Recouple the SEM and GB electricity markets
An important but often overlooked issue is how the electricity market on the island of Ireland (the Single Electricity Market, or SEM) interacts with the electricity market in Great Britain (GB). There is growing debate about whether these two markets should once again be ‘re-coupled’ particularly at the day-ahead trading stage, writes Utility Regulator Chief Executive John French.
Why the markets de-coupled
The SEM is the wholesale electricity market covering both Northern Ireland and the Republic. It was designed to operate as part of the EU’s Internal Energy Market, where ‘market coupling’ plays a key role.
Market coupling links electricity markets across interconnected countries so that prices and electricity flows are set at the same time. This allows electricity to move from lower-cost areas to higher-cost ones, ensuring interconnectors (large cables linking different systems) are used most efficiently.
Before the UK left the EU, both the SEM and GB were part of this shared system. Cross-border trading followed common rules and an algorithm set prices and flows together. This ensured electricity moved in the most efficient way, reducing overall costs.
However, this changed on 1 January 2021. After the UK’s exit from the EU, the SEM and GB were no longer coupled in the day-ahead market. Great Britain left the EU Internal Energy Market, while Northern Ireland remained aligned with it under the Protocol arrangements.
As a result, the SEM now runs its day-ahead market separately. There is currently no direct electricity link between the SEM and mainland Europe, although an interconnector between Cork and France is expected to be operational later in the decade. For now, SEM prices are largely driven by local conditions.
Less efficient trading today
Trading between the SEM and GB still takes place, but in a less effective way. Since 2021, the two markets have only been linked through the intraday market.
The intraday market is much smaller and less active than the day-ahead market. In the SEM, around 80 per cent of electricity is traded day-ahead, while only about 15 per cent is traded intraday. This means most pricing decisions are made without fully reflecting conditions in GB.
This arrangement reflects a compromise between different regulatory systems. While it allows some ongoing trading, it is less efficient than the previous approach because the smaller intraday market cannot deliver the same level of benefit.
Higher electricity prices
Since de-coupling, wholesale electricity prices in the SEM have remained higher than in Great Britain. There are several reasons for this.
GB has a different mix of electricity generation, including nuclear power, which tends to provide stable and relatively lower-cost supply. It is also connected to multiple European markets, allowing it to access cheaper electricity from abroad.
By contrast, the SEM depends more heavily on local gas-fired generation. This makes it more exposed to changes in global gas prices, which can be volatile.
Local factors also play a bigger role. When wind output is low or demand rises, prices in the SEM can increase sharply. Without day-ahead coupling, cheaper electricity from GB cannot fully influence prices at this crucial stage.
At present, wholesale electricity prices on the island of Ireland are roughly 20 per cent higher than in GB. Since wholesale costs make up about half of a typical bill, this difference is significant for consumers.
How re-coupling would lower costs
Re-coupling the SEM and GB markets at the day-ahead stage would help address these issues by allowing prices and cross-border flows to be set together again.
Because GB often has lower prices, this would help bring down average prices in the SEM. It would also ensure that existing interconnection capacity is used more effectively.
The SEM has around 1.5GW of interconnection capacity with GB, more than 20 per cent of peak demand. This means a substantial share of electricity demand in the SEM is supplied by the GB system. Recoupling at the day-ahead stage would ensure that this capacity plays a significant role in SEM price formation, rather than being limited to less influential intraday trading.
Over time, this would reduce wholesale costs, with savings passed on to households and businesses through lower electricity bills.
Reducing volatility
Re-coupling would also improve price stability. Since de-coupling, the SEM has experienced more frequent and sometimes extreme price swings. These fluctuations are mainly driven by changes in wind generation and exposure to gas prices.
A re-coupled system would be better able to share supply across borders, smoothing out local shocks, helping to stabilise prices and reduce volatility.
Better use of interconnectors
SEM’s interconnectors with Great Britain are valuable assets and their efficient use is essential.
Interconnectors deliver the greatest benefit when they connect large, active markets and are fully integrated into price-setting processes. Limiting their role to intraday trading means much of their potential value is not realised.
Re-coupling at the day-ahead stage would allow interconnectors to have a much stronger influence, improving efficiency and maximising their economic benefit.
A practical step with real benefits
Re-coupling is not about redesigning the entire electricity market. It is a practical, targeted step that builds on existing infrastructure and proven market arrangements
By improving efficiency, lowering costs, reducing volatility and making better use of interconnectors, re-coupling offers clear benefits for consumers and the overall electricity industry.
At a time when energy affordability and security are more important than ever, re-coupling the SEM and GB electricity markets is a sensible step forward.
If SEM and GB were to re-couple, there could be up to a 20 per cent reduction in wholesale electricity prices in Northern Ireland. That would be a huge benefit.
E: info@uregni.gov.uk
W: www.uregni.gov.uk
Utility Regulator
Millennium House
Great Victoria Street
Belfast
BT2 7AQ
