Brexit and Britain's energy

Engerati doesn’t foresee a major shift in current UK energy policy in the long term.
Published: Mon 27 Jun 2016

The results are in and Britain is out – or at least will be of the European Union. With much of its energy policy dictated from Europe, the question is how much is it likely to change in the future?

Brexit and UK energy policy

As a signatory to the COP21 agreement – and regardless of whether the agreement has to be rewritten, as Christiana Figueres, executive secretary of the UN Framework Convention on Climate Change, has suggested – Britain is bound to its terms and thus to undertaking the actions to meet them. As the leading nation that the ‘Leave’ supporters want Britain to become, the country will not want to lag and with the requirement for emissions reductions and a shift to renewable energies, this then sets the broad terms for energy policy for the foreseeable future.

Linked to this is the energy transformation, with the shift to a decentralized generation model with smarter technologies and prosumers at the core. As a global phenomenon, much of it driven as much by the markets as by governments, Britain is most unlikely to stray from the path already under way. Likewise with the smart metering programme, mandated from Brussels, which is also well under way, or the energy efficiency measures and targets which will be necessary to meet long term climate goals.

Certain of the ‘Leave’ figures, including the frontrunner next prime minister of Britain Boris Johnson, have been linked to climate change sceptics. However, it should be borne in mind that Johnson has been a key figure in the ’smartening’ of London and for example, the Mayor’s office was a partner in the Low Carbon London initiative. [Engerati-Case Study – UKPN – Low Carbon London] He has also been a leader in the shift to more sustainable forms of transport.

Brexit and the European Union

Undoubtedly Britain’s relationship will change with the European Energy Union, which is aimed at consolidating market integration via what appears ultimately to be an intended common energy policy for the region. [Engerati-European Energy Union Proposed To Transform Energy System and Engerati’s Week In Energy – Is Europe’s Energy Union The Way To Go?]

One aspect of the Union is greater interconnections between countries, with a target set of a minimum 10% of capacity by 2020. Whether Britain will feel bound by this target remains to be seen but the need for interconnections to ensure energy security, renewables integration and trading is undoubted and so development of these are expected to continue. [see e.g. Engerati-UK Proposes Three New Continental Interconnectors] Additionally, as interconnections require agreements between the respective TSOs, this aspect will remain unchanged.

Another area will be the ability to pursue nuclear energy unhindered by EU policy, particularly the focus on small modular nuclear reactors for which a £250 million commitment was made in last year’s Autumn Statement. [Engerati-Offshore Wind Gets Boost In UK]

One area where there will likely be an impact is at the research level with funds presumably ceasing to become available through, e.g. the Horizon 2020 programme. The future of projects currently underway will need to be negotiated. Looking to the longer term, as a proportion of these funds must ultimately emanate from the UK’s contribution to the EU, strong advocacy will be required to ensure that funds from any 'saved' contributions are redirected to areas such as energy RD&D. It also will be vital for UK researchers to continue to collaborate and share knowledge with colleagues in Europe, as well as of course elsewhere, without any barriers.

Beyond Brexit

There is no doubt that Britain is in for a period of uncertainty as the ‘exit strategy’ is negotiated and implemented and potentially new policies are introduced.

One area for uncertainty is around energy pricing. Prior to the referendum, energy and climate change minister Amber Rudd (a ‘Remainer’) suggested energy bills could rise by £500 million annually. However, Johnson countered by pledging to cut a 5% EU imposed tax on bills.

Another is around the investability of Britain’s energy sector, particularly in the short term. A pre-referendum study by Vivid Economics highlighted the higher costs of investment in energy infrastructure as the most significant Brexit risk to the sector.

Notwithstanding these uncertainties, Engerati believes that in the long term there won’t be major changes of direction in energy policy and that Britain will continue as a leader in the sector and in specific areas such as offshore wind.

We also concur with the succinct comment put out the UK industry body, Energy UK: “The important message today is people need not worry, the lights will stay on and power and gas will continue to flow to homes and businesses.”

Further reading

Vivid Economics: The impact of Brexit on the UK energy sector