would be less efficient and less frequent than it was when the UK was in the IEM.
Energy Trading
While the I-SEM is protected by the Withdrawal Agreement (WA) and the Northern Ireland Protocol (NIP), the UK’s decision to exit the Internal Energy Market (IEM) will have an effect on Irish energy, particularly in terms of energy trading and the ‘day-ahead’ market.
The ‘day-ahead’ market is a ‘forward market’ – a market centred on contracts for future delivery – in which prices are calculated for the following day based on the amount of energy generators offered to produce, the amount of energy required by consumers and the transactions between ‘generators’ and ‘suppliers’.
At a European-level, the ‘day-ahead’ market is facilitated by Single Day-Ahead Coupling (SDAC). SDAC is a mechanism that allocates cross-border transmission capacity efficiently by coupling electricity markets from different regions. This efficient process reduces the requirement for idle energy capacity.
In December 2020, the UK’s Office of Gas and Electricity Markets (Ofgem), noted that if the UK exited the IEM, it would be incapable of participating in EU SDAC, as participation in SDAC is underpinned by EU legislation including Regulation (EU) 2015/1222 and Regulation (EU) 2016/1719.
This applies to Ireland’s two interconnectors, the East West Interconnector and the HVDC Moyle Interconnector. Indeed, the Department of the Taoiseach has stated that this will affect Ireland’s efficiency in terms of energy trading.
Since 1 January 2021, the I-SEM has operated as an isolated, all-island market within the SDAC. The I-SEM currently has no capacity allocated day-ahead between it and the wider EU market.
Future Arrangements
Concerns related to energy trading and the ‘day-ahead’ market are evident in the EU-UK Trade & Cooperation Agreement (TCA). The requirement for an efficient energy trading model is outlined in the Agreement, as is a commitment to the allocation of interconnector capacity in the day-ahead market timeframe. The timeframe for the completion of an agreement on an energy trading model is 15 months following the ratification of the TCA.
Celtic Interconnector
While the UK’s decision to exit the Internal Energy Market (IEM) is an impediment to Irish integration in the EU energy market, the future of Irish energy integration is promising. Indeed, several of Ireland’s energy infrastructure projects focus on solidifying Ireland’s connection to EU energy. The Celtic Interconnector is one example. The Celtic Interconnector is a project designed to facilitate the flow of electricity between Ireland and France. Funded by EirGrid and Réseau de Transport d’Electricité (RTE), the project will strengthen the security of supply between Ireland and France, supporting sustainable electricity in the process. If completed, the planned project will further Ireland’s integration with the Internal Energy Market (IEM) and with our closest EU neighbours.
Where We Stand
While Ireland’s integration into the EU energy market is progressing, the UK’s withdrawal from the EU and from the Internal Energy Market (IEM) is a setback. The implications of Brexit on Ireland’s interconnectors and on Ireland’s energy trading are, in the short-term at least, negative but limited, whether this will be perceived by the public, in terms of pricing or energy disruptions, remains to be seen.
The UK’s withdrawal from the EU exposes existing issues with Ireland’s energy infrastructure and importantly, with the security of Ireland’s energy supply. While the impact of these issues on energy consumers is indeterminate, its impact on Ireland’s energy market is clear.
Despite this, Ireland’s energy sector has developed significantly in recent years. In 2007, Ireland transitioned to an integrated all-island energy market with the introduction of the Single Energy Market (SEM) and in 2018, Ireland began integration into the wider EU energy market with the introduction of the Integrated Single Electricity Market (I-SEM).
What is an energy market?
Central to a discussion of energy post-Brexit is the concept of energy markets, at an all-island level and at an EU level. Energy markets are commodity markets – markets for ‘primary products’ or raw materials – that focus on trading energy, generally gas and electricity.
Energy markets have three primary components: energy generators, energy transport, and energy suppliers. Generators sell energy to the energy market, suppliers buy the energy from the market and then sell the energy on to consumers.
This energy is transported by two types of network; a transmission network and a distribution network. The transmission network transports energy from generators to substations at a high voltage, while the distribution network transports energy from substations to the public at a low voltage.
The energy market is unique in the sense that electrical energy is difficult to store at the levels required for distribution. For this reason, the supply of electricity must be balanced with the demand for electricity, consequently, ‘cost bids’ from generators have to be balanced with demand estimates.
At a European level, this is efficiently facilitated by ‘market coupling’ – in which control areas and market areas are linked – a process which utilises generation capacity efficiently, reducing the requirement for an abundance of idle generation capacity.
Ireland’s energy market is an all-island energy market, incorporating Northern Ireland and Ireland. The Commission for Regulation of Utilities (CRU) has has provided a helpful document.
Internal Energy Market (IEM)
The Internal Energy Market (IEM) represents the integration of EU gas and electricity markets. In essence, the IEM is designed to enable the liberalised, harmonised, tariff-free trading of electricity and gas throughout the EU.
The opening of European energy markets to free and fair competition is designed to reduce energy expenses for European consumers. According to the European Commission’s Energy Union Strategy, the IEM is intended to increase supply security, to promote energy efficiency, to facilitate climate objectives, to further innovation and research, and fundamentally, to generate a fully integrated energy market.
This process of integration began in 1996, with Article 194 and Article 114 of the Treaty on the Functioning of the EU.
On 1 January 2021, the UK’s membership in the IEM was terminated. While the UK will cooperate with the IEM, the UK’s withdrawal from the EU will have an impact on energy in Ireland and the EU, particularly in terms of the I-SEM.
Integrated Single Electricity Market (I-SEM)
The Integrated Single Electricity Market (I-SEM) is an all-island wholesale electricity market supplying Ireland and Northern Ireland with secure electricity. Introduced in 2007, the Single Electricity Market (SEM) integrated the Northern Irish and Irish electricity markets.
In 2018, the SEM system was revised to facilitate integration with the EU’s Internal Energy Market (IEM). The integration of EU markets is intended to introduce a secure sustainable energy system with free and fair competition and efficient energy prices.
The I-SEM and IEM platforms depend on two types of participants; ‘generators’, responsible for producing electricity and ‘suppliers’, responsible for supplying electricity. Generators sell to the market, suppliers buy from the market and then sell to the public.
This relationship between buyers and sellers is streamlined in the IEM. In the IEM, energy market transactions involving buyers and sellers from different regions are centrally collected to maximise efficient and effective trades.
The IEM is underpinned by a common set of rules and regulations encapsulated in the European Target Model.
While the Withdrawal Agreement (WA) provides for the operation of the I-SEM – as Article 9 of the Northern Ireland Protocol (NIP) protects the functioning of the all-island market – the terms of the Trade and Cooperation Agreement (TCA) agreed between the EU and the UK allow the UK to diverge from the European Target Model.
Trade and Cooperation Agreement (TCA)
The EU-UK Trade and Cooperation Agreement (TCA) outlines the terms of trade between the EU and the UK, including the terms of trade on energy. The TCA endeavours to replicate existing regulatory principles.
The TCA includes provisions on the promotion of competition in energy markets, on free price formation and price transparency, on market abuse and market integrity and on the requirement for independent regularisation. Additionally, Title IIIV of the Agreement includes provisions on cooperation between system operators and regulators.
While the provisions included in the TCA provide a platform for future cooperation on energy and the environment, they fail to fully clarify the regulation of energy ‘interconnectors’ in the UK.
From an Irish perspective and from a UK perspective, this is important. Ireland is bound by EU legislation on energy and Ireland’s interconnectors are connected to the rest of the EU through the UK. For the UK, an importer and exporter of energy, the regulation of energy interconnectors is equally important.
While the EU and the UK are committed to the establishment of a model of efficient energy trading through interconnectors, this model is, at present, incomplete.
Energy Interconnectors
Ireland trades energy with the rest of the EU through energy ‘interconnectors’, high-voltage cables that connect the electricity systems of Member States.
Ireland’s two interconnectors connect with the rest of the EU through the UK: The East West Interconnector (operated by EirGrid) connects an energy station in Wicklow with an energy station in Pentir, Wales, while the HVDC Moyle Interconnector (operated by Mutual Energy) connects an energy station in Antrim with an energy station in Ayrshire, Scotland.
The UK’s exit from the Internal Energy Market (IEM) means that energy traded through UK interconnectors is managed through independent platforms rather than through EU platforms.
A July 2020 communication from the European Commission noted that energy trade through UK interconnectors would be less efficient and less frequent than it was when the UK was in the IEM.
Energy Trading
While the I-SEM is protected by the Withdrawal Agreement (WA) and the Northern Ireland Protocol (NIP), the UK’s decision to exit the Internal Energy Market (IEM) will have an effect on Irish energy, particularly in terms of energy trading and the ‘day-ahead’ market.
The ‘day-ahead’ market is a ‘forward market’ – a market centred on contracts for future delivery – in which prices are calculated for the following day based on the amount of energy generators offered to produce, the amount of energy required by consumers and the transactions between ‘generators’ and ‘suppliers’.
At a European-level, the ‘day-ahead’ market is facilitated by Single Day-Ahead Coupling (SDAC). SDAC is a mechanism that allocates cross-border transmission capacity efficiently by coupling electricity markets from different regions. This efficient process reduces the requirement for idle energy capacity.
In December 2020, the UK’s Office of Gas and Electricity Markets (Ofgem), noted that if the UK exited the IEM, it would be incapable of participating in EU SDAC, as participation in SDAC is underpinned by EU legislation including Regulation (EU) 2015/1222 and Regulation (EU) 2016/1719.
This applies to Ireland’s two interconnectors, the East West Interconnector and the HVDC Moyle Interconnector. Indeed, the Department of the Taoiseach has stated that this will affect Ireland’s efficiency in terms of energy trading.
Since 1 January 2021, the I-SEM has operated as an isolated, all-island market within the SDAC. The I-SEM currently has no capacity allocated day-ahead between it and the wider EU market.
Future Arrangements
Concerns related to energy trading and the ‘day-ahead’ market are evident in the EU-UK Trade & Cooperation Agreement (TCA). The requirement for an efficient energy trading model is outlined in the Agreement, as is a commitment to the allocation of interconnector capacity in the day-ahead market timeframe. The timeframe for the completion of an agreement on an energy trading model is 15 months following the ratification of the TCA.
Celtic Interconnector
While the UK’s decision to exit the Internal Energy Market (IEM) is an impediment to Irish integration in the EU energy market, the future of Irish energy integration is promising. Indeed, several of Ireland’s energy infrastructure projects focus on solidifying Ireland’s connection to EU energy. The Celtic Interconnector is one example. The Celtic Interconnector is a project designed to facilitate the flow of electricity between Ireland and France. Funded by EirGrid and Réseau de Transport d’Electricité (RTE), the project will strengthen the security of supply between Ireland and France, supporting sustainable electricity in the process. If completed, the planned project will further Ireland’s integration with the Internal Energy Market (IEM) and with our closest EU neighbours.
Where We Stand
While Ireland’s integration into the EU energy market is progressing, the UK’s withdrawal from the EU and from the Internal Energy Market (IEM) is a setback. The implications of Brexit on Ireland’s interconnectors and on Ireland’s energy trading are, in the short-term at least, negative but limited, whether this will be perceived by the public, in terms of pricing or energy disruptions, remains to be seen.