Business Energy Update from Professional Energy Purchasing: What Brexit means for the energy market
Whilst the pandemic continues to steal the headlines and the hope of a vaccine is on the horizon, Brexit negotiations continue in the background. Chamber Energy Partner Professional Energy Purchasing have been looking at the potential impacts on the UK’s energy supply and zero carbon future.
In general terms, oil and gas markets are traded on an international level and the EU has little influence over the make-up of a member state’s energy mix. Short term that means no danger of blackouts or supply shortages even with a no-deal Brexit.
Longer-term things are less certain depending on the outcome of the UK’s relationship and role within the EU’s Internal Energy Market (IEM).
The IEM is a borderless network of gas and electricity transfers between EU member states. Common market rules and cross-border infrastructure allow for energy to be transferred between countries tariff-free.
Post-Brexit, Britain is likely to have less influence over EU energy regulation.
So where will that leave the UK energy market?
With the decline of the coal industry, and the domestic gas production from the North Sea slowly drying up, the UK continues to rely on imports from Europe and other regions. In 2019 approximately 35% of the energy used in the UK was imported. The mix of energy import types and sources currently in place mitigates risks to UK supply, which suggests no long-term supply effects from Brexit.
The government are continuing with their commitments to the global carbon agenda and have recently announced £160m investment to build wind turbines to power homes across the UK by 2030. This will help us to continue our growth in renewable energy, but also to help to reduce our reliance on imports.
The future of interconnectors
There have been some excellent infrastructure initiatives developed over the last few years between the UK and other European countries to provide affordable, cleaner energy that alleviate the problems of daily and seasonal demand peaks. These interconnectors made up of undersea cables, allow each country to trade power with each other when it is more favourable locally without any import/export tariffs.
There are a few potential issues around Brexit that might affect this kind of programme moving forward.
The European Energy Programme for Recovery (EEPR) has awarded over €100m to support our interconnection projects with Belgium, France, Republic of Ireland, and Norway over the last few years with IFA2 between the UK and France due for completion towards the end of this year. The UK may lose access to any future funding support for these infrastructure projects.
Continued access to the IEM is also a key priority for the UK government to take advantage of benefits such as the increased security of supply. If we weren’t part of the IEM, the EU could impose tariffs on the export of gas and/or electricity pushing up prices. Alternatively, the UK could add taxes on imports making it expensive for European generators to export into the UK dampening the demand for interconnector capacity.
Regardless of the outcome, the UK’s energy networks’ connections to the EU will remain in place. The Government recently posted that only slight changes are expected to existing interconnector operations.
How will changes impact on carbon targets?
The UK passed law in June 2019 to reach Net Zero carbon emissions by 2050 which will remain unchanged, regardless of whether a Brexit deal is reached or not. Although it’s unknown what economic impact a no-deal will have on this target in the short to medium-term.
Regarding the current membership of the EU emissions trading system (EU ETS), there are a few options on the table. There could be an agreement to continue the UK’s participation in it as some of the Nordic countries do, or the government is considering the introduction of a UK carbon tax in the case of a no-deal.
Government regulator Ofgem is working closely with the government and industry to provide technical and regulatory advice to ensure the UK regulatory framework is fit for purpose and protects customers, whatever the arrangements are for the UK’s exit from the EU.
Professional Energy Purchasing is the Energy Partner for the Barnsley & Rotherham Chamber of Commerce.
For help with your energy buying and management contact them on 0114 327 2645 or visit www.pepgb.com