Ofgem warns traders over interconnector capacity conduct

Ofgem has warned electricity market participants over conduct in interconnector auctions after identifying occasional extreme prices in auctions run by the National Energy System Operator.

The regulator’s intervention covers auction behaviour observed between 2022 and 2026. It focuses on circumstances where a market participant holds a decisive share of capacity on an electricity interconnector and submits prices that may not reflect the level achievable under more competitive market conditions.

Market participants must ensure that prices submitted into NESO interconnector auctions are justified by market fundamentals. Ofgem has also reminded companies that capacity hoarding on electricity interconnectors is prohibited, with compliance expected across trading and operational decision-making.

Interconnectors allow electricity to flow between GB and neighbouring markets, supporting imports when domestic supply is constrained and exports when generation exceeds demand. Their role has grown as renewable output, demand patterns, local constraints, and balancing actions create more complex operating conditions for the grid.

High prices in interconnector auctions are not automatically evidence of poor conduct. Tight system conditions, limited available capacity, and genuine market scarcity can all produce elevated prices. The regulatory concern is whether capacity control allows a participant to exercise market power during balancing events when NESO has fewer available alternatives.

As the electricity system becomes more dependent on variable generation, the value of flexible cross-border flows rises. Interconnectors can reduce curtailment, support security of supply, and provide an additional balancing route during short-term system stress. That operational value depends on confidence that access to capacity and auction pricing remain competitive.

NESO’s summer outlook, which examined the challenge of operating during periods of low demand and high renewable output, set out a grid increasingly shaped by solar generation, interconnector exports, storage, and demand flexibility. That operating environment places more weight on assets that can move power quickly across borders, especially during periods when domestic generation and demand are not aligned.

Interconnectors occupy a complex position in the power system. They are physical transmission links, commercial trading channels, and balancing tools. When NESO needs to buy or sell electricity across borders, it must also rely on available capacity on the relevant cable. If that capacity is concentrated among a small number of participants, the commercial structure around the asset can affect the practical options available to the system operator.

Cost exposure is also part of the regulatory picture. Balancing costs feed into the wider system-cost stack, and isolated extreme prices can still have material impact when they occur during constrained system conditions. Ofgem’s warning places capacity-hoarding behaviour within a wider effort to ensure that market conduct does not undermine efficient system operation.

Further interconnection, offshore hybrid assets, and multi-purpose interconnectors are expected to play a larger role in future electricity system design. Those assets will blur the boundaries between offshore generation, transmission access, cross-border trading, and balancing responsibility. Regulation will need to keep pace with that shift, particularly where physical infrastructure and commercial power become closely linked.

Ofgem’s message is direct: traders must be able to justify their bids, and capacity must not be withheld in a way that distorts competition. As GB relies more heavily on cross-border flexibility, the behaviour of market participants around interconnector access will sit under closer scrutiny.