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a no-deal Brexit scenario: what is the effect on trading electricity?

31 October 2018

The current rhetoric surrounding Brexit is that there is a possibility of a no-deal scenario; the point of contention is reported as the border issue between Northern Ireland and the Republic of Ireland. Until full withdrawal agreement can be made between the UK and the EU; there is a possibility that there will be no-deal; this would mean that there will be no transition period after 29 March 2019. As this scenario is looking more and more plausible the UK government has been putting forward their position; should there be a no-deal outcome, through their technical note series. Our previous article analyses the Brexit white paper which puts forward an overall optimistic scenario as to what the UK government hopes to achieve out of the Brexit negotiations. This technical note highlights the implications if their white paper aims are not achieved.

The technical note can be found here: https://www.gov.uk/government/publications/trading-electricity-if-theres-no-brexit-deal/trading-electricity-if-theres-no-brexit-deal#before-29-march-2019

This update provides the key points put forward by the government for those in the electricity sector when preparing for a no-deal Brexit; providing helpful guidance for those within the sector to prepare for a no-deal scenario and the potential issues that may arise.

Current position

The UK’s electricity supply is currently intertwined with the EU through a series of interconnectors; there are four operational interconnectors between the UK and the EU: one with France, another with the Netherlands and two with the island of Ireland, with 12 more interconnectors that are either planned or in the process of being constructed over the coming years.

Further analysis of the UK’s current electricity interconnectors with the EU can be found here:

https://www.brownejacobson.com/training-and-resources/resources/brexit/brexit-will-the-lights-go-out-a-review-of-the-electricity-interconnectors-with-the-eu

Trading electricity if there is no deal in place

In a nutshell, if there is a no-deal Brexit, EU energy law will no longer apply to the UK energy market and these markets will be decoupled from the Single Electricity Market (SEM).

Implications for the UK government

The UK will be forced to look for longer- term alternative electricity trading arrangements. This will involve the UK and the EU negotiating new access rules to the SEM. In the meantime the UK government will adopt statutory instruments to ensure the UK’s energy laws are still working post 29 March 2019

Implications for participants

Those companies which are participants within the energy sector will need to register with an EU regulatory authority in order to avoid disruption to cross border trade, trade within the EU wholesale energy markets, or trade within the SEM. Market participants will need to make use of the alternative arrangements developed for the purchase and sale of power cross-border. The UK government has stated that they are working with Ofgem, the utility regulator in Northern Ireland and the National Grid, to ensure that measures which are in existence can guarantee delivery of continued supply.

Implications for Northern Ireland

Recent reports have suggested that there will be blackouts in Northern Ireland because the government has suggested in the report that there is a possibility of no deal for the SEM border between Northern Ireland and the Republic of Ireland. Whilst it cannot be deemed beyond the realm of possibility, it is extremely unlikely. Procurement as well as current interconnectors between the UK and mainline EU countries will ensure that electricity will continue to flow, however this may be subject to a tariff imposed by the EU on the UK. It is possible that this may lead to price increases, at least in the short run, but will not send us back into the dark ages. It is not in the EU’s interest to have a scenario whereby the UK cannot supply an EU member state (the Republic of Ireland) with electricity.

The government’s suggested actions for Business and other stakeholders

The UK government emphasised in their technical note that it is not their position to govern businesses with regard to how they should prepare for a no-deal Brexit; however they did put forward some suggestions that businesses/stakeholders should action:

  • Interconnector owners/operators - it is important that alternative trading arrangements and rules are prepared should a no-deal scenario arise. These should be developed with the customers, regulators and stakeholders with both sides of the interconnectors in mind.
  • Engagement with relevant EU national regulators to understand their processes for the potential reassessments of their Transmission System Operator Certificates.
  • Ofgem for Great Britain and Utility Regulatory in Northern Ireland will need to work with industry parties to ensure that the industry codes are updated.
  • Businesses will need to register with an EU Regulatory authority under the Regulation on Energy Market Integrity and Transparency (REMIT) in order to ensure cross-border trade and trade within the EU market.
  • Those businesses in operation in Northern Ireland should continue using the SEM but be aware of the implications described above.

Our suggestions for businesses

It is important for businesses to take note of the government’s suggestions regarding a no-deal Brexit. There are additional things that businesses can do to prepare for this:

  • have your pre-existing contracts reviewed to ensure that there is sufficient protection for the business. Areas of focus include: liability provisions, termination and inserting a Brexit clause;
  • identify your current contractual arrangements that go beyond 19 March 2019 and those that go beyond 2020. Identify who in the contract will be financially liable for costs associated with borders and delays;
  • consider who will bear the risk of a volatile pound? This is something that has been an issue since the referendum on 23 June 2016 and is something which will continue to affect international contracts in the aftermath of 29 March 2019;
  • ensure that the business has a strong understanding of its international arrangements, movements of good and services; and have a grasp on the location of your workers and the movement of them between the UK and the EU, check the dependency of your business on foreign workers and look at implementing strategies to protect our work force through offering Visa support etc.
Written by Selina Hinchliffe and Andrew Douglas

Brexit and beyond: navigating the challenges ahead

Our Brexit hub provides useful information on the key areas that are likely to be affected by Brexit, the priority issues for any business or organisation and practical guidance to help you navigate the challenges ahead.

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The content on this page is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide comprehensive statements of the law. It does not constitute legal advice and does not provide a substitute for it.

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