UK energy sector needs clarity on future policy to protect competitiveness, says committee report.
While from the public perspective Britain’s exit from the European Union – so called Brexit – is about big issues such as trade and immigration, in practice it impacts many other facets of society and day to day life.
Not the least of these is energy, with links through research and development, the formation of a single energy market, the development of interconnections with continental Europe and participation in pan-European organisations, not to mention the requirements of a host of directives on issues such as smart metering and energy efficiency.
The big ‘policy’ picture is important but the devil will be in the detail that is agreed in the negotiations.
Engerati believes it is crucial that the UK government pursues all opportunities to maintain and build R&D links.
Cooperation is also essential to foster a vibrant and competitive sector that can ensure long-term reliability and security of supply at lowest cost to consumers while also meeting national and international climate commitments.
Our view is broadly in line with that of the UK government's Business, Energy and Industrial Strategy Committee, which has issued a comprehensive report with recommendations for government and its negotiations.
The committee states that neither the referendum campaign, nor the evidence it has received, revealed widespread concerns that European Union (EU) membership is damaging UK energy competitiveness or adversely affecting consumers.
While there are undoubtedly weaknesses in the operation of some EU policies on energy and climate change, notably the EU Emissions Trading System (ETS), the UK's Secretary of State Greg Clark acknowledged that cooperation with EU partners was generally mutually beneficial.
At a high level, in the short term at least, the committee recommends that the government seeks to avoid disruption to the energy sector and the domestic climate change agenda. Arrangements mirroring the status quo should be sought in the negotiations and implemented as far as possible. Further, as much clarity and stability as possible on domestic policy should be provided to support investment.
What does this mean in practice? That the UK should seek to maintain access to the Internal Energy Market, with no accompanying tariffs or barriers to trade, until 2020 at least. This includes continued participation in trading arrangements established by the European Network Codes to ensure efficient use of interconnectors.
Coupled with this is a need to resolve the particular difficulties faced by Northern Ireland, which shares a single electricity market with the Republic of Ireland.
Likewise, membership of the Emissions Trading System should be retained until at least 2020. However, recognising that the system is performing poorly, longer term membership should be conditional on commitments to future reform.
The committee expresses concern that in the longer term, the UK could become a ‘rule taker’ outside the EU, complying with, but unable to influence, rules and standards. If the formal standards diverge too far from those applying in European countries, there is a risk that the UK could become a dumping ground for energy inefficient products.
The government energy development plan should retain or mirror European energy product standards for the immediate future at least and also should maintain routes to influence their development, for example through active participation in European standards bodies. Membership also should be retained in other bodies such as regulator and industry associations.
A key issue for the committee is the UK’s position with respect to the European Atomic Energy Community (Euratom). While the government argues that the UK must leave Euratom, legal opinion is divided according to the committee, which also notes strong concerns in the sector that new arrangements will take longer than two years to set up.
Any interval between the UK leaving Euratom and entering into secure alternative arrangements would severely inhibit nuclear trade and research and threaten power supplies. A delayed departure, or if this is not possible, transitional arrangements, should be sought.
Among its conclusions, the committee expresses its disappointment that the government has been unwilling to announce its overall objectives in respect of energy and climate change. Such an indication, which should be published without delay, would better enable stakeholders to adjust their investment and operational plans.
“Government needs to provide as much clarity and stability as possible to support investment and avoid damaging UK competitiveness and adversely affecting consumers,” says committee chair says Iain Wright. “In the long term, the UK must maintain seek to retain our influence.”