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the Brexit white paper: what are the energy implications?

30 August 2018

As we head towards Brexit day, 29 March 2019, everyone’s eyes are on the government’s Brexit white paper titled the 'future relationship between the United kingdom and the European Union' for an indication of what is in store for us. None more so than anyone who has a vested interest in the energy sector, a sector that is heavily dependent on interconnectors and group membership of markets. It is arguably one of the most important of areas for the government to get right to ensure long-term energy stability.

IEM and interconnectors

The Internal Energy Market (IEM) is often held to be one of the best aspects of membership of the EU; it removes trade barriers to ensure a functioning, interconnected market with fair access and a high level of consumer protection.

The white paper makes no definitive statement as to the UK’s intention to either remain in the IEM or leave entirely. It weighs up the benefits of either:

  1. participating in the IEM to preserve efficient trading practices over interconnectors and utilise a restricted common rule book with the EU on technical rules of electricity, or
  2. leave the IEM entirely and as a result introduce systems for trading via interconnectors.

It is not clear how the EU would view the UK’s idea of participating in the IEM by utilising a common rulebook but only to the extent that the common rulebook does not affect the UK’s wider environmental and climate change rules. However, it is likely that this will be met by objection on the basis of ‘cherry-picking’. The EU’s view of the UK leaving the IEM entirely is set out in their notice to stakeholders on 27 April 2018. In this document the EU highlights the outcome if the UK is treated as a third country with regards to energy. The UK Transmission Operators would:

  1. have to pay a fee for the use of the transmission system on all scheduled imports and exports of electricity as of the withdrawal date (30/05/2019 at 00.00am)
  2. cease to participate in the single allocation platform for forward interconnectivity, the European balancing platforms, and the single day-ahead and intraday coupling
  3. have to hold certification in order to continue operating within the EU.

We imagine the energy sector will be hoping these hurdles are high enough to act as a disincentive for the UK government in order to ensure the continuation of the IEM membership.

The white paper emphasises the government’s commitment to continue to supply electricity between Northern Ireland and Ireland as required under the Single Economic Market (SEM), via interconnectors. However, the white paper fails to take into account the hypothetical situation where the UK does not remain a participant of the IEM. This could create hurdles for the supply of electricity because Northern Ireland would need to remain subject to EU law of energy and legislate accordingly with new EU regulations, directives and decisions if the UK intends on sticking to their commitment of supplying goods to the Republic of Ireland. On the other hand regarding gas, the white paper doesn’t answer the question posed in our previous article regarding what mechanisms will be put in place to provide the 40-60% of the Republic of Ireland’s gas demand, supplied by interconnectors in Scotland if the UK either refuses to remain part of the IEM or fails to secure a deal that allows the UK to remain in the IEM. Unless the UK remains part of the IEM, the impact on the gas and electricity supply to Ireland could become a contentious issue.

Renewables

Unfortunately, the white paper does not focus on renewables specifically, regardless of how intertwined the EU and UK’s position on renewables are, for example, with the Paris agreement. The white paper does, however, emphasise the UK’s commitment to high environmental standards through non-regression requirement and maintaining high standards on climate exchange and that this will continue after withdrawal. Whilst this emphasis is important, it is a mistake that the government’s strategy regarding renewables was not addressed in detail at this stage.

Nuclear

The nuclear area of the energy sector is addressed in more detail than the renewable sector and is clearer than that of the IEM. The UK wants to seek a close 'association' with Euratom. What they mean by this is a relationship that goes beyond that of a standard third country and the EU, and is solidified in a Nuclear Cooperation Agreement (NCA). This close association would exist to benefit the citizens and the business of both the UK and the EU through the possibility of securing energy supplies and safeguarding nuclear materials, equipment and technology.

The white paper details six proposals that the NCA should meet:

  1. establish a cooperation mechanism that can facilitate technical information exchanges, joint studies and consultation on regulator or legislative changes between the office for nuclear regulation and Euratom
  2. establish an association with the Euratom Research and Training Programme
  3. ensure continuity of the supply of nuclear material
  4. minimise and simplify barriers of trade of nuclear related technology, materials and equipment
  5. continue the longstanding relationship with the European Observatory on the Supply of Medical Radioisotopes in order to benefit from information transfer.

The likely reason behind why the government is adamant on ensuring a relationship with Euratom is because in their National Infrastructure Delivery Plan 2016-2021 in which it highlights how nuclear energy is going to be key in providing electricity for the UK’s energy needs. This can be seen through EDF and CGN, Horizon Nuclear Power and NuGen’s proposals to develop 18GW at six sites, the most advanced of the projects is Hinckley point C. In order to weigh up the success of these proposals for the NCA, it is important to note that the success of the NCA will rest on the approval of the member states in the EU Council by a qualified majority. This means that 55% of member states, representing at least 65% of the EU population, will have to agree.

White paper energy conclusion

Overall, this white paper provides a significant lack of certainty; it is arguably more of a selection of options and ideal scenarios rather than clear direction that will minimise resistance from the EU. Once this has been established we will provide an update for the sector.

Summary

  • We are heading towards Brexit day, 29 March 2019, in preparation; the government have set out their ambitions for the future relationship between the United kingdom and the European Union.
  • IEM - the white paper makes no definitive statement as to the UK’s intention to either remain in the IEM or leave entirely. It weighs up the benefits of either participating or leaving.
  • Interconnectors - the paper promotes a positive outlook for interconnectors but white paper fails to take into account the situation where the UK does not remain a participant of the IEM.
  • Renewables - unfortunately, the white paper does not focus on renewables specifically.
  • Nuclear - the UK wants to seek a close 'association' with Euratom.
Written by Selina Hinchliffe and Andrew Douglas

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