Britain Curbs Interconnector Trading as Capacity Hoarding Inflates UK Balancing Costs

Britain Curbs Interconnector Trading as Capacity Hoarding Inflates UK Balancing Costs Ofgem flagged market manipulation concerns on cross-border electricity flows, as Europe's grid operators plan €800 billion in transmission investment to 2050. Britain moved to restrict electricity trading across its interconnectors with Europe after concerns that capacity hoarding during cross-border flows was inflating system operator Neso's balancing costs and pushing up consumer bills. An analyst told Montel that UK consumers could be facing higher electricity prices because of what amounts to market manipulation in the interconnector capacity auctions.² According to regulator Ofgem, there have been instances when parties submitted bids to Neso's capacity auctions at extremely high prices, well above the imbalance levels subsequently observed. The gap between bid prices and actual system stress suggests some traders were gaming the balancing mechanism rather than responding to genuine supply-demand signals.² Britain has added eight interconnectors with a total capacity of almost 10 GW, roughly a fifth of the country's peak power consumption. National Grid, which owns most of Britain's interconnectors alongside counterparts in connected countries, estimated in 2021 that current and planned links would save British consumers £20 billion by 2045. Regulators want to nearly double interconnector capacity to 18 GW by 2032.³ That expansion plan rests on the assumption that cross-border trading benefits consumers. If capacity hoarding inflates the costs that Neso passes through to bill-payers, the economic case for more interconnectors weakens. The tension between liberalised trading and grid security is not unique to Britain, but the UK's island geography makes it particularly exposed.^3,2 European power markets are under wider pressure. Benchmark power contracts in France and Germany have both doubled, with some contracts rising more than 250%, Reuters data show. Germany's power margin dropped to the lowest level of the winter as low wind speeds and colder weather strained the system. Wind power generation fell 25% in October and November compared with the same period a year earlier.^5,4 The grid infrastructure needed to handle these stresses is enormous and expensive. ENTSO-E, the European TSO regulator, estimates the total investment required to meet the EU's electrification goals by 2050 at €800 billion. TenneT, the sole TSO in the Netherlands and the biggest in Germany, plans to spend €200 billion by 2034 alone. France's RTE has budgeted €100 billion between 2025 and 2040. Italy's Terna is investing €18 billion in 2024-2028.⁶ The queue of projects waiting for grid connections is staggering. Germany has 500 GW worth of battery project applications, more than 20 times current capacity. The country's first-come, first-served connection rule encourages speculative filings, clogging the queue with projects that may never be built.⁶ Data centres are adding a new dimension to the demand problem. A Montel-cited study found that flexible operation of data centres could slash their contribution to peak power demand by up to 45% by 2035, avoiding the need for 4 GW of fossil fuel back-up generation. The study implies that without flexibility, data centres would require exactly that much additional conventional capacity.¹ France is already preparing for the next regulatory shift. The CRE launched a consultation on whether to strengthen financial incentives for balance responsible parties in the power market ahead of a 2029 EU-driven change to grid operations. The review signals that the rules governing who pays for grid imbalances are being rewritten across Europe.⁸ Europe has also experienced a season of negative power prices. Montel's head of analytics examined how sub-zero prices have played out across the continent, reflecting moments when renewable generation exceeds demand and the grid cannot absorb or export the surplus. Negative prices are a symptom of the same grid constraints that make interconnector trading contentious.⁷ For UK power traders, the immediate question is how far Ofgem will go. If the regulator tightens rules around interconnector capacity auctions, it could reduce the volatility that has made cross-border trading profitable for some participants. The wider question is whether Britain's plan to double interconnector capacity to 18 GW still makes economic sense if the trading regime that justifies the investment is being curtailed at the same time.^3,2