Hard Brexit UK Means a Hard-Hitting Impact for UK Energy Market

Hard Brexit UK Means a Hard-Hitting Impact for UK Energy Market

Brexit UK: The uncertainty around the UK remaining in the European Emission Trading System is affecting the provision of the nation’s energy.

Energy UK is a trade body that represents over 100 energy-related businesses. Last week, the organisation appealed for the government to deliver ‘close alignment’ with the EU framework. They recommend that the country continues to participate in the European Union’s Internal Energy Market (IEM).

Uncertainty around Brexit UK is already affecting the day-to-day business of energy companies.

Energy UK say that there is a risk that a Hard Brexit will disrupt the industry and could cause higher costs per energy consumers. At the moment, thanks to market coupling and balancing services across borders, energy is traded openly across Europe. This integrated system helps to an equilibrium between supply and demand.

The CEO of Energy UK, Lawrence Slade, recently published a blog post warning that industry players are becoming increasingly frustrated about the lack of progress in Brexit UK  negotiations.

Slade wrote: “Little new information has emerged from this June Council, however, on what the future holds or when the withdrawal negotiations might conclude and provide us with the clarity we desperately need on the future framework.”

The government is due to publish a white paper which will contain details of the proposals to be used for negotiations with the rest of Europe.

“We hope the upcoming White Paper will answer some questions. This opacity around what the future framework looks like and when it would begin has already started to impact the energy sector. In the energy world, operators have to plan in advance, because the delivery of energy into people’s homes and businesses is not a straightforward matter,” Slade said.

In his post, Slade mentioned three Brexit-related impacts for energy firms. These are:

  • Uncertainty about the future of UK involvement in the EU emissions trading system (EU ETS).
  • Uncertainty about  UK participation in the European Internal Energy Market (IEM).
  • Uncertainty about UK compliance with the EU Clean Energy Package.  

Why the cause for concern?

  • Lack of clarity on the ETS, IEM, clean energy regulations, and nuclear regulation could have a major impact on investor confidence.
  • Energy suppliers buy their energy far in advance to limit their customers’ exposure to market volatility. This means that uncertainty over supply means uncertainty over pricing.
  • The EU ETS has proven to be the most cost-efficient way to incentivise emission reduction investments. Deciding to leave the EU ETS would create a big policy gap.
  • Quitting the IEM would make it more difficult to optimise load share and trade of power across Europe, likely leading to higher energy costs.

What does Energy UK recommend?

Slade concluded: “From the energy sector’s point of view, the European energy market as it is now and where it is heading is fully compatible with our vision and the trajectory we are on. The best way to get where we want to be is to stay in a framework that has delivered and that we have helped shape and continue to influence. While some aspects of this market can be more challenging than others, Energy UK believes that the benefits of remaining part of the IEM strongly outweigh the disadvantages which risks jeopardising all the work that has been done and that lies ahead.”

Thus far, officials and ministers have signalled that are in agreement with close EU alignment on climate and energy issues.

UPDATE – Energy UK respond to the white paper

Commenting on the publication of the Government’s Brexit White Paper, Slade said:

“It’s encouraging that the White Paper again makes it clear that the Government is looking to maintain broad cooperation over energy with the EU.  Right across the energy industry there’s clear agreement that a close relationship with the EU has been mutually beneficial and that its continuation will deliver the best outcomes for customers and businesses.

“Access to a EU-wide market has helped keep bills down by enabling the most efficient use of energy resources – something that will become even more important in a world of variable generation. The EU Emission Trading System (ETS) has been crucial in the drive to decarbonise across the whole economy, something in which the UK energy sector has led the way.

“As an essential product for consumers, businesses and the UK economy, energy must be a priority in the ongoing negotiations with the EU. So, whilst we welcome the broad commitments, there is a lot of detailed work and discussions required in a short space of time to achieve these goals and provide the clarity urgently needed on issues such as participation in the internal energy market and the EU ETS – and the continuation of the Single Energy Market between Northern Ireland and Ireland. The opacity around policy has already been having a direct impact on the energy sector.

“As an industry, we are committed to working with Government and the EU to ensure the future relationship continues to deliver benefits to the UK’s customers and businesses.”

Read more: What to Expect: Business Energy and Brexit

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