Brexit and the UK energy market
NUS Consulting releases report on possible impact of 'Brexit' on UK energy
With the referendum on Britain’s future membership of the European Union just months away, and with the support for ‘remain’ and ‘leave’ evenly balanced, this is an appropriate time to consider the potential impact on the UK energy market in the event of a Leave vote on 23 June 2016.
An exit would not change the UK government’s original signatory to the Kyoto protocol (20% reduction in carbon emissions by 2020, 80% by 2050) and a number of EU Directives have already been implemented under UK legislation.
There are both electricity and gas interconnectors between the EU and the UK and more are planned. In capacity terms, these are relatively small but can assist in balancing the system in times of stress. The interconnectors allow two-way traffic and may operate both as export and import in any one day. These are predominantly commercial operations and are likely to remain unaffected by any change in the UK’s membership of the EU.
The downstream energy market is dominated by the ‘big six’ suppliers, four of which – EDF, Eon, Npower (RWE) and Scottish Power (Iberdrola) are based in Europe. Only two, Centrica (British Gas) and SSE are headquartered in the UK. Most of the European utilities have adopted a strategy to only invest within the EU after unfortunate investments in other parts of the world over the last 20 years. Several of these major utilities are already under significant financial pressure and it is uncertain as to how Brexit would impact their operations in the UK or how they would view further investment. However, it is difficult to see the investment landscape changing dramatically and these organisations already have an exposure to Sterling which would not change.
For NUS Consulting, the greater potential impact on the UK energy market of a withdrawal from Europe is not necessarily the immediate effects (the European Treaty provides for a two-year negotiation period) but the resolution of the Scottish National Party (SNP) to hold another Referendum on Scotland’s future as part of the UK. Much of the UK oil and gas production lies in Scottish offshore waters, and most of the hydro and many wind generation projects are also located in Scotland. Should Scotland separate from the remainder of the UK, then Westminster will be faced with issues of energy security, and greater hurdles in meeting environmental targets and treaty obligations.
Disclaimer: This briefing is designed to look at the possible impact or effect of the UK leaving the EU on the UK energy market. NUS Consulting does not express any view as to whether the UK should remain in or out of the European Union.