I chair the House of Lords EU Energy and Environment Sub-Committee. We recently conducted an inquiry into the potential impact of Brexit on the UK’s energy security, to which Energy UK and others gave evidence. We published our findings at the end of January and concluded that Brexit could impact the energy sector, and consumers, in a number of different ways.
The UK imported around 12% of its gas and 5% of its electricity from the EU in 2016. Our witnesses told us that they expect the UK to keep trading energy with the EU, and probably without paying tariffs. But as an EU Member State the UK is part of the Internal Energy Market, or IEM, which applies the same rules across the EU to make energy trading efficient. Once we leave the EU it’s likely that we will also leave the IEM, so could end up with misaligned rules would make each trade just a little less efficient. It’s been described to me as operating on Windows 7 when the EU is using Windows 10. And each one of those inefficiencies comes at a financial cost, which add together and are ultimately passed on to consumers, raising their bills.
For UK-EU energy trade to happen we need the infrastructure to move the energy, and there are questions about the viability of interconnectors that have been proposed but not yet built. These are long-term, expensive projects, so investors like to have a secure income guaranteed before they’ll build one. At the moment, investors know what they’re getting into – there’s an EU regulator at one end and an EU regulator at the other, and it’s clear what rules will apply. The same can’t be said post-Brexit, and there are signs that some investors may be waiting to see what happens before they make a commitment.
The biggest potential issue in terms of domestic energy policy is nuclear generation. Around 21% of the UK’s electricity comes from nuclear reactors. That generation relies on trade in nuclear fuel, the movement of nuclear construction workers, and our nuclear research programme. All of these currently happen through the EU-based Euratom Treaty, which we’re leaving when we leave the EU. But unless the Government puts replacement arrangements in place in time, some countries would be legally unable to trade nuclear material with us, leading to a fuel shortage that puts 21% of the UK’s electricity supply at risk.
In our report we recommend that the Government:
- makes arrangements that replace Euratom before we leave – and look into a longer transition if that will take longer than two years.
- clarifies what rules will apply to UK-EU interconnectors after Brexit.
- seeks to stay in the IEM, and assess the cost to consumers of leaving.
As long as the Government replaces Euratom arrangements in time, there is little risk that the lights will go out because of Brexit. But unless the UK stays in the IEM we may find that the cost of keeping the lights on goes up.
This blog is written by Lord Teverson, chair of the EU Energy and Environment Sub-Committee.
And you can find the EU Committee on Twitter: @LordsEUCom