Time to fight for the future of energy

The energy industry has a responsibility to ensure energy considerations are a high priority within Brexit negotiations, says David Blackman. Customers will loose out if they fail.

None of the respondents to a consultation exercise, carried out by the now disbanded energy and climate change committee (ECCC) last year, backed pulling out of the single energy market. A report conducted by National Grid estimated that quitting the pan-EU market would cost UK consumers £500 million.

However, that risk looks more likely following prime minister Theresa May’s recent speech setting out her government’s plan for Britain to quit the single market alongside the EU. Last week, the Business, Energy and Industrial Strategy (BEIS) committee initiated its inquiry into Brexit’s impact on energy policy. The probe effectively reboots an exercise initiated by the ECCC before it was wound up.

“The logic is that energy might be an area where they want to inflict a bit of pain. We need to get a sense of the potential danger we are walking into.”

Centrica regulation and strategy director Paul Hallas explained to the committee how Switzerland’s experience showed that energy could end up as a hostage in the wider Brexit horse trading. The Swiss and the EU have been negotiating what Hallas described as “a technically uncontroversial proposal to allow Switzerland to benefit as a non-member state from efficient electricity arrangements”.

However, these negotiations have become caught up in the increasingly fraught discussions between the EU and Switzerland, triggered by the latter’s vote in 2014 to tighten controls on immigration, he explained.

For committee member and Labour’s Peter Kyle, energy policy risks being caught up in bigger debates about the UK’s continued relationship with the EU. “These decisions are being taken above the heads of the energy market by heads of government,” he said, noting a conversation he had with the ambassador from a fellow member state in which the latter had explained that the rest of the EU would play hard ball with the UK.

“The logic is that energy might be an area where they want to inflict a bit of pain. We need to get a sense of the potential danger we are walking into.”

Even if existing internal market arrangements remain in place, the UK will lose its ability to influence how the internal market is shaped, effectively becoming a taker rather than a maker of the rules. “All of us would be uncomfortable about following other people’s rule without the chance of influencing them,” said National Grid director of business development Ian Graves.

And in what Hallas termed a “rational world”, it would be a no-brainer to maintain existing arrangements under which energy suppliers from EU member states are free to enter one another’s markets.

Energy companies queued up at last week’s evidence session to explain to MPs how consumers in both the UK and the rest of the EU would benefit from maintaining existing energy trading arrangements between Britain and the continent.

“We don’t want different rules on each side of the border,” said Martijn van Gemert, electricity committee member at the European Federation of Energy Traders, arguing that deeper markets encouraged lower and ultimately converging prices across national borders.

The committee was told that around 10 per cent of the UK’s gas supplies flow down the interconnector pipes that connect the UK with the continent.

The rest of the EU is set to benefit from its single market relationship with the UK too, explained Engie UK director of strategy and communications Kevin Dibble. “It’s not just beneficial to UK consumer but will benefit EU consumers as the UK renewable industry grows and we start to create more diverse energy sources.”

Underlining what he descried as the “importance of flows in both directions”, van Gemert pointed out that on 12 December last year, the UK was actually a net exporter of electricity via the interconnectors that have already been developed.

MPs were reassured by Graves that Brexit would not impede the drive to build fresh interconnectors. He argued that France was keen to develop new projects. “At times of system risk, having a connection to the UK gives them extra confidence they can maintain supply.”

In the meantime though, van Gemert expressed concerns about how uncertainty surrounding the UK’s future status in the single market could be “quite killing for investors”, deterring players from entering the market.

A further complicating factor in the upcoming negotiations could be that the UK’s energy companies have a more distant relationship with the British government than their EU counterparts, increasing the risk that the sector’s voice will not be heard loudly enough when the wider Brexit negotiations begin.

“When I talk to other energy developers in the EU, if they are part of a national transmission system operator they are much closer to their governments than we are,” said Graves.

Utilities might take heart from a comment by John Kerr, the UK’s former representative to the EU in an article this week in the Financial Times. He said energy was an area where there should be a “perceived common interest” in devising structures for future co-operation.

For the sake of their consumers, energy utilities will need to ensure that this message gets across in Westminster.