Every national grid is sized for its own worst day. That is expensive, because the worst day happens rarely and the capacity built to survive it sits idle the rest of the year. Interconnection is the attempt to stop every country paying for that insurance separately.
The basic argument#
Two neighbouring systems rarely have their bad days simultaneously. One country's hydro reservoirs are low while the other's are full. One peaks in the evening for domestic lighting, the other in the afternoon for industry. One has surplus geothermal at night that nobody is awake to use.
A transmission link lets the surplus in one system meet the shortfall in the other, in the same hour. Both countries then need less reserve capacity of their own. The saving is real and it recurs every year.
The line is the easy part#
Building a high-voltage link across a border is a well-understood engineering problem. What takes longer is everything around it.
A trade requires an agreed price mechanism, a metering point both sides trust, a settlement process, a currency, a rule for what happens when one party cannot deliver, and a forum to resolve disputes that is not a foreign ministry. Where power flows across a third country to reach a buyer, transit terms are needed too.
Regional power pools exist to standardise this. Their slow progress is not usually a failure of intent; harmonising market rules between sovereign systems with different tariff structures, different regulators and different levels of utility solvency is genuinely difficult.
What can go wrong#
| Risk | Nature | Typical mitigation |
|---|---|---|
| Non-payment by the buying utility | Commercial | Escrow, sovereign guarantee |
| Political disruption | Sovereign | Multiple routes, treaty basis |
| Both systems short at once | Physical | Firm versus non-firm contracts |
| Transit country interference | Sovereign | Regional pool membership |
The uncomfortable case is the fourth. A country whose territory a line crosses acquires leverage it did not pay for. Framework treaties exist precisely to remove that leverage from the table before it is ever used.
Firm and non-firm#
Contracts split into two broad types, and confusing them causes most of the disappointment.
Firm supply is guaranteed. The seller must deliver or compensate. It is priced accordingly, and the seller must hold capacity in reserve to honour it.
Non-firm supply is sold when available. It is cheap, and it disappears exactly when the exporting system needs the power itself — which, in a drought affecting the whole region, is the same moment the importer needs it most.
Systems that planned their adequacy around non-firm imports have generally learned that lesson expensively.
Import to lower your costs. Do not import to cover your reserve margin. Those are different decisions with different consequences.
Why it still gets built#
Despite all of that, interconnection keeps expanding across the region because the underlying arithmetic does not change. Shared reserves are cheaper than duplicated reserves, surplus hydro is worth more sold than spilled, and a country that can export has a reason to build generation it could not otherwise justify.
Sources and further reading
