IEA (2020), Electricity Market Report - December 2020, IEA, Paris https://www.iea.org/reports/electricity-market-report-december-2020, License: CC BY 4.0
Global cross-border electricity trade, measured by gross imports in each country, was 728 TWh in 2018 or about 2.8% of total electricity supplied, an increase from 588 TWh in 2010 (24%, or 2.7% per annum).
European countries trade cross-border electricity most extensively – imports accounted for 9.1% of total electricity supplied in 2018, compared to 4.5% in Africa, 2.2% in the Middle East, 1.9% in the Americas and 0.6% in Asia. European countries have much stronger interconnection capability between them and the most harmonised energy markets. In addition, border regions are more densely populated and developed than other regions where borders are shaped by physical barriers. In the European Union VRE growth has also been a catalyst for increasing trade, while excess nuclear generation makes France a large exporter.
The top five countries, based on total final consumption, which are China, the United States, India, Japan and Russia, trade less extensively, due to having large domestic markets and limited interconnections with neighbouring regions. The United States is the largest importer by volume (58 TWh) and as a percentage of total consumption (1.4%). Additionally, trade does occur on a large scale within these countries among neighbouring states and provinces, particularly in the United States.
Power trading in North America
Robust power trading between the United States and Canada continued in the first six months of 2020, despite the coronavirus-related decline in economic activity. US imports from Canada reached 27.4 TWh in the first six months of 2020, up from 25.0 TWh in the same period in 2019. US exports to Canada declined to 6.5 TWh from 7.4 TWh in the same period. Exports from Mexico to the United States declined, dropping from 3.5 TWh to 1.8 TWh in the first six months of 2020. As a result, Mexico was a net importer from the United States of 322 GWh in the first half of 2020, versus net exports of 342 GWh in the first half of 2019.
National electricity systems are interconnected in Europe and markets are coupled, which means that Covid-19 impacts in one country can easily spill over into others. If one country experiences significant declines in demand – and therefore potentially declining market prices – this could affect the entire market, depending on available transmission capacity.
Demand dropped significantly and simultaneously in several markets across Europe due to the Covid-19 pandemic. A year-on-year comparison of demand in the first half of 2019 and 2020 shows a 6.6% decrease in demand in the United Kingdom, France and Germany combined. For the months of March, April and May the decline was even more significant, with a year-on-year decline of 9.1%.
During 2020 generation from non-fossil fuel sources (nuclear and renewables) has remained relatively stable compared to 2019. Nuclear in itself was down, but this was compensated by a rise in renewables. French nuclear output was notably lower in 2020 compared to 2019. Fossil-fuelled generation has declined markedly. In the first half of 2019 Denmark, Norway, the Netherlands, France, Germany and Italy generated 573 GWh from fossil fuels, while the comparable amount in 2020 was just 474 GWh. Declining demand in Europe was primarily accommodated by falling fossil fuel-based generation.
When demand and generation patterns change, the flows in the European market also change. An example of this is the trade between the Nordic market and continental Europe. In the first half of 2020 the flow from Germany to Sweden amounted to 129 GWh, about half the value of the same period in the previous year. Similarly, the flow from Germany to Denmark was 2 158 GWh in the first six months of 2020, a year-on-year drop of about 30%.
The Nordic market is typically a low-price market due to relatively high share of hydro and wind compared to continental Europe. In a situation where demand drops drastically, for example due to a lockdown, it will affect the cross-border flows in such a way that the more expensive generation sources, such as fossil fuel-based plants, are pushed out of the merit order.
In addition to lower demand across Europe, the water resources of the Nordic region were particularly plentiful in the spring and summer – additionally contributing to the power flows from the Nordic region to continental Europe.
An example of how the changed fundamentals affected cross-border power flows can be seen in Norway. In April and May 2020 hydropower production was around 46 TWh, or about 25% higher than in the same period in 2019. This, together with low demand, resulted in higher exports from Norway.
In 2020 exports from Norway to its neighbours were significantly higher than in 2019. When demand drops and water levels are high, prices in Norway fall – resulting in higher exports all else being equal. It is not clear, however, how much impact the drop in demand has had, since this trend would also be prevalent in other wet years. Flows from Sweden and Denmark to Germany would equally see an increase, in order to distribute the large amount of renewables in the Nordic market to continental Europe.