Official Report: Minutes of Evidence

The Chairperson (Mr Brett): I welcome our friends and colleagues from the Utility Regulator. Thank you very much, John and colleagues, for joining us. I will allow you to introduce your colleagues. Take your time to get settled, and then we will hand over to you.

Mr John French (Utility Regulator): Thanks, members, for the opportunity to speak to you today. I will introduce everyone at the table. Marie-Therese Campbell is head of our market operations; Colin Broomfield is director of markets; and Jean Pierre Miura is head of monitoring and analysis. Jean Pierre will take you through the slides when we get to that point.

Thank you again for the opportunity to set out why we think that re-coupling the single electricity market (SEM) to GB at the day-ahead stage matters for consumers in Northern Ireland and the overall island of Ireland.

The single electricity market operates across the two jurisdictions and was originally designed to work within the wider European market arrangements, where electricity markets are closely linked through what is known as market coupling. That approach allows prices and cross-border electricity flows to be set together, ensuring that electricity moves from lower-cost to higher-cost areas and helps to minimise the overall cost for consumers across Europe.

Following the UK's exit from the European Union, those arrangements have changed. Since January 2021, the SEM in Great Britain has no longer been coupled in the day-ahead market. While trading between the markets continues, it now takes place through more limited intraday arrangements, which are less efficient and do not deliver the same benefits as full day-ahead coupling. That matters because more efficient use of interconnection can help how we formulate prices in Northern Ireland, reduce avoidable costs and reduce pressure on bills over time.

There are several reasons why the wholesale prices on the island of Ireland are higher than in Great Britain. For example, we have a different generation mix between the two jurisdictions, and GB has a greater and significant interconnection with continental Europe.

Recoupling at the day-ahead stage would be a practical step towards making better use of available interconnection and improving how electricity is traded between those markets, which is ultimately in consumers' interests.

We recognise that change sits within the wider discussions between the UK Government and the European Union. However, we believe that it is important to highlight the issue, as its reintroduction would provide a clear benefit for consumers here.

I will now hand over to Jean Pierre, who provided you with the presentation. He will take the Committee through everything in more detail.

Mr Jean Pierre Miura (Utility Regulator): Thank you, John. I will cover the content of the slides. The first relates to the context for the SEM design. As Mr French pointed out, the single electricity market encompasses Ireland and Northern Ireland, and, critically, the market involves only the wholesale trading of electricity. We have two separate retail markets, North and South.

In the SEM arrangements, generators and suppliers trade electricity freely across the entire island of Ireland. The trade occurs via auctions. We have auctions for the day-ahead and the intraday delivery of power. That is the main mechanism whereby market participants in the SEM trade electricity. What typically happens in the auctions is that generators of electricity submit orders reflecting the minimum price that they are willing to accept to produce power, and the suppliers submit orders reflecting the maximum price that they are willing to pay to consume that electricity. Those prices on the wholesale markets are formed hour by hour by the intersection of the demand-and-supply curve of those orders.

That market arrangement has been in place since 2018. Prior to that, we had the old SEM arrangements, which were incompatible with the emerging European framework for trading. From 2012 to 2014, therefore, we engaged in an exercise of redesigning the old SEM to implement the provisions of the new European market design, which was triggered by the publication of the IME3 package of legislation in 2009.

A key feature of that market design is the concept of market coupling, which was developed to integrate different member states and market zones in a way that would harmonise prices across Europe if there were no limits to transmission capacity between the different market zones. As a result of market coupling, orders that are submitted in different market zones are put together by the same mechanism, and prices are formed jointly. Critically, the interconnector direction and volume of flows are determined by the same process by which the prices are formed in the different interconnected regions.

The next slide provides context to the UK's exit from the EU. Before the UK left the EU, the SEM-GB was market coupled at the day-ahead stage. The day-ahead stage is the main market of the SEM — 80% of transactions are cleared in the day-ahead market. After its EU exit, GB was excluded from that single European day-ahead market, but, given the protocol and the Windsor framework agreement, the SEM Northern Ireland and Ireland remained part of the European market. Although, at this stage, we do not have any physical interconnection with mainland Europe, we will have in 2028 with the interconnector between Cork and France. Until then, however, at the day-ahead stage, which is our main market, we are forming prices independently of any other bidding zone, either GB or the rest of Europe.

Historically, GB has produced at lower prices than the SEM, which, as Mr French suggested, is due to differences in fuel mix. GB has a layer of nuclear power, more solar, and wind generation is more widespread across the British Isles. Critically, it has a much larger volume of interconnection with the Continent, so it can import cheaper power from Scandinavia via the North Sea link with Norway and other parts of mainland Europe that have lower prices.

We continue to be coupled with the GB market but just via a bespoke arrangement connecting the intraday market. The intraday market is a kind of residual market that trades only about 15% of our demand.

The bulk of the benefits, in economic welfare maximisation, of the decoupling is not absorbed by our main market, which is the day-ahead market — we benefit only in the residual market — and that is where the loss of economic efficiency takes place.

The third slide presents a chart showing the SEM-GB price differential. It illustrates the degree of price convergence between the SEM and GB markets before and after the introduction of the post-EU exit arrangements by which we decoupled the day-ahead market. As we can see from looking at the side of the chart to the left of the red line, which marks the time at which the post-Brexit arrangements were put in place, there was a much closer correlation in prices between SEM and GB at that stage. SEM prices are shown in green and the GB prices in purple. We then see a period of very high volatility. That reflects the impact of the Ukraine crisis on the gas markets, so we cannot learn much from it about the influence of market decoupling.

From 2023 onwards, however, we can see a trend reflecting what is almost a new normal in which our prices are, on average, 20% higher than GB prices. Multiple factors drive that price differential, and the absence of market decoupling in the key market is one such driver. Another driver is the new trend in gas prices, which is shown as an inset in the main chart. As you can see from it, the SEM price seems to be more strongly driven than the GB market price by a higher international gas price. Another factor is that, since 2021, Great Britain has added 4·8 gigawatts of new interconnection with the Continent — Scandinavia. That means that the equivalent of almost the entire average energy demand of the all-island market has been added to the GB system through interconnection with the Continent, bringing lower prices to the GB market.

The final slide presents a different way of looking at the same information. The histograms show the distribution of the price differential between the SEM and the GB market within the year on a per-hour basis. We have 8,760 hours in the year. As you can see from the chart at the top left, we have a concentration of price spreads at the lower end of the spreads — between -€5 and €5 — so there is a greater degree of convergence. We observe the same convergence in the day-ahead market and the intraday market, which is shown by the chart immediately to the right. However, when we compare that pricing distribution with what we observe in the day-ahead market in 2025, for example, we see a much wider distribution of the spreads and a lot less convergence in SEM and GB prices. One of the drivers of the higher divergence in price is the absence of the mechanism that forces the harmonisation of prices in interconnected zones.

Finally, as you can see from the chart at the bottom right, price convergence remains strong in the intraday market, in which we continue to be coupled with GB.

The Chairperson (Mr Brett): Thank you very much indeed, Jean Pierre. John, do you want to add anything at this stage?

Mr French: No.

The Chairperson (Mr Brett): OK. Just so that I get the correct timeline in my head, did the issue first come to the fore in 2018?

Mr French: No. We were coupled with the GB market then. It has come to the fore in the past couple of years, once EU exit occurred.

The Chairperson (Mr Brett): When was the actual decoupling?

Mr Colin Broomfield (Utility Regulator): January 2021 was the beginning of the transition period.

The Chairperson (Mr Brett): When did the transition period end?

Mr Broomfield: At the end of 2021.

Mr Miura: January 2021 was when we officially decoupled the hedge market.

The Chairperson (Mr Brett): We are now in June 2026: five years later. You have done important work on that, but what has the Department done? The issue came to the fore when you gave evidence to the Northern Ireland Affairs Committee. Surely the Department for the Economy, rather than the Utility Regulator, should have highlighted the issue.

Mr French: I do not know. Getting the market re-coupled could have the biggest impact on energy prices in Northern Ireland. We know that there are negotiations at the moment between the UK Government and the EU. We have to make that a central point. It could save consumers on the island of Ireland hundreds of millions of pounds. It really is worth playing for.

The Chairperson (Mr Brett): Before you made your comments to the Northern Ireland Affairs Committee, what engagement had you had with the Department, given the fact that that is the single biggest intervention that could take place in relation to consumer bills?

Mr French: Jean Pierre has been talking about this issue since EU exit, but there have always been things higher up the agenda between the UK and the EU to negotiate on. However, its significance is increasing.

Mr Broomfield: Yes. As Jean Pierre showed in the charts, we are now in a phase in which prices are higher, so those differentials will have a bigger impact.

As part of EU exit, there was a trade and cooperation agreement between the European Commission and the UK Government. As part of that, there was the concept of multi-regional loose volume coupling, which is a bit of a mouthful, to improve the trading arrangements between the GB market and the EU market. Those discussions have not progressed at the pace that we would have liked. That would bring you in the direction of coupling, but it has not moved forward as part of broader negotiations as much as we would have liked.

The Chairperson (Mr Brett): How likely is it that that can be done during the summer period of reset discussions and engagement?

Mr French: From what we understand, the Prime Minister has stated that it is one of the most important things that he is looking for. The Irish Government have the presidency of the EU, and they are pushing for it as well. We need to add our voice to that. Hundreds of millions of pounds could be saved for consumers.

The Chairperson (Mr Brett): I am going to open up the session to colleagues, and then I will come back in to ask some questions on Sinéad's behalf.

Mr Kearney: Once again, we have another stark example of how long a shadow has been cast by Brexit as a direct result of decoupling. In the event that we were to see re-coupling and progress made on the all-island interconnector, how long would it take for us to see greater efficiencies delivered in supply and for there to be a reduction in costs for consumers?

In an ideal world in which we manage to reverse the catastrophic result of Brexit, create the space for re-coupling to take place, and see advances in relation to the interconnector, how long would the transition period be before we saw results in efficiencies and, most important, savings for consumers?

Mr French: It should happen pretty soon. We were coupled, so it is just a case of bringing back the IT systems and making sure that they can deal with the trades. It is a matter of getting the processes in place. Once the agreement is in place, it should not take that long.

Mr Kearney: A political agreement is therefore the key to resolving that, and that will drive down the costs with which consumers in the North currently have to contend.

Mr French: It is all-island.

Mr Kearney: Absolutely. Thanks.

The Chairperson (Mr Brett): Sinéad raised a couple of points with me. She is keen to understand the feedback to your consultation on interconnection, particularly on the Lir interconnector (LirIC). There had been some suggestion that the domestic Northern Ireland renewables market was concerned that the creation of new interconnection would reduce or impact on renewable generation in Northern Ireland. Is that a business consideration or a consideration relating to the fact that we already have such a high dispatch-down level that we would be better to focus on increasing our grid connectivity and storage using the energy that we have, or is it a bit of both from private-sector providers?

Mr French: That is a slightly different issue from the re-coupling issue.

The Chairperson (Mr Brett): It is, but it was mentioned at the same evidence session.

Mr French: Energy is all about price, security of supply and sustainability. It is about which of those is prioritised. The interconnector will bring cheaper electricity and greater security of supply. It will bring renewable energy from Scotland across to Northern Ireland, and it will then be about how the local market can play against that interconnection. There may be times when local generation is more expensive than generation across the interconnector, in which case generation from the interconnector would be prioritised, because it is cheaper. Do you want to add anything, Marie-Therese?

Ms Marie-Therese Campbell (Utility Regulator): Yes. Thank you, John. At present, we are conducting a piece of work that follows on from our publication last week of the consultation responses and producing an information paper on financing models for interconnection. As part of that assessment, over the next six months, we, in conjunction with the System Operator for Northern Ireland (SONI), will assess the needs case for further interconnection in Northern Ireland. That assessment will include areas such as the dispatch-down issue that was raised in consultation responses from, for example, RenewableNI. The assessment will look at a systems impact for Northern Ireland to determine the needs case, the stability of the grid and the security of supply to Northern Ireland in the event of there being a 700 MW interconnector from Scotland to Kilroot. The assessment will also look at the market modelling effects for Northern Ireland and, on an all-island basis, for the SEM, as well as at socio-economic welfare for NI consumers. That underpins the regulatory framework that we are putting in place for further interconnection. The needs case will drive a response to LirIC, which, as the Committee will be aware, has requested a cap and floor regime. It will also drive a regulatory framework within the Utility Regulator to ensure that we can adequately assess any applications that come to us for further interconnection to Northern Ireland.

The Chairperson (Mr Brett): When do you think that that process will be complete, Marie-Therese?

Ms Campbell: We are working on a plan. We have outlined our next steps in the information paper. We intend to issue a draft determination by quarter 4 of 2026. That aligns nicely with Transmission Ireland (TI) LirIC's plan. We have informed TI LirIC of our progress and of when we will make that draft determination.

We have gone through a process of issuing the licence, progressing a consultation in December 2025 and publishing the consultation responses and an information paper. The next six months are really for us to get our head down and do the assessment, with a view to issuing a draft determination by quarter 4.

Ms D Armstrong: Good morning. Welcome to the Committee. Thank you for coming in this morning. I will pick up on the point that Declan made about the re-coupling process. Where does the formal decision-making lie? Is that through agreement at the Single Electricity Market Committee (SEMC)? Will changes to legislation be required in either the UK or Ireland, or is it just a matter, as you said, of making a switch?

Mr French: Agreement between the UK Government and the European Union is needed. Once that happens, it is a technical issue to get through.

Ms D Armstrong: Is that a formal process that will add a further time burden?

Mr Broomfield: There have been ongoing discussions between the European Commission and the UK Government. A common-understanding statement was published at the end of last year to outline the remit of those discussions. We are not sure how long they will take to reach a conclusion. As John said, getting the political decision is key. Beyond that, some changes will need to be made to IT systems. We anticipate that that process will be quick enough, however.

Mr Honeyford: Thank you, John and guys, for coming in. We are seeing the outworking of Brexit here in people's bills, and everybody is paying the price. You brought up earlier that our wholesale prices are about 20% higher than those in GB. Given the benefits of interconnection right across Europe, have you done an analysis to quantify the impact on consumer bills of access to electricity through the Celtic interconnector, which links Ireland to Europe, of the North/South interconnector and of a situation in which GB was back in the European market? What would be the benefit from such access on consumer bills?

Mr French: Jean Pierre's team is doing an awful lot of modelling currently, and an incredible number of variables are involved. The benefit of re-coupling is that, in the best case scenario, the highest efficiency would be 20%. That equates to hundreds of millions of pounds for the consumer market. Wholesale costs are about 50% of the bill, so that would be a reduction of up to 10% in the final prices for consumers' electricity bills.

Mr Honeyford: We are talking about hundreds of pounds coming off people's bills.

Mr French: Yes.

Mr Honeyford: In the graph in the paper that you submitted to the Committee, you have modelled international gas prices. Our electricity price basically follows the gas price. That is therefore the main driver of our electricity costs.

Mr French: Yes.

Mr Honeyford: The cost of imported gas reflects the price that consumers are paying. By how much does renewable energy in Northern Ireland and across the island therefore help reduce consumer bills?

Mr French: If we were 100% gas-generated we would have seen, over the recent crisis, electricity prices go up by about 60%.

Mr Honeyford: Sixty per cent.

Mr French: Renewables are giving a dampening effect to that. We have seen increases of 10% and 20%. Renewables have helped, but gas sets the price. Renewables have dampened the overall price, but the market is gas-dominated.

Mr Honeyford: What is the price drop for consumers from having our own homegrown energy?

Mr French: It has reduced that —.

Mr Honeyford: It has reduced what would have been a 60% increase to 10% and 20%.

Mr French: Yes.

Mr Honeyford: No bother. You said that achieving the target of 80% renewables is extremely difficult. What policy changes urgently need to come from the Department to get that target back on track, even to meet the 2050 target?

Mr French: Policy changes include things such as the renewable electricity price guarantee (REPG) process. We need to be clear about where we are going with the likes of interconnection. We also need to know where we are going with policies on storage and synchronous generation.

Mr Honeyford: Has the Department made it clear where we are going?

Mr French: We need additional clarity. Having it would make a huge difference to where the interconnector project goes. We have said many times that the legislation that founded the Utility Regulator is 20-odd years out of date. We need to update the legislation in order to be able to support the mandate fully. Ofgem can provide interconnection licences. We have not got that ability, so we have to use different licences to try to overcome that gap, which takes longer. We need to make sure that those licences are legally robust.

Mr Honeyford: The energy strategy action plan was released about a fortnight ago at 4.30 pm on the Friday of a bank holiday weekend. Does it give you any confidence that the policy that you need in order to achieve clarity is on track?

Mr French: We are working with the Department to try to achieve that. We are in 2026, and it is about trying to meet the 2030 targets. That makes it very difficult, yes.

The Chairperson (Mr Brett): You should be a politician, John. You are very diplomatic. [Laughter.]

Mr Delargy: Thank you for your presentation. I will begin with Declan's point, as I have exactly the same thoughts. This is yet another cost that people in the North are paying as a result of an ill-thought-out and ill-conceived Brexit. Ten years after Brexit, we are still struggling with the issue at a time when people are struggling significantly with other cost-of-living pressures. I welcome your work in that context.

A few of my questions have been asked by other members. I will delve further into David's point about your forecasts, particularly those to do with gas prices. How sensitive are your forecasts to gas prices? Following on from that, what is the margin of error for your estimations? I am conscious that the figures are significant, but I am trying to understand the margin of error with which you are working.

Mr Broomfield: There are a few points to make about forecasts and the impact of future renewables. That is a different point. We need to look at modelling for the interconnector itself and at the overall benefits. Marie-Therese outlined the analysis that we will carry out. We will work on that analysis over the next six months to determine the potential future benefits of additional interconnection. We will look at different forecasts and at scenarios to do with gas prices etc.

On the re-coupling piece, we talked about that 20% figure, which is the price differential between SEM and GB prices. That is an average of the historical differential between the SEM price and the GB price. We are saying that, based on our analysis, re-coupling would have a significant impact on that price differential. Figures such as the 20% one look at the historical differential between SEM and GB prices.

Mr Delargy: I get that, but what margin of error are you working with? You are saying that you are working off the 20% differential figure, but that will fluctuate over time. When you look at the figures, what margin of error will you therefore use, because those are significant numbers?

Mr Broomfield: At this stage, we suggest that the differential is up to 20%. The potential benefits are significant when one takes account of those numbers. For example, the single electricity market is worth roughly £6 billion a year. On that basis, an impact of 1% will mean roughly £60 million. As John said at the start, we see coupling being based on that analysis. It is not an exact science, so it is very difficult to give you a precise margin of error. There are many factors at play. As John mentioned earlier, we anticipate that it will have a significant impact, which will be in the territory of hundreds of millions of pounds across the island.

Mr French: Even if we are 50% wrong in our analysis, that still amounts to hundreds of millions of pounds.

Mr Delargy: OK. My other question is about the network and infrastructure costs. Are there specific numbers that you are looking at for implementation and operational costs? I appreciate that this is all ongoing work, but, even at this stage, do you have any clear indication?

Mr French: The benefit is that there are no implementation costs, because the infrastructure is there already. It is just about bringing back the IT systems.

Mr Delargy: You mentioned that earlier, John, and I did not know whether there is a cost involved in bringing back the IT systems. Would that be paid for through tariffs? In what way would that be paid for?

Mr French: The cost of bringing back an IT system is marginal in the context of the figures that could be saved.

Mr Delargy: Absolutely. We need to understand those costs. Thanks.

The Chairperson (Mr Brett): John, is there anything that you think that the Committee can do? Obviously, we can express our views to Nick Thomas-Symonds about the ongoing negotiations with our counterparts in Ireland, given that Ireland is soon to take on the presidency of the Council of the European Union. Are we missing anything else that we can do?

Mr French: No. Doing what you said would be very helpful.

The Chairperson (Mr Brett): OK. Colleagues, if there are no further questions, it is important that we, as a Committee, thank the team at the Utility Regulator. I am not sure that it was your responsibility to do so, but you brought the issue to the fore. The Department needs to answer this serious question: why did it not see that this was the single greatest intervention that it could make to have an impact on bills, not just in Northern Ireland but across the island of Ireland?

Thank you, Jean Pierre, for your work. It is rare that, when it comes to EU exit, we see a unanimous approach from five political parties in Northern Ireland, so congratulations on your ability to achieve that. Thank you for all your work and for your dedication.

Mr French: Thanks for your time.