Fallout from Brexit on UK energy policy

• 7 years ago (2016-06-24)
• David Flin

Europe 1061

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While energy was not a major consideration in the decision of the UK’s vote to leave the EU, the decision will have major implications for energy policy and the energy situation in the UK. The details are currently unclear, but certain consequences are probable.

Currently, nearly 4 GW of the UK’s capacity comes from interconnectors with Europe, and these are subject to bilateral agreements rather than EU regulation. As a result, Brexit will not affect these. However, the proposed new interconnectors between the UK and Belgium, Norway, and Denmark could be impacted. The uncertainty caused by Brexit is certain to raise caution about large investments, and the UK Energy Secretary Amber Rudd said that these investments “could be re-evaluated”. The UK National Grid had been assuming that these could provide an extra 12 GW of capacity by 2030. Fundamental economics would probably ensure that the interconnectors would be built. However, there will be delays while the political uncertainty is resolved, and it is probable that the UK would not be able to negotiate terms as good as those it could have achieved within the EU.

The developments of UK shale gas could emerge as an exportable product to the EU, and the EU is keen to have access to gas supplies that do not come from Russia. Commercial arrangements are likely. However, these will be subject to lengthy bilateral agreements that will still have to be approved by the EU, and there will be delays. It is also probable that the UK government will find itself having to override opposition to shale gas developments, which are controversial at a local level.

One of the main areas of uncertainty lie with the EU Emissions Trading Scheme (ETS). This is the largest carbon market in the world, and while it has its problems, it is considered vital as a mechanism to drive clean tech investment. The EU wants the ETS to succeed, and will not want to lose the UK as a partner in the scheme. However, within the UK, the main proponents of Brexit regarded the ETS as a problem, and it is quite possible that the UK will withdraw from the scheme. The UK Committee on Climate Change regards carbon trading as the fairest and cheapest way to reduce carbon emissions, but Boris Johnson, widely regarded as being the most likely to succeed David Cameron as Prime Minister, has long put forward the view that climate change is a myth, and that reducing carbon emissions is an irrelevance.

The European Investment Bank (EIB) has invested £5.6 billion into renewable energy, with the UK being the biggest beneficiary, receiving 24 per cent of these funds. However, it is unlikely that the EIB would continue to fund UK projects to anything like the same extent. EU countries receive higher priority access and favourable terms for these funds, and it is probable that the UK renewable industry would suffer.

It is already the situation that the UK reserve margin for meeting peak demand is wafer-thin. Brexit is certain to cause additional problems in the medium-term.