Four insights into post-Brexit energy policy – the Known Unknowns

Tomorrow marks one year exactly until the UK’s membership of the European Union will lapse, and one year to the day since it formally filed notice under Article 50 to leave the bloc.  

Ever since the referendum result in June 2016 the energy sector has sought one thing above all: certainty on what environment it will operate under in a post-Brexit world. Progress towards this has been seen as frustratingly lethargic, however in recent weeks some key decisions have been taken:

EU ETS

Energy and Clean Growth Minister Claire Perry confirmed before the House of Lords EU Energy and Environment Sub-Committee on 21 March that the UK government intends to stay in the EU Emissions Trading Scheme (EU ETS) at least until the end of phase III of the scheme in 2020.

The committee had previously heard concerns over the lack of clarity from UK government – especially given the significant financial implications for businesses in the scheme who need to make decisions on what to do with their allowances. They had also heard warnings over the significant complexity in the UK trying to extricate itself from the scheme mid-phase.

The detail of how continued participation will work through the two-year post-Brexit transition period is still being worked through, but this statement of intent has been welcomed by stakeholders. Perry also left the door open to continued participation into phase IV, but said there was a need for a sharper carbon price. It will be interesting to see what bearing recent spikes in the EU ETS price above €14/t will have on deliberations by policy makers, not least at the GB Carbon Price Support (CPS) is now fixed (inflation linked, but no longer reviewed annually with reference to the EU ETS price) at £18/t until 2021.

This new clarity builds on an announcement in the Spring Budget 2017 that the government will reform the CPS, with the change commencing in 2021-22 with a “total carbon price”.

Euratom

One of the loudest and most consistent calls for certainty post-Brexit has been from the nuclear sector, with fears the UK could be left without an appropriate safeguarding regime, having exited the Euratom treaty alongside the EU.

With the Nuclear Safeguards Bill speeding towards Royal Assent – Lords amendments notwithstanding – BEIS issued its latest quarterly progress update on 27 March. The government is “on track” to conclude and then to secure third country and UK ratification of all four of the priority Nuclear Co-operation Agreements with third countries in advance of March 2019 and has notified the International Atomic Energy Agency (IAEA) that the UK will be taking legal responsibility for its own nuclear safeguards regime in the long term.

This has been met with a critical reaction from the Nuclear Industry Association though, which labelled this as “more hopeful speculation than definitive statement.”

I-SEM

The Northern Ireland border presents a range of challenges in the EU negotiations, including the island of Ireland’s shared electricity market.

According to the draft agreement on the UK’s withdrawal from the EU, published on 19 March, both parties have agreed on the objective of EU laws governing wholesale electricity markets still applying to Northern Ireland. The text was in yellow, which signified that while the objective had been agreed, drafting changes or clarifications were still required.

Innovation funding

The UK energy sector has benefited substantially from EU research and innovation funding. More than 90 energy-related research and innovation projects in the UK are currently benefiting from Horizon 2020 funding, with projects focused on renewable energy the largest recipient, while CCS and grid projects also obtain relatively large amounts.

The Joint Report from the UK government and European Council from December confirmed that following withdrawal from the Union the UK will continue to participate in the Union programmes financed by the Multiannual Financial Framework (including Horizon 2020) 2014-2020 until their closure. Recent BEIS guidance has also continued to urge organisations to apply for funding.

Conclusions

While the sector will welcome the insight gained in these areas, it will be mindful of the mantra under which the negotiations as a whole have been conducted – nothing is agreed until everything is agreed. While there is consensus over the benefits continued UK-EU energy integration and co-operation will bring, the potential still exists for external factors to put this in jeopardy. 

Major questions also remain unanswered, including participation in the Internal Energy Market and the broad range of associated bodies. The recent acceptance of the Norwegian Parliament of the Third Energy Package illustrates one path that may yet be open, or avoided.

Despite this uncertainty, the wholesale markets appear unfazed with no observable shifts in prices for gas or electricity in April 2019 or beyond.

We cover policy updates like this in our Energy Spectrum service. To request a free trial of the service, please contact us at enquiries@cornwall-insight.com.

 The Energy Spectrum service comprises of two publications designed to ensure you stay ahead of the game:

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