With a possible Brexit looming large on the political horizon, many
energy companies, whether oil, gas or power, are becoming increasingly
concerned about its negative impact on the UK and broader EU.
They argue that a period of relative stability in which the evolving
EU energy market has made a significant contribution to ensuring
security of supply, sustainability and lower energy prices, will be
replaced by one characterised by greater risk and uncertainty. In
addition, the reduced influence for the UK, would mean the EU would lose
the weight of one of the key drivers behind energy market
liberalisation. But are they right?
In terms of security of supply, the UK is increasingly connected to
the continent. Thanks to the so-called gas and power interconnectors
with France, Belgium, Ireland and Norway, a significant trade has now
grown up and an increasing portion of the UK’s gas and power needs are
supplied through these interconnectors. The European network codes,
which regulate cross-border trade of power and gas through
interconnectors, are crucial and complex issues will arise as to whether
or not the interconnectors between the UK and the continent will
continue to be bound by these codes.
It is also difficult to predict the extent to which the UK, in the
event of a Brexit, will still be able to influence decisions around the
development of these codes. Much will depend on whether the UK will
negotiate to remain part of the institutions involved, including the
European Network of Transmission System Operators and the European
Energy regulator, ACER.
But there is now bona fide concern around safeguarding the continued
development of new interconnectors, of which there are currently several
in the pipeline. Significant up-front investment is required if these
projects are to proceed. As all investors like long-term predictability –
and Brexit is a major risk factor – investments in these projects could
be seriously affected.
Another area of uncertainty relates to investment support by the
European Investment Bank (EIB). In 2014, the EIB invested €7 billion
into the UK economy and energy projects accounted for around 50% of
that. Whether this type of investment will be possible post-Brexit is a
real concern, and for those projects that have already secured funding,
there is the possibility that a repayment may be demanded.
In terms of gas supply, the UK is increasingly dependent on supplies
from Russia, both importing directly from Russia and indirectly via
other European countries. Of course, the ultimate aim of the EU’s Energy
Union is to loosen Russia’s stranglehold on Europe’s gas supplies by
pooling resources. In the event of Brexit the UK would be more exposed
from an energy security perspective in relation to Russia and, minus the
UK, the position of the EU towards Russia would also be weakened. Of
course, Brexiters are fond of asserting that the UK’s fossil fuel energy
needs could be easily satisfied by, for example, shipping more gas into
Britain from Qatar, but this does not stand up to critical scrutiny.
On sustainability, currently the UK adheres to the EU’s climate and
energy policies, of which key elements are targets for 2020 and 2030 for
CO2 reduction and renewables. Post Brexit it is unlikely that the UK
would radically change its climate ambitions but, given the fact that
the UK has never been a strong advocate for EU renewables targets, the
abandonment of these targets may serve to undermine the investment
climate for renewables.
As far as the EU’s Emissions Trading Scheme is concerned, the impact
of Brexit would probably be limited. Given the fact that the scheme
already covers emissions from three non-EU countries, and that the UK’s
climate policies are inextricably to it, the most likely scenario is
that the UK would remain within the Emissions Trading Scheme. The
ability of the UK to influence how the scheme develops in the future
would however be severely limited.
It has been claimed by Amber Rudd, the UK’s Energy Secretary, that
energy bills in the UK would soar by £500 million a year after a Brexit.
Many have however argued that this would only be the case if the UK
leaves the internal energy market, and it is not clear to what extent
that will be the case. What is much clearer, however, is that without
the UK, supporters of energy market liberalisation within the EU will
have lost a key champion, and European businesses and consumers are less
likely to enjoy the cost benefits derived from increased competition
and market liquidity.
The uncertainty and increased complexity that results from Brexit,
and the marginalisation of the UK in terms of EU policy and regulation,
will negatively impact on business in both the UK and EU. If it comes to
pass, Brexit will need to be carefully managed if we are to minimise
this negative impact. Conversely, a decision to remain inside the EU
would create an opportunity for the UK, with support from likeminded
countries, to positively reengage in Europe and more proactively push
its energy liberalisation agenda.
(Bas Batelaan, energy policy specialist & Aspect Consulting Associate Director; follow on twitter @EUlobby)
https://www.neweurope.eu/article/spectre-brexit-clouds-europes-energy-future/