Brexit Endangers UK Energy Market: Parliament
The UK's decision to leave the European Union puts its "current frictionless trade in energy with the EU" at risk of higher prices and lower security, according to the results of an enquiry by the House of Lords’ EU Energy and Environment Sub-Committee’s report Brexit: energy security, published January 29.
The committee questioned energy minister Richard Harrington late October on the likely impact of Brexit on a number of aspects of UK energy markets, but he said in most cases that it was too early to say.
The EU supplies about 12% of the UK’s gas and 5% of electricity and the UK will need to continue to trade energy with the EU in order to meet demand, but if such trade takes place outside the internal energy market (IEM) it is likely to be less efficient. This creates the potential for higher energy bills. Also leaving the EU could risk supply shortages in the event of extreme weather or unplanned generation outages.
The European Court of Justice (ECJ) is the means of settling disputes in the IEM. It is not yet known whether the ECJ will have any future direct/indirect jurisdiction over the UK in relation to energy. In its contribution, utility SSE said: “The IEM has been beneficial for efforts toward delivering clean, secure and affordable energy in the UK.”
The committee in its report urges the government to set out how it will work with the EU to anticipate and manage supply shortages, and to assess what impact leaving the IEM would have on the price paid by consumers for their energy.
Energy UK, representing utilities, were clear that, post-Brexit, “it is very unlikely that the ‘lights will go out’, as both gas and electricity will physically continue to flow on a commercial basis”. But it also told the committee that “without a strong trade agreement or a type of membership that provides access to the IEM… it is likely we will be operating in a less efficient market”. Similarly think-tank Chatham House's research assistant and co-ordinator on Europe, Georgina Wright, argued that “of course, energy trade between the UK and the EU 27, and the UK and third countries, would continue even in the event of no agreement. The key risk is around how efficient that trade would be."
Other witnesses said there could be benefits from withdrawal, highlighting changes that they would like to make to domestic energy policy once the UK is no longer constrained by EU membership. These included changing the process through which changes are made to the Network Code and setting domestically-tailored renewable energy and energy efficiency targets, supported by retail and supply-chain measures. The report found that Brexit "presents opportunities to develop energy policies that support market conditions that are particular to the UK."
The committee found that the UK's influence of future energy policy is likely to be severely constrained and so the government should conduct a frank assessment of its potential degree of influence, taking particular note of the difficulties faced by other non-EU countries such as Switzerland and Norway.
The committee also stressed that the Euratom treaty is fundamental to the current functioning of nuclear energy generation in the UK and it has has called on the government to ensure contingency arrangements are in place and to review the possibility of a Euratom-specific transition period separate from the wider Brexit process.
Other potential challenges include the lack of access to specialist EU workers in the nuclear construction sector, including the Hinkley C project; and EU funding that is now forthcoming for other infrastructure will need to be replaced to enable future energy trading.