The case of Switzerland hints at the shoals that post-Brexit Britain must now navigate, including trade in electricity where benefits seem clear from closer cross-border ties.
Britain voted to leave the European Union on Thursday, after immigration concerns trumped a desire to remain in the single market.
On February 9 2014, Switzerland supported a referendum “against mass migration”, meaning imposing immigration quotas and a preference for Swiss nationals in job markets.
Switzerland was already a non-EU member. But as a member of the European Free Trade Area, it had access to the EU single market, in return for signing more than 100 bilateral agreements complying with EU policies in competition, transport, energy and economic and monetary cooperation.
By voting against one of the EU single market’s “four freedoms” (for the free movement of people, alongside goods, services and capital), Switzerland put on ice its bilateral negotiations in the other three.
As European Commission vice-president Viviane Reding put it, as cleverly as possible: “The single market is not a Swiss cheese. You cannot have a single market with holes in it.”
Switzerland was in the process of negotiating a comprehensive “framework agreement”, to reconcile its bilateral agreements better with the EU’s constantly evolving laws and institutions; those negotiations are still on hold more than a year later.
That freeze includes negotiation on optimised electricity trade between Switzerland and its neighbours.
What have power markets to do with Brexit? Electricity systems are turning from centralised, thermal baseload sources towards distributed wind and solar, and from analogue to digital grids which can direct flows across market zones and borders according to price, supply and demand.
That is especially true in Europe, as ever more renewable power forces its way on the grid. Two visible impacts are plunging wholesale power prices, because wind and solar have zero marginal cost; and greater trade in shorter dated, day-ahead and intraday markets, as participants adjust to more variable supply.
Two EU initiatives are underway to adapt.
First, flow-based market coupling (a mouthful) uses algorithms to direct electricity across the continent, for example from negative power prices in Denmark, when there is a surplus of wind, towards more expensive markets, such as Italy.
The Central Western Europe (CWE) flow-based market coupling project (an even bigger mouthful), is extending these benefits of market coupling to intraday markets across the CWE region. Following its anti-migration vote, Switzerland is excluded. That has inflicted a cost in higher power prices and other sub-optimal trade effects estimated at double-digit million Swiss Francs annually, according to a Swiss energy industry source.
Second, a reduction in lead times in intraday markets will help operators and utilities adjust supplies ever close to real time, according to the availability of wind and solar power, thus reducing forecasting errors.
Six central European countries are attempting just that in cross-border markets, under the Pentalateral Energy Forum, where Switzerland again is outside the club, even though half these countries are its neighbours.
The Swiss case shows the cost of missing out on more affordable prices and balancing more variable renewables. There are lessons for Britain, an island with one of the least interconnected grids in Europe, and some of the highest wholesale power prices.
(We updated this piece on Monday June 27 to reflect the referendum result)