In a document published on Thursday 9 November by the Bruegel think-tank, researchers George Dimopoulos, specialising in green economics, and Conall Heussaff and Georg Zachmann, experts in energy and climate policy, have highlighted the growing importance of cross-border electricity transmission capacity in the European Union. Their analysis highlights the inefficiency of the European electricity market, which is still fragmented into national wholesale markets despite interconnections between neighbouring countries. This situation leads to occasional congestion of transmission capacity, resulting in price differentials between markets.
With the energy crisis, this congestion has had a growing impact. The authors calculated the added value of one additional megawatt (MW) of cross-border capacity, revealing significant arbitrage opportunities. For example, in 2022, an operator with 1 MW of transmission capacity could have made substantial profits by exploiting the differences in hourly prices between countries.
The value of transmission capacity rose sharply at the start of the crisis. For some borders, this has risen from an average of almost €30,000 in the first half of 2021 to almost €200,000 in the second half of 2022.
Germany’s connections with its neighbours, for example, reached an average value of €300,000/MW over one year. The increase was particularly notable in France, where the value was multiplied by six to ten due to the shortage of French nuclear generation. To put these figures into perspective, the cost of the new 1,400 MW NorLink interconnector between Germany and Norway, which was €2 billion, could be covered by early 2024 thanks to the price differentials observed.
This study shows that there is an urgent need to increase cross-border transmission capacity in Europe. The authors believe that maximising existing transmission capacity and building new lines are essential for a cost-effective and efficient green transition.
Analysis: https://aeur.eu/f/9j4 (Original version in French by Nithya Paquiry)