It is our fuel poor who are destined to feel the post-Brexit chill
Our bid to remain in the Internal Energy Market is good for energy security, but a tough endeavour to win, says Lord Teverson
The prime minister’s recent Mansion House speech was a turning point for energy security in the government’s Brexit agenda. For the first time she not only bid for a close association with Euratom, but made it clear that the UK wished to remain a member of the EU’s Internal Energy Market (IEM). It was a late realisation that our future energy relationship is a key component of a successful post-2019 UK.
So, does Brexit risk blackouts? Will investors now walk away from planned interconnectors – forcing us to build more capacity at home?
Will our withdrawal from Euratom result in our existing fleet of nuclear power stations, providing a fifth of our energy, falling silent due to a lack of fuel?
Can we dispose of state aid rules that slowed the progress of nuclear new-build and the capacity mechanism? Once we leave, will we have any influence over our neighbours’ energy policy where once it was us that drove the strategy?
Do we disentangle a fully integrated cross-border Irish network? Will the various investment flows from the EU, not least the European Investment Bank, dry up and threaten key energy projects?
In summary, just how secure will we be energy-wise post-Brexit?
The good news is that excepting a major failure in replacing the Euratom regime that regulates our nuclear power sector, and if we manage to replicate Euratom’s nuclear cooperation agreements with our overseas nuclear equipment and fuel suppliers, Brexit blackouts are not the threat.
But even here there is little room for complacency. Our home-grown replacement for Euratom – the beefed-up Office for Nuclear Regulation – is by its own admission struggling to recruit and train new staff to meet international safeguarding standards. Being prepared for 29 March 2019 is a tough call.
Although the cost of imported energy will not rise due to tariffs – gas is zero-rated even under WTO rules, and the minimal tariffs on electricity are never applied – the risk is less-efficient energy trading pushing up prices, not least at periods of peak demand. Why this inefficiency?
Despite the prime minister’s bid to stay within the Internal Energy Market, the chances of the UK remaining in the IEM club seem remote. It is a part of the single market, with only EU and EEA states as players. UK’s red lines combined with the EU’s “no cherry picking” mantra make IEM membership a long-odds bet.
But IEM membership is the only way to share day-to-day operating codes, or to participate in market-coupling and the many agencies that make the system work. National Grid, as our systems operator, will no longer be around the table. Result: less-efficient trading, so increases in the cost of energy to consumers.
For state aid, Brexit offers a potential escape route – a promise of greater independence of policymaking, not least in the area of energy security. The outcome will depend upon our broader future economic EU relationship.
Post-Brexit, energy security on the island of Ireland brings particular challenges. There is already full integration of both gas and electricity systems cross-border in the Single Energy Market. Here the network is so integrated that disentanglement seems impossible. It’s an instance where the UK/EU solution on the island may have to be pragmatic rather than legal.
Further interconnection with our European partners has been a core policy in recent years. Many additional connections are planned. Each removes the need for power station investment and has a deflating effect on energy prices, not least at peak times. Currently there is no indication that these projects have stalled; but this is clearly still a risk.
And many of these energy infrastructure projects have benefited from EU structural funding, and the European Investment Bank. These sources provide on average some €2.5bn per annum of energy investment to the UK. Will the private sector step up?
Our bid to remain in the IEM is good for energy security, but a tough endeavour to win. Euratom aside, there is no catastrophe here. But with a further nudge northwards for energy prices, it is our fuel poor who are destined to feel the post-Brexit chill.
Lord Teverson is a Liberal Democrat peer and chair of the EU Energy and Environment Sub-Committee