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28 Jun 2013
Pöyry Management Consulting inputs into Ofgem's 2013 Capacity Assessment Report

To feed into Ofgem's analysis for its 2013 Capacity Assessment Report, Pöyry Management Consulting was commissioned by Ofgem to provide an independant analysis of the historical contribution of cross-border interconnection flows in the context of assessing the risks for security of supply in GB electricity market. This was achieved through addressing the following two questions:

  • What are the drivers for hours of relatively tight capacity margins in GB electricity system and interconnected systems?
  • What is the impact of the identified drivers on cross-border interconnection flows between GB and interconnected systems?

In order to address these questions Pöyry used an overall approach based on statistical correlation analysis which included the following main assessments:

  • correlation analysis of key system parameters; demand, available conventional capacity, wind output and net flows, between GB and interconnected systems;
  • computation of historic capacity margins in GB and other systems and analysis of their mutual correlations; and
  • correlation analysis of hourly capacity margin in GB with its own and other system’s parameters.

The correlation assessments were performed based on historical hourly data for annual, seasonal, peak winter and during low capacity margin hours with the key focus being on GB.

The findings of this analysis can be summarised as following:

  • Historical demand of all analysed systems has shown a high correlation with GB demand.
  • GB low capacity margins (below 20%) show a medium level of correlation with low capacity margins in Ireland and France.  On the other hand, very low capacity margins (below 10%) in GB do not show a definite correlation with any of the other systems.
  • Comparison of low capacity margins in GB, with and without interconnector flows, indicates that interconnector flows have broadly helped to reduce the number of low capacity margin (below 20%) hours in a year.  However, for hours of highest GB system stress (i.e. where capacity margins are below 10%) interconnector flows have not consistently helped or worsen the capacity margin conditions in GB.
  • GB capacity margin correlation with net interconnector flows to GB is predominantly negative, low, statistically insignificant and highly variable from one year to the other.

In considering the role of interconnectors in contributing to GB security of supply Pöyry conclude that:

  • Historical net interconnector flows to GB have not been driven by system parameters in GB or other included systems and could have been influenced by a number of co-occurring system (and/or market) conditions in GB and Europe.
  • Under current market conditions, GB interconnector flows may either make the GB capacity margin situation better or worse and hence cannot be relied upon to support GB security of supply at times of GB system stress hours in particular when capacity margins are below 10%.

Future changes in GB and its interconnected electricity markets and underlying systems can potentially change the future interconnector behaviour and hence their role in contributing to the risk of security of supply in GB.

An a small extension to Pöyry's analysis of the contribution of cross-border interconnection flows in the context of assessing the risks for security of supply in GB electricity market, Ofgem also asked Pöyry to statistically analyse the historical electricity prices (2009-2012) between GB and interconnected systems. Key conclusions of our analysis were:

  • GB average price differential with France and the Netherlands prices varies across different years potentially due to changes in gas and carbon prices. 
  • Average of annual, winter (Oct-Mar) and Winter (7am-9pm Business Days) prices show no large differences among the four investigated systems. 
  • Variation of annual, winter (Oct-Mar) and Winter (7am-9pm Business Days) prices is highly variable for France and it remains higher for Ireland compared to GB and the Netherlands. 

This additional analysis did not include the impact of price correlations between connected countries on interconnector flows.

For further information, please contact Mike Wilks, Director at Pöyry Management Consulting, on mike.wilks[at]poyry[dot]com.  

NOTE: Pöyry's analysis purely considered the historical coincidence of market stress periods in GB and neighbouring countries and associated historical behaviour of interconnectors. Pöyry did not make any predictions of future behaviour of interconnectors nor were involved in Ofgem's wider Capacity Assessment process for 2013.