The UK’s Decision to leave the EU: Implications for Energy ...projects.exeter.ac.uk/.../02/20161129-brexit-energy-ch-BIES-final.pdf · The UK’s Decision to leave the EU: Implications

The UK’s Decision to leave the EU: Implications for Energy and Climate

24th November 2016

1

Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 2

Outline

1. Introduction

• Brexit developments

• Key elements of UK and EU energy policy

• Energy mix in member states: diversity

• EU energy policy: ongoing developments

• Special characteristics of electricity and gas in international trading

2. Issues that will determine nature of relationship

• Non-energy specific issues are important

• Interconnectors

• Market coupling

• Ireland

• ETS and climate change

• Euratom

3. Lessons from other EU energy relationships• Overview of options • Conforming to the energy acquis• Enforcement mechanisms • Foregone benefits of electricity integration • Policy taker, not setter • EU funding limited in non-EU member states

4. Recommendations


Introduction

• Brexit developments

• Key elements of UK and EU energy policy

• Energy mix in member states: diversity

• EU energy policy: ongoing developments

• Special characteristics of electricity and gas in

international trading

4

Brexit developments

• In the UK:

• March 2017: UK government expected to trigger article 50

• High Court judgement (EWHC 2768): UK Parliament approval

needed

• Ongoing discussion: Soft vs. Hard Brexit

• In the EU:

• Council: UK from ‘key political actor’ to ‘technical consultant’

• Commission: Key UK civil servants retiring

• Parliament: Committees looking into implications of Brexit;

Loss of UK Presidency in 2017

• Deal expected before June 2019 and a new Parliament and

Commission

• Exchange rate: January 2017 review of UK contributions to EU

budget (increase very likely)

Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change

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Brexit developments: Planned general elections in the EU


• 2016 = LT, RO• 2017 = CZ, FR, DE, NL, LU• 2018 = AT, BG, CY, IT, HU,

MT, SE• 2019 = BE, EE, EL, FI, PO

Other important elections:

• 2016: Italian Referendum (could lead to early general election)

• 2019 European Parliament Elections


UK inland energy consumption, 2014 (% share)

Source: DECC (2015); DUKES 2015


Key elements of UK energy

• The UK’s energy policy is dominated by fossil fuels (85% of total energy

consumption).

• Outside of EU commitments, UK has ambitious targets to address

climate change:

• 2008 Climate Change Act

• 2011 Finance Act and 2013 Energy Act

• Energy imports, currently at 38 % of total UK consumption in 2015, will

continue to rise. More electricity interconnectors will be required.

• Electricity: in 2015, around 6% of the UK’s electricity supply was

imported via interconnectors linking to France, Belgium and Ireland.

• UK’s pre-tax electricity prices among the most expensive in the EU.

• New infrastructure: 2016 UK Government decision to build Hinkley

Point C.

8

Key elements of EU energy policy

• EU energy policy is closely linked to single market

• Forthcoming legislation

• GHG Communication and Effort-Sharing Regulation (July 2016)

• Winter package (November 2016)

• Energy efficiency – 2030 target

• Renewables – 2030 target

• New market design/ACER reform

• EU energy governance framework

• Energy Union: improve cross-boarder coordination and integration

in energy security, energy supply, market operations, regulations,

energy efficiency, low-carbon development, research and

innovation.

• Move toward greater regionalisation of the European energy

market.


9

Energy mix in member states: diversity


25%

34%

20%

8%

11%

-1% 1%

Germany

4%

30%

13%

43%

8%

-2%0%

France

9%

37%

34%

0%

17%

2% 1%

Italy

52%

24%

14%

0%9%

0% 1%

Poland

Source: European Commission (DG Energy), Statistical Pocket Book 2016.


EU energy policy: ongoing developments

Market Liberalisation

3rd Package: Network codes implementation

4th Package (Nov 2016)

ACER Reform

Climate and Energy Package

Conformity to 2020 renewable and GHG targets

2030 targets (proposals in 2016)

Re-allocation of Pre 2020 EU Finances

Horizon 2020

Structural Funds

Energy Union

Energy Governance

April 2017:

UK triggers Article 50

April 2019:

UK leaves the EU

June 2019: European Parliament elections;

New Commission

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Special characteristics of electricity and gas in international trading

• Single energy market across the whole of Ireland could be considered an exception

• A new UK-EU specific energy arrangement is possible and indeed necessary

Electricity Gas

Difficult and/or expensive to store √ √ √

Infrastructure-dependent: technical standards needed

√√ √

Trade between neighbours – no trade outside Europe

√

Essential public service/strategic economic sector √ √

Significant differences in production types √ √



Issues that will determine nature of relationship

• Non-energy specific issues are important

• Interconnectors

• Market coupling

• Ireland


• Euratom


Non-energy specific issues are important

• Many factors affecting EU-UK relations will have significant impact on energy sector, including:

• Currency exchange rates

• May increase foreign investment (as UK assets and companies become cheaper), but imported equipment is relatively more expensive

• Finance

• The most recent North Sea licensing round are not encouraging – only 29 applications were made this year, compared to over 170 in the previous 2014 round (Norton Rose Fulbright)

• Standards

• EU equipment standards are likely to still apply for UK manufacturing and imports.

• Energy and Emissions trading

• As with the financial sector new arrangements maybe required to enable cross-European trading activities

• Supply chains

• Special tariff and customs arrangement (free movement of parts) for UK manufacturing.

• EFF: ‘must ensure unrestricted access to – not necessarily membership of – the EU’s single market’

• Staff and employment

• ‘a new migration policy, which enables manufactures to access much needed skills’ (EFF)

UK’s growing interconnection in electricity and gas

14Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change

Electricity Interconnection Gas Interconnection

Source: Reuters Source: UK Government

http://www.reuters.com/article/britain-power-interconnectors-idUSL5N11V1LO20150925#EelguErj2RWFvHS0.97

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/384414/UK_s_gas_supply_infrastructure.jpg

Growing need for electricity interconnection

• EU political target: 10% interconnection by 2020 and aspirational target of 15% by 2030

• Driven by RES development concentrated at a distance from load centres, and allowing for the required market integration, interconnection capacities should double by 2030 in Europe (ENTSOE TYDP)

Name Links to MW Completion EU Funding Status

Nemo Belgium 1,000 2019 Under construction

Eleclink France 1,000 2019 CEF 2014 – 1.7 million

CEF 2015 – 0.5 million

Under construction

IFA2 France 1,000 2020 CEF 2015 – 6.0 million Awaiting final

investment decision

NSN Link Norway 1,400 2021 CEF – 2014 – 31.3 million Contracts signed

Greenlink Republic of

Ireland

500 2021 CEF – 2015 – 0.8 million Under consideration

FAB Link France 1,400 2022 CEF – 2014 – 7.2 million Pre-planning

Viking Link Denmark 1,000 2022 CEF – 2016 – 14.8 million Pre-planning/Planning

North

Connect

Norway 1,400 2022 Pre-planning

Ice Link Iceland 800 –

1,200

2024 Pre-planning

Total 9,500

–

9,900

15Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change

Market coupling

• Implicit auctioning of interconnector capacity (change from

explicit auctioning before MC)

• GB power exchanges linked with EU regional exchanges via

EUPHEMIA for day-ahead (DA) trading and settlement

since 2014

• Contracts between exchanges

• DA coupling now covers 31 out of 40 borders (Oct 2016)

• EU-wide continuous intra-day (ID) trading go-live

scheduled for Sep 2017; ACER and ENTSO-E led process

• Requires adoption of legislative framework for cross-border

electricity trade (Directive 2009/72/EC, Regulations

714/2009, 838/2010), transparency of data (Reg. 543/2013)

and European Network Codes

• Benefits from greater trade and therefore price convergence,

but also from more efficient allocation of interconnection

capacity. Source: ACER


European Network Codes

Electricity

• Capacity Allocation and Congestion Management (Regulation 2015/1222)

• Forward Capacity Allocation (Regulation 2016/1719)

• Electricity Balancing

• Requirements for Generators (Regulation 2016/631)

• HVDC Connections (Regulation 2016/1447)• Demand Connection Code (Regulation

2016/1388)

• Operational Security• Operational Planning and Scheduling• Load Frequency Control and Reserves• System Operation Guidelines• Emergency and Restoration

• 3rd Package: new legislation (Winter Package) will mean new ENCs in future• NGSO has been esp. active in drafting electricity codes as GB is different from most other MS, i.e. a smaller synchronous

island with higher than average renewables penetration and HVDC interconnectors

Gas

• Capacity Allocation Mechanisms (Regulation 2013/984)

• Transmission tariffs (TAR)

• Gas balancing

• Congestion Management Procedures

• Interoperability

MARKET CODES

BALANCING CODES

CONNECTION CODES

SYSTEM OPERATION CODES


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ENC electricity timetable

Implementation will be largely complete by 2019, but n.b. Electricity Balancing Code may take up to 6 years

Source: National Grid


Island of Ireland

• A Single Electricity Market (SEM) operates across the whole of Ireland. It is jointly regulated and operated by the two jurisdictions.

• Move toward greater interconnection: the new Integrated Single Electricity Marker (ISEM) with EU & network code compliance

• Opinion is divided: does Brexit mean ISEM upgrade can still go ahead? Already worries and delays before referendum.

• Huge investment in NI-RoI electricity interconnection to facilitate single market

• ‘Hard’ Brexit: loss of security and stability that shared (EU) rules and regulations of the single market provide

• Physical gas disruption unlikely but status of UK (GB) gas exports and EU proposals on gas solidarity and emergency supply is unclear

• PCIs: Moffat gas pipeline reverse flow project, Cluden-Brighouse pipeline expansion (both GB-IoI) and Islandmagee storage(NI)

• Gas fired power generation is growing – GB imports will increase


Northern Ireland

• Northern Ireland: dependent on electricity imports from Ireland

• SEM (and future ISEM) crucial to NI electricity supply/decarbonisation

• Assessment by NIAUR: which energy legislative frameworks are

hardwired into UK law but could be affected through leaving the EU yet

staying in ISEM

• North-South (NI-RoI) electricity tie-lines are now in doubt because of

regulatory and investment uncertainty

• NIAUR does not have EU representation (currently represented through

Ofgem): this could change after Brexit to ensure role in ISEM at EU level

• How will future EU energy regs/requirements needed for ISEM be

devolved into NI law, outside of GB?

• By 2050 NI expects to be exporting electricity to GB/RoI – requires new

interconnection, but unclear how this would be financed and regulated

• PCI: Islandmagee underground gas storage facility could be affected


Republic of Ireland

• In 2014, Ireland imported in excess of €6 billion of energy products from the

UK; Ireland exported 5% of energy products to the UK.

• Nearly all of gas used in Ireland comes from UK, though the share will

diminish in short term with the production from Corrib field and Bellanaboy

Bridge Gas Terminal (started in 2015)

• Ireland relies on a regional approach with UK to meet its EU commitments

on security of supply (EU Regulation 994/2010)

• Interconnection is needed for supply, plus balancing for renewables sector:

• Greenlink interconnector may not go-ahead

• Ireland looking to development of Celtic Interconnector to France

• A significant part of the Irish emergency oil supply is stored in the UK

• UK-Ireland gas supply agreements are intergovernmental treaties so likely

to be unaffected

• Ireland likely to be torn between facilitating the best deal for the UK and

aligning itself with remaining member states


ETS and climate change

• ETS has 31 members: EU member states, plus Norway, Iceland, Liechtenstein which joined at 2nd

Phase

• 3rd Phase (2013-2020)

• Excess availability of credits, despite Market Stability mechanism, consequently lower price

(€4/tonne in September 2016)

• 4th Phase (2021-2030)

• Proposed by Commission in July 2016

• Likely to be agreed in 2017/18

• Enforcement

• Member states: ultimately the Commission may refer the case to the European Court of

Justice.

• EEA countries: Surveillance authority monitors compliance with internal market rules of the

EU – including the ETS.

• Linked systems

• Switzerland: technical talks completed in January 2016, but start date will be dependent on

resolution of issues around immigration.

• Impact of Brexit

• Result in recalculation of Effort Sharing Decision allocations amongst remaining EU

members.



Euratom

Safeguards

• Trilateral agreement with Euratom, UK and IAEA

• ONR resource increase needed

Euratom Supply Agency

• Ownership of nuclear material in EU

• Re-flagging required

• Complications for future waste/fuel movements in/outside UK

Political context

• Changed nuclear balance in EU

• Affect future nuclear legislation in EU

Research and Development

• Remaining inside Euratom FP unlikely

• Separate agreement and UK budget on ITER needed

BREXATOM

Likely


Lessons from other EU energy relations

• Overview of options • Confirming to the energy acquis• Enforcement mechanisms • Foregone benefits of electricity integration• Policy taker, not setter • EU funding limited in non-EU member states

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EU energy relations



Confirming to the EU energy acquis

• Energy policy is a shared competence. Both the EU and member states legislate in this field, in accordance with the principles of subsidiarity and proportionality.

• In other words: while member states are, under existing EU law, free to determine their energy mix, the acquis impacts the energy sector in a number of ways :• Market rules: competition, unbundling, independent regulator, data transparency etc. (2009/72/EC, 543/2013)• European Network Codes: detailed rules for gas and electricity systems for markets, balancing, connection and system

operation (1222/2015, 1719/2016, 984/2013, TAR rules, 631/2016, 1388/2016, SOG, + more coming)• Cross-border and trade: network access, congestion rules, payments to TSOs etc. (714/2009, 838/2010)• Interconnectors: framework for development and inter-operability (347/2013)• Environmental protection: GHG emissions and pollution control • Energy efficiency: product and building standards and economy wide (non-binding) targets (2012/27/EU)• Renewables: binding economy wide energy targets (2009/28/EC)• Security of supply: emergency energy stocks and solidarity of supply requirements (994/2010)• State aid rules

• However, parts or all of the energy acquis can apply to non-member states when they are part of (such as Norway) or even accessing (such as members of the European Energy Community) the internal energy market.


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Confirming to energy acquis

• While member states are, under existing EU law, free to determine their energy mix, the acquis impacts on energy sector in a number of ways including:• Market rules• Environmental protection, including GHG emissions and

pollution control • Energy efficiency product and building standards and economy

wide (non-binding) targets• Binding economy wide renewable energy targets• Emergency energy stocks and solidarity of supply requirements• State Aid rules

• However, parts or all of the energy acquis can apply to non-member states when they are part of (such as Norway) or even accessing (such as members of the European Energy Community) the single energy market.

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Enforcement mechanisms

Category EEA-EFTA (e.g. Norway)

EFTA-only (e.g. Switzerland)

Energy Community Bespoke FTA (e.g. CETA)

WTO

Legal basis EEA Agreement(1992); requires transposition of EU law into national law, subject to agreement of EEA Joint Committee

EFTA Convention, Lugano Convention,Bilateral sectoral agreements (e.g. EU-Switzerland Electricity Agreement)

Energy Community Treaty (2005) Title VII

FTA GATT, GATS

Mechanism EFTA Surveillance Authority and EFTA Court

For energy, negotiated within bilateral agreements (in EU-Switzerland EA, jurisdiction is still unresolved)

Dispute settlement mechanism resembling EU infringement procedure but without judicial decision in the last instance. Ultimately, Ministerial Council (which includes EU Energy and Climate Commissioners) cansuspend membership

To be negotiated within FTA (e.g. CETA has a new investor-state dispute settlement court)

WTO Dispute settlementmechanism


29

Benefits of electricity integration

• Market coupling• Benefits arise from lower wholesale prices and more efficient use of interconnection capacity

• Benefits from market integration sensitive to assumptions about future generation mix and market structure

• Benefits to final consumers will depend on retail market structure

• EU-wide benefits estimated at €3-4bn/year; EU-wide benefits from shared balancing by 2030 potentially much higher (> €40bn/year)

• GB benefits estimated at €100m+/year in short-term (to 2020)

• Interconnection• Estimates of net benefits sensitive to assumptions about generation mix, especially

penetration of renewables

• For more interconnection up to planned 15% of capacity, estimated benefits are of the order of several £100m/year

• North Sea offshore grid• Highly sensitive to network design and amount of wind built

• Benefits for meshed as opposed to radial design estimated at several €100m/year up to several €bn/year

• Contextualising the estimates• Size of the energy sector: annual revenue of Big 6 ≈ £40-45bn/year

• UK economy: GDP £1,870bn in 2015


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Benefits of electricity integration: market integration

Source Date Title Benefits

Newbery, Strbacand Viehoff(update of 2013 report for DG Energy)

2016 The benefits of integrating European electricity markets

• Benefits of market coupling with existing interconnectors ≈ €4bn/year across EU, of which €2.4bn due to lower prices.

• Potential gains from more efficient use of GB interconnectors in range of €24m - €109m between 2012-2014.

• Models further potential EU-wide benefits of shared balancing under different scenarios to 2030, which range from €5bn to €43bn by 2030.

Mott Macdonald/EC

2013 Impact assessment on European electricity balancing market

• Compares the annual benefits from cross-border trade in balancing electricity in different countries and under different scenarios.

• Potential benefits of balancing trade between France and GB estimated at ~ €50m/year.

• Benefits increase with greater penetration of wind power. Benefits across EU could be of the order of €3bn/year.

Vivid Economics/National Grid

2015 Impact of Brexit onthe UK energy sector (based on ACER/CEER assessment of market coupling and 2013 DG Energy report)

• Estimated benefits/cost of exit from market coupling at ~£90m/year at current levels of interconnection; up to £160m-200m/year by early 2020s if interconnection is expanded.

• Benefits/cost of exit from cross-border balancing, based on Mott Macdonald/EC 2013 estimated at £80-100m/year by early 2020s, assuming alternative bilateral arrangements not possible.

• Benefits of interconnection, estimated at £160-170m/year in 2020s, lost if projects are cancelled (Viking, IFA2, FAB)


31

Benefits of electricity integration: interconnection


Redpoint/DECC

2013 Impacts of further electricity interconnection

• Assesses net benefits of (more) interconnection for GB across 4 scenarios over 2015-2040. NPV of benefits ranged from -£9.5bn (i.e. net cost) to £9 bn.

• Additional I/C is net beneficial in all scenarios, but optimal I/C depends on scenario.

National Grid 2015 Electricity capacity report • Sharing reserves over interconnectors might reduce capacity needs by 2.8GW (= £43m/yr at 2015 CM auction prices)

Ofgem 2013 ITPR Impact Assessment • NSN interconnector (to Norway) will produce GB consumer benefits of £3.5 billion over 25 years.

• Further 3 interconnectors could increase consumer welfare by £3-8 bn under the base case.

• Excludes CO2 emissions reductions benefits.

Imperial/NERA/DECC

2012 Understanding the balancing challenge

• Model contribution of different elements, one of which is interconnection, to increased balancing challenges under 4 DECC scenarios for achieving decarbonisation of the power sector.

• Cost optimisation model that builds capacity up to the point that NPV = 0; at least 20GW of I/C is built up to 2040 and at least 25GW by 2050 across all 4 scenarios, between GB, IE and continental Europe.


32

Benefits of electricity integration: North Sea grid


E3G/Imperial College

2014 Strategic development of North Sea Grid Infrastructure to facilitate least cost decarbonisation

• Models 4 different North Sea grid approaches from incremental to increasingly strategic, under 4 different scenarios for offshore wind ranging from 50GW up to 204GW by 2040.

• Estimated savings range from €5bn to €80 billion over 2015-2040 as against default radial approach.

European Commission

2013 Study of the benefits of a meshed offshore grid in Northern Seas region

• Compared coordinated vs radial offshore grids for offshore wind• Savings to all countries participating, including costs of losses, CO2

emissions and generation savings, of €1.5 - 5.1 billion a year by 2030. • If countries coordinate their reserve capacity, an additional €3.4 to 7.8

billion/year cost reduction could be obtained.



Electricity Regulation: ENTSOE, ACER & EC

EU MSNRAs

ACER

• Opinion and recommendations for EU TSOs, regulatory authorities and EU institutions.

• Opinion on recommendations from ENTSO-E.

• Monitor implementation of network codes.

European Commission

ENTSO-E

Wider European engagement: EU and non-EU MS; Ukraine & Georgia applying for membership.

• Board appointed by the Assembly.

• Members ‘share the objectives of completing and ensuring the optimal functioning of the internal energy market. They also support the ambitious European energy and climate agenda’.

• Official EU mandates: 3rd Energy Package, inter-TSO compensation mechanism, TEN Guidelines, Transparency regulations.

• Pan-European network codes with ‘guidance from ACER’ and adoption by European Commission.

• New network codes submitted to European Commission, Parliament and Council: they have 3 months to raise objectives , then become binding on all MS – but not on all members of ENTSO-E.

TSOs and TOs

Govern

Recommends

Govern

DelegatesRecommends

34

European energy market governance

ACER

• Membership only open to NRAs from EU member states

(under review)

• Article 31 of Regulation 714/2009 states: 'The Agency shall be

open to the participation of third countries which have

concluded agreements with the Community whereby they have

adopted and are applying Community law in the field of

energy and, if relevant, in the fields of environment and

competition'


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Network codes: Decision-making process


Priorities for network codes

(European Commission)

Request to ACER to prepare Guidelines

(European Commission)

Guidelines (ACER)Code Drafting

(ENTSO-E)

Public Consultation (ENTSO-E)

Finalisation of the draft (ENTSO-E)

Review (ACER)Fine-tuning (European

Commission)

Comitology (European

Commission and MS)

Formal Approval (Parliament +

Council)Entry into FORCE

• Currently, TSOs of non-EU member states (but who are members of ENTSO-E) have direct influence over

drafting of network codes within ENTSO-E (but influence can be limited: see next slide).

• However, once ENTSO-E submit draft network codes, these can be modified by ACER, European

Commission and during comitology process (no presence/influence of non-EU member states/NRA/TSOs).

GB TSOs

36

European energy market governance: ENTSOE

• European Network of Transmission System Operators (TSOs): 42 TSOs from 35 countries across Europe.

• 4 Committees: System Development; System Operations; Market; Research, Development & Innovation. Many committees & working groups currently chaired by National Grid.

• Two types of voting methods within Committees depending on the decision under review:

– ENTSOE decisions: i.e. ENTSOE day-to-day activities (approval of policy papers, public positions and advocacy). Outside of the EU, UK TSOs would continue to vote and influence these decisions, although there are limits to voting capacity of non-EU member states, namely:

• They cannot exceed 28% of the First Part of the Voting Power (one country-one vote)

• And/or 35% of the Second Part (population based)

– ‘All TSO’ decisions: as formally set out in European Network Codes and Guidelines (proposals, methodologies and implementing measures for European Network Codes). Voting is restricted to EU TSOs only.

• Indeed: “Only TSOs which fully comply with the Third Package could be entitled to participate in th(e) crucial part of ENTSO’s work” 2011 Commission staff working paper


37

Member State and EFTA EIB borrowing

• If UK leaves, it could take back €3.4 billion (16% of capital injection) • 90% of lending goes to Member States• The UK is joint (with Germany, France, Italy) largest shareholder however

non-Member States cannot be shareholders or on the Board• Decisions are taken by the Board of Governors (Ministers) and Directors • Voting = one country-one vote and on subscribed capital

0.00

10.00

20.00

30.00

40.00

50.00

60.00

EUR

(b

illio

ns)

Member State and EFTA state borrowing (2011-2015)

€29,187,133,781.72

€668,081,000.00


38

Member State and EFTA EIB borrowing

• If UK leaves, it could take back €3.4 billion (16% of capital injection) • 90% of lending goes to Member States• The UK is joint (with Germany, France, Italy) largest shareholder however non-Member

States cannot be shareholders or on the Board• Decisions are taken by the Board of Governors (Ministers) and Directors • Voting = one country-one vote and on subscribed capital

0.00

10.00

20.00

30.00

40.00

50.00

60.00

EUR

(b

illio

ns)

Member State and EFTA state borrowing (2011-2015)


Similar GDP

39

UK – EIB lending by sector (2011-2015) (€bn)

Total Public Sector Net Infrastructure Investment (2011-15) was €182 billion – EIB infrastructure investment was €29 billion

8191

7129

7275

2124

3268

1129

Energy Transport and telecommunication

Water, sewage, urban development Industry, services and agriculture

Education, health Small and medium-scale projects


40

European Fund for Strategic Investment

• Initiative launched jointly by EIB Group and European Commission in 2015

• Aim: overcome current investment gap in the EU by mobilising private financing for strategic investments

• In particular, aim to mobilise €315 billion of additional finance

• To date, 21% of agreed finance has gone to energy sector

• To date, UK received over €8 billion, of which over a quarter was for energy projects (smart meters, off-shore wind)



Recommendations

• Interconnectors

• The UK should remain committed to trebling its interconnection by 2025. GB is a relatively isolated market. Therefore, interconnectors will be increasingly important, especially for electricity, to competitively meet ambitious decarbonisation objectives.

• The UK electricity and gas systems should remain fully integrated with the European networks, for economic, environmental and security of supply reasons. This may require adoption of existing and future market and environmental acquis. To avoid becoming a rule taker, maintaining policy and regulatory influence will be important (see below).

• Ireland

• Regardless of the UK’s relation to the European single energy market, the UK and Irish Governments should make clear their intention to facilitate the continued development of the ISEM. This will clear require support from other member states and other European energy institutions/agencies, such as CEER, ENTSOE/G, ACER etc.

• There is a strong economic rationale for a regional approach to emergency oil and gas stocks and shared infrastructure.

• Euratom

• The UK will need to ensure that there is a smooth transition from the current trilateral inspections safeguards regime, to that solely between the IAEA and UK. To maintain confidence in the non-proliferation regime, there must be no gaps or shortcomings in international oversight. This may require an increase in the UK’s contribution to the IAEA and the ONR.


• Remaining part of the ETS is likely to require compliance with EU energy acquis and possibly ECJ jurisdiction/common dispute settlement mechanism; consideration therefore should be given to creating a linked emissions trading scheme.

• Given current uncertainties, clear statements about domestic policies, such as maintaining the carbon floor price, will aid investment.


Recommendations

• Recognising jurisdictions: conforming with EU energy acquis and ECJ jurisdiction• Those countries, inside and outside the EU, that are fully integrated into the European energy market have to

comply with EU’s energy acquis and are therefore fall under ECJ jurisdiction.

• Other countries that have access to the market, such as members of the European Energy Community, still comply

to parts of the acquis but have a separate enforcement mechanism. Recognition of this relationship is an important

starting point for the negotiations.

• Accessing the Internal Energy Market will require some form of regulatory oversight, either by granting oversight to

the ECJ or setting up a new dispute settlement body between the EU and the UK.

• The benefits to the EU as a whole of the UK remaining the single energy market needs to be communicated to other

member states.

• Maintaining policy and regulatory influence • The UK should seek to reform the relationship between EU and wider European energy networks, to increase the

relative power of neighbourhood countries and therefore aid continental energy security. Proposals for the reform

of ACER to be published in November represent an opportunity.

• An enlarged and reformed European Energy Community could offer a platform for aligning EU policies with

neighbourhood countries including the UK, Norway, Switzerland and creating a larger European energy market.

• The UK will need to expand informal channels of influence in Brussels: this will require greater financial resources

and staffing from the UK government and energy companies to compensate for the loss of direct engagement in the

EU decision-making process.

• UK TSOs should seek to remain influential members of ENTSO-E and ENTSO-G.


Recommendations

• Replacing lost EU funds

• The UK Government and devolved administrations need to establish a fund or financial mechanisms to

replace European loans (from the European Investment Bank) and project development funds (from the

Connecting Europe Facility), the Kreditanstalt für Wiederaufbau in Germany, a Government owned

development bank, offers a possible example

• Government assistance in project development is as important as loans. The establishment of the

Infrastructure Commission as a permanent executive agency in January 2017, is an important step, but

additional project finance will be need to bridge the gap between project conception and financing.

Thank you

For more information contact:

Antony Froggatt: [email protected]

Tel: 44 7968805299

Matthew Lockwood: [email protected]

Tel: 44 7985097729


mailto:[email protected]

mailto:[email protected]


Back ups- Old but potentially useful

46

Electricity market legislation

Electricity EU MS Norway/EEA

Switzerland Energy Community

FTA WTO Customs Union

Market Access Allowable – no tariff barriers

Y Y Y Y Y y Y

Membership Compliance with current market acquis

Required Required Y Required ? Notrequired

Notrequired

Advanced market rules – market coupling

Required Required Notrequired

Not Required

? Not required

Not required

Governance(Membership)

European CommissionENTSOEACER

YYY

NY

N?

NY

N?

NY

N?

N?

N?

N?

N?

NObserver

N?

Enforcement ECJ EFTA Surveillance

Authority

National Law Ministerial Council, No

Judicial action

Part of FTA GATT, GATS, WTO dispute

Bilateralagreement?, WTO dispute

Influence CEEREurelectric

FullFull

FullFull

ObserverFull

ObserverFull

ObserverFull

ObserverFull

NFull


47

Gas market legislation

Gas EU MS Norway/EEA

Switzerland Energy Community

FTA WTO

Market Access Allowable – no tariff barriers

Y Y Y Y Y y

Membership Compliance with current marketacquis

Required Required N Required ? Notrequired

Governance(Membership)

European Commission

ENTSOG

ACER

Y

Full

Y

N

Full

N?

N

Observer

N?

N

Associate

N?

N

?

N?

N

?

N?

Enforcement ECJ EFTA Surveillance

Authority

National Law

Ministerial Council,

No Judicial action

Part of FTA GATT, GATS, WTO

dispute

Influence CEEREurogas

FullFull

FullFull

ObserverFull

ObserverFull

ObserverFull

ObserverFull


48

Investment

Investment EU MS Norway/EEA SwitzerlandEnergy

CommunityFTA WTO

Fund

Connecting Europe Facility

Y Y Y Y Turkey N

European Structural and Investment funds

Y N N N N N

European Investment Bank

Y Y Y Y Y Y

European Fund for Strategic Investment

Y N N N N N


Documents

The UK’s Decision to leave the EU: Implications for Energy ...projects.exeter.ac.uk/.../02/20161129-brexit-energy-ch-BIES-final.pdf · The UK’s Decision to leave the EU: Implications