Brexit: UK better inside EU’s internal energy market | KPMG | UK

Brexit: UK better off inside EU’s internal energy market

Brexit: UK better inside EU’s internal energy market

The media and public might be more focused on new runways and high-speed rail links right now, but it is Britain’s energy sector that needs more infrastructure spend than any other.

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Partner and Head of Power and Utilities

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Much of the capital required to fund future infrastructure investment will come from abroad. Before committing those funds, investors will want more detail about Brexit. Crucially, is Britain still part of, or outside, the EU’s Internal Energy Market (IEM)?

The IEM enables harmonised, tariff-free trading of gas and electricity across Europe. The UK has been a leading force in designing the IEM over many years, consistently arguing for the opening up of markets to reduce costs for consumers.

UK consumers would continue to benefit from access to lower wholesale prices in many neighbouring countries, as well as increased diversity (and therefore security) of supply. This will become ever more important as Britain’s own North Sea energy supplies decline. Step outside the IEM and these benefits would be put at risk.

The bespoke alternative

Some have argued for bespoke arrangements to be set up with bilateral deals, with each neighbouring country governing each gas and electricity interconnector. However, these deals would be highly complex and technically detailed. Based on the experience of other countries, like Switzerland and Canada that have negotiated bilateral deals with the EU, these deals would take many years to put in place, and create considerable uncertainty and blight for projects currently under development.

Any introduction of tariffs or customs duties, or dislocation of trading arrangements – such as different settlement periods, or quality standards, could inhibit the trading of gas and electricity across borders. The result would be higher consumer bills and risks to security of supply.

Agreeing to continue with harmonised, tariff-free trading arrangements on gas and electricity should not mean signing up to all future EU energy and climate legislation, such as future targets on renewable energy.

However, it will mean the UK will seek to maintain membership of the key regulatory and industry bodies such as, the Agency for the Cooperation of Energy Regulators (ACER), and both the European Transmission System Operators (ENTSO) electricity and ENTSO gas. It would also mean the inclusion of the Council of European Energy Regulators (CEER), which helps shape the rules and network codes that govern energy trading arrangements in Europe. Some of these bodies already have representatives from non-EU countries, but if full UK membership to some of these bodies is not possible once the UK leaves the EU, then (as a minimum) the UK should still look to participate in the working groups that support them and secure observer rights to the key decision-making fora.

The second thing to note is that the UK’s membership of the Internal Energy Market isn’t just a big deal for the UK. Ireland, an EU member state, is heavily dependent on the free flow of gas and electricity through GB’s market. The creation of the Single Electricity Market in Ireland links the Republic of Ireland and Northern Ireland – this close co-operation on energy between the UK and Ireland stems right back to the undertakings in the 1998 Good Friday Agreement. So the stakes here are very high indeed.

The UK should still look to participate in the working groups that support them and secure observer rights to the key decision-making fora.

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