What will the Brexit effect be on the UK Energy Sector?

By 12 February 2020 General

The UK officially left the EU on the 31st January 2020.

But what does that mean for the utilities market? Will the UK be vulnerable to energy shortages now that Brexit has finally happened?

The Durham Energy Institute (DEI) highlights that ‘The UK is already facing significant threats to the future security of the UK energy system which are likely to be enhanced by the uncertainties of the Brexit process’.

Reports suggest this could develop into a big problem for the UK and is something that must be taken into account when negotiating the terms of the UK’s Brexit deal with the European Union. Gov.uk explains ‘There is now a transition period until the end of 2020 while the UK and EU negotiate additional arrangements.’

Without the support of the EU, the lack of the European Atomic Energy Community (Euratom) and the European Union Emissions Trading System (EU ETS), one thing that looks very likely is that prices will increase moving forward.

The UK’s Import and Export of Energy

The UK currently imports around 5% of its electricity and 12% of its gas via the interconnector system of the European Union, which as it stands alongside all other EU members, is a system that we currently use free of charge.

Despite the influence of the ‘Big 6’ suppliers, the UK energy sector is and will continue to be directly influenced by its ability to import and export energy.

Following our departure from the EU, it has been stated that if the UK wants to continue its use of the interconnector system, to import and export, there will be a fee moving forward to allow us to do so. This would be remunerated by the government and energy suppliers. In turn making the likelihood of energy prices rising for consumers more likely.

Green energy could be a proposition to help with this, Energy Live News highlights ‘Although green and clean energy supply across the UK slowly increases, there is no way it will fill such a big void.’ It is clear that it is by no means an answer to the question of Brexit.

Emissions Trading System

If they choose to participate in the Emissions Trading System (EU ETS), companies are given a cap on total emissions. The Guardian explains ‘The companies are required to measure and report their carbon emissions and to hand in one allowance for each tonne they release. Companies can trade their allowances, providing an incentive for them to reduce their emissions.’

This system is responsible for the taxation of every EU state member. Basically, the ETS is there to help reduce greenhouse gas emissions.

By leaving the EU, this ETS will not have access to our industry data and therefore will not be able to properly determine the carbon emissions produced by the UK and its power generators. In turn, this will naturally produce higher carbon taxes for all suppliers and the UK energy sector overall.

How will this affect those who consume energy?

It’s safe to say that consumers will have to bear the brunt of the increase in tariffs and taxes mentioned above.

Although it is the government and energy suppliers who are going to be the ones to be dealt the blow of paying more for the import and exporting of energy alongside the increase on the tax of carbon. There is no doubt that these charges will be passed onto consumers through their bills.

Price hikes were already experienced towards the latter end of 2019, due to the uncertainty around Brexit. Now we have finally committed to leaving, it does not seem unrealistic to expect further increases moving forward. This may, however, stop once the final terms of Brexit are agreed.

Summary

One thing that is clear, is that every part of the UK energy sector will be affected by Brexit in one way or another. The price of energy will increase overall, with particular emphasis on the cost of transportation.

This can only mean one thing, increased prices for everyone, from the suppliers all the way down the consumer.

The main question is how much of an increase will we see? Only time will tell…

At Utility Team we ensure we monitor our industry at all times. Hourly, daily, weekly, monthly, yearly. This means we are best placed to advise you in this ambiguous situation about what will happen and when. If you want to be prepared for the Brexit effect on prices, contact a consultancy in the know; enquiries@utilityteam.co.uk / 02476 997901

 

Article written by: Reiss Foster, Senior Business Energy Consultant