Brexit: where is the energy (apart from the nuclear option)?

Posted: 24/08/2018

Energy doesn’t seem to get a mention at all in the Government’s recently published thinking on preparations for a “no deal” exit from the EU (23 August 2018). The only exception is in relation to civil nuclear issues. In terms of how we might continue to interact with the EU internal energy market though, there is nothing.

Our integration into the European energy market is widely recognised as hugely important and beneficial to the UK. So putting aside Government briefings on preparations for “no deal”, the wider lack of evidence of serious Government thinking on the hard legal, regulatory, economic and political questions Brexit throws up in relation to British energy markets is worrying.

Whilst there is a GB energy market (ie England, Wales and Scotland), the UK is in fact no energy island. The GB market is closely linked to the wider EU internal energy market, physically by interconnectors that help balance and manage energy supply and demand more efficiently than would otherwise be the case, and through cross-border physical and virtual trading of gas and electricity. And in the context of Brexit, the UK Government also needs to think of the single Irish energy market and how that can be made to operate at a time when a “hard” border is potentially forming between Northern Ireland and the Republic. Whilst energy regulation can be a very technical and technocratic matter, with Brexit it gets caught up in high politics.

Political commentators tell us that it is increasingly likely that there will be a “no deal” exit and the Government’s recent publications were intended to deal with preparations for such an event for key sectors of the economy. No one is seriously predicting black-outs and it is perhaps understandable that energy is lower down the political (and news) agenda, in terms of the “what if” speculation. However, a no deal exit could have serious implications for both physical and virtual cross-border trading of energy, and therefore the economic efficiency with which the GB (and Irish) energy markets are able to operate. The Government and Ofgem often focus on costs to consumers of policy, regulation and the actions of market participants. Whilst Brexit seems unlikely to be a cause of significant “bill shock” for individual energy consumers, the impact on the wider energy market could be serious and needs hard thinking.

On 23 August 2018, at the same time as the “no deal” briefings were being delivered, BEIS published an open letter (dated more than a week ago) which makes brief reference to secondary legislation in the future, and in particular to a statutory instrument in the autumn aimed at ensuring some retained EU energy law works once we leave.

The promised statutory instrument will deal with tweaks to network codes to give effect in UK law to changes already agreed but which are due to take effect post-Brexit. It will also make changes to reporting requirements in relation to gas security of supply, and REMIT (as well as to definitions), so that British energy market participants aren’t reporting to the Commission once the UK has exited the European Union.

This is a necessary start, simply to make retained EU law work. It shows how much technical detail is involved in disentangling the existing arrangements as they are and retaining functioning UK/GB regulation, even without trying to otherwise change the substance of the law. But ultimately it’s small beer surely?

For example, the Government appears to want to keep the existing REMIT regime and to incorporate it into domestic law, having been in favour of its original introduction and the UK being a significant home to (and beneficiary of) existing European energy trading. But there is no third country equivalence under the existing EU REMIT regime where a country which has left the EU (and European Economic Area) can have its regime for monitoring and policing wholesale energy trading recognised. And looking just at this specific REMIT point from another perspective, whilst the UK Government may wish to keep the REMIT regime for the present, is it going to commit to future regulatory alignment, or will it allow divergence from the EU’s regime (and any jurisprudence coming in time from the European Court of Justice, for example)? It is hard not to see how energy trading across the EU-UK border, post-Brexit, will result in a requirement to comply with two regimes. Unless, of course, a political deal can be reached from which a sensible regulatory way forward can be crafted.

As ever with regulation, the devil will be in the details. But some vision and energy wouldn’t go amiss either.

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