The UK’s energy industry has been rapidly assessing the consequences of the vote, on 23 June, to leave the European Union (EU).
Until the formal negotiations to leave the bloc are concluded, the UK remains a full member of the EU, with its energy and environmental regulations and legislation unaffected. However, in the longer term, the vote’s impact on the sector is unclear.
Many of the UK’s environmental and energy rules and regulations have stemmed from European initiatives over recent decades. These range from the 2020 renewables targets, which have helped to drive solar and wind power deployment, to energy efficiency regulations, which have underpinned government programmes such as the Energy Savings Opportunity Scheme.
In a speech on 29 June, energy and climate change secretary Amber Rudd assured that the goals of UK energy policy would be unaffected by the vote, and that the commitments made to decarbonising power generation would be maintained outside the EU.
Rudd stated that the government remained fully committed to tackling the energy trilemma: ensuring energy security, keeping bills low, and decarbonising the gas and electricity supply. While, she said, the decision to leave the EU was “undoubtedly significant”, the flagship policies that the government had outlined over the past year – such as to close all coal plants in the UK by 2025 – would not be impacted by the vote.
Rudd said: “As a government, we are fully committed to delivering the best outcome for the British people – and that includes delivering the secure, affordable, clean energy our families and business need. That commitment has not changed.”
Rudd particularly emphasised that the UK would not waver in its commitment to tackling climate change. She said: “Climate change has not been downgraded as a threat. It remains one of the most serious long-term risks to our economic and national security.”
Need for harmonisation
Industry stakeholders, too, have been eager to stress the need for stability. In its response to the vote, energy firm SSE said the UK government must be “mindful of the importance that the harmonisation of the GB energy market with the countries in Europe can have on efforts to deliver clean, secure and affordable energy”.
The continued involvement of the UK in the Internal Energy Market (IEM) would need to be resolved in the context of managing the transition, fixing the terms of the UK’s exit and establishing a workable future arrangement.
Analysis by consultants PwC expressed concern about the implications of Brexit. It said that, while the vote offered an opportunity to remove perceived “red tape”, in reality this would absorb considerable time and resources. Tackling the trilemma would, it said, “undoubtedly” be more challenging without the support and framework of a European-wide energy system with ready access to European sources of capital and talent.
Richard Black, director of the Energy and Climate Intelligence Unit (ECIU) said Brexit would put an upward pressure on consumers’ energy bills.
This was partly due to the impact of reduced investor confidence and partly to the direct financial impact of Brexit, he explained.
Black said increasing gas and electricity connections to Europe had enhanced the UK’s energy affordability, but that it would be for policy-makers to decide whether to continue to expand these links in the new environment.
The ECIU also dismissed speculation that measures to address climate change would be reversed by Brexit, saying: “These measures are mostly enshrined in British law […] and it seems likely that the strong cross-party majority in favour of reducing emissions in both Houses of Parliament would seek to defend them.”
Julie Hirigoyen, CEO of the UK Green Building Council (GBC), warned that businesses would go into “firefighting mode” as “shockwaves” went through the sector, which risked a de-prioritising of the green agenda.
Hirigoyen said: “The incentives remain strong for business to address climate change and other urgent sustainability challenges. Arguably now more than ever we need to minimise future risk, reduce costs, add value for clients, generate new commercial opportunities and ensure we have the best people working as productively as possible.”
The long-term impact of Brexit on the energy sector will ultimately be determined by the nature of the relationship established between the UK and the EU.
But a more immediate concern is that the costs of investment in key energy projects, driven through programmes like the capacity market and the contract for difference, is pushed upwards by this lack of long-term clarity.