The Impact of Brexit on the UK Energy Sector

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All of you are surely aware of the fact the UK exit from the EU has recently got delayed by three more months. As things stand now, the new Brexit deadline has been set on January 31, 2020. In this brief discussion, let us try to figure out how this transition may impact the different facets of the energy sector in the UK.

The UK energy sector has seen significant changes in recent years because of various electricity market reform proposals as well as the Energy Act 2011. The impact of Brexit on the UK economy can be far-reaching.  However, a well-known supplier of business utility services Utility Bidder suggests that Brexit’s direct impact on the UK energy sector will be rather subdued. This is primarily because of the fact that the EU has very little impact on the energy mix of a member country because the markets for oil and gas are traded on a global level. Therefore, there is very little likelihood of immediate supply shortages or blackouts. However, in the long run, the post-Brexit landscape of the energy sector will depend heavily on the UK’s altered role within the Internal Energy Market (IEM) of the EU.

The Internal Energy Market: The IEM or Internal Energy Market is a borderless network responsible for the transfer of gas and electricity between the member countries of the EU. Energy is transferred tariff-free between the member countries because of favorable cross-border infrastructure and common market rules.

Following Brexit, it is understandable that the UK will have less influence over the energy regulations of the EU. However, for its energy policies, the country will be able to adopt a different framework that will be potentially lighter. The extent of the UK’s adherence to the energy regulation of the EU will depend entirely on the deal achieved before the official deadline on January 31.

The UK Government has already made it clear that access to the IEM is one of the top priorities in its Brexit negotiations. If this is achieved, the UK will continue to enjoy the benefits of the IEM such as capacity market integration, cross-border balancing, market coupling, and increased security of supply.

Interconnector Links: The UK currently has four new interconnector links under construction. Therefore, the country’s exit from Brexit is not likely to make any serious impact on its developmental activities. Therefore, regardless of the outcome of Brexit, the connection between the country’s energy networks and the EU will remain intact. The UK government has also released guidance on electricity and gas trading with the EU, even if there is a no deal Brexit.

The Carbon Market: If there is a no-deal Brexit, the UK government already has a plan in place to introduce a UK carbon tax. This would mean that the UK operators participating in the EU ETS will no longer be a part of the system. This tax system will help the UK government meet the existing carbon pricing commitments. This tax will be applicable to the power plants and industrial installations participating in the EU ETS.

Nuclear Sector: As part of the withdrawal process, the UK has already expressed its willingness to withdraw from the European Atomic Energy Community (Euratom) as well as the associated treaty. However, this will not have any impact on the country’s nuclear safety or security needs. In October 2017, a Nuclear Safeguards Bill was introduced to highlight how the Energy Act 2013 will be amended to achieve this objective.

Climate Change: Regardless of the outcome of Brexit, the climate change targets set by the UK government will remain unchanged.  As per a law passed recently, the goal is to achieve Net Zero carbon emissions within the year 2050. However, if there is a no-deal Brexit, the potential economic impact may slow down the decarbonization efforts.

Renewable Energy:  EU Renewable Energy Directive’s renewable energy targets will no longer be valid for the UK after Brexit.  This will allow the UK government to shape different support schemes for its renewable energy sector.

 

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