Costs and Benefits for Northern Ireland of an Integrated Irish Electricity Market

05 August 2004
By Graham Shuttleworth and Sean Gammons

In this report authored on behalf of representatives of the electricity industry in Northern Ireland (NI), NERA Directors Graham Shuttleworth and Sean Gammons examine whether NI should integrate its market with the nodal electricity spot market being developed by the Republic of Ireland (ROI). The authors present a detailed comparison of the costs and benefits to NI of joining the ROI's market versus staying out, using NI social welfare as their metric. The only benefits the authors identify with any certainty are possible savings in administrative costs associated with the removal of interconnector trading systems and the merger of market operator functions -- the existance of long-term contracts and an absence of congestion in NI meant the signals produced by a nodal pricing system would deliver few benefits in NI. Since these benefits are likely to be swamped by the costs of implementing and operating the new systems needed to run a nodal spot market, the authors recommend that NI should not join the ROI market at the present time. Instead, their report recommends that NI review the position again in three to five years, or earlier if conditions change significantly (e.g., the design of the ROI market changes leading to a significant reduction in the costs of implementation) and decide at that point whether the benefits of integration outweigh the costs.