Brexit and the UK energy sector: one year on

Twelve months on from the UK’s vote to leave the European Union, Brexit talks are finally underway. Mark Lillie reflects on the impact the last year had on the UK’s power sector.

The vote to leave the European Union has brought uncertainties and new challenges for governments and businesses in the UK and across Europe. Although Brexit is expected to be less disruptive overall for the energy sector compared with some other industries, it will have far-reaching implications on the UK’s future relationship with the European energy market. The vote to leave also brings some practical challenges for businesses beyond the two-year negotiating period.

What has changed in the past twelve months for the UK energy sector?

Brexit has immediately brought up questions such as:

• Will the UK continue to be a member of the Internal Energy Market (IEM) and the EU Emissions Trading Scheme (EU ETS), which aims to reduce greenhouse gas emissions?
• Will the UK have access to European Investment Bank (EIB) and EU research and development (R&D) funds?
• What is the future of the interconnectors?
• On a company level, how will access to talent and the supply chain be affected?

With these questions and a continuing sense of political uncertainty, investment appetite continues to be threatened in the long term.

One notable political change last year was the replacement of the Department for Energy and Climate Change (Decc) with the Department for Business, Energy and Industrial Strategy (BEIS). This bought a clear mandate to focus on innovation, business, competitiveness, energy and decarbonisation.

The prime minister’s speech in January 2017 brought some clarity to the UK’s initial negotiating position.

Namely that given the prioritisation over ending free movement of people and the jurisdiction of the European Court of Justice, it was acknowledged that the UK would likely leave the single market and the customs union and would seek to negotiate a bespoke bilateral relationship instead.

Whilst since the general election, those calling for a ‘softer’ Brexit have found a renewed voice in Parliament, as yet it remains to be seen whether the UK government’s position will change.

If it does not, for the energy sector, the UK’s membership of the IEM and access to EIB and EU R&D funds would be in question.

Leaving the single market would also mean that the UK will exit Euratom, the treaty that governs the EU civil nuclear industry. Leaving it is expected to pose challenges for current and future UK projects with regards to nuclear material safeguards, safety, R&D, supply, and movement across borders.

Shortly after the PM’s speech, BEIS published its Industrial Strategy connecting Brexit with the aim of making the UK more competitive over the long term.

The UK energy industry’s priorities remain unchanged and that is where UK policy and business need to focus. The country needs secure, affordable and low carbon energy, while having to integrate increasing volumes of renewables into the electricity system and handle potentially disruptive technologies.

What is uncertain?

Everything else: the UK’s future relationship with the IEM and EU ETS will depend on the outcome of negotiations and so will customs arrangements and access to talent. While more details emerge, political uncertainty will continue.

For companies, this is a good time to take a closer look at operations – workforce models, supply chain – and consider how they can be optimised. As a rule of thumb, preparing for the most change while hoping for the least impact is a sensible strategy.