Brexit – the UK proposals for energy

The UK government has proposed continued existence of the Ireland SEM and possible participation in the European IEM.
Published: Tue 17 Jul 2018

Speculation can finally be put to rest on the thinking for the future energy relationship between the UK and Europe.

While fundamental aspects of the UK’s proposals, which are outlined in a new 104-page document released June 12, are under heated debate, the energy proposals, vague though they still are, are unlikely to attract the same degree of controversy.

Rightly, the thrust of the proposals is on seeking broad energy cooperation with the EU, “including arrangements for trade in electricity and gas, cooperation with EU agencies and bodies, and data sharing to facilitate market operations”.

Within this, two issues are key. One is the Northern Ireland-Ireland single electricity market (SEM), which the document states should continue. According to the document, negotiators have already made good progress on a legal provision to underpin the SEM in the Withdrawal Agreement and the UK will work with the EU to ensure that the SEM is maintained in any future scenario.

Europe’s internal energy market

The second is the European internal energy market (IEM). With interconnectors – three in place and more under development – the need for continued trading across the region is a given. Here, however, the proposals are vaguer, with two possible options put forward. One is for the UK to leave the IEM. In this case, it would be necessary to establish what would be needed to ensure trade over interconnectors would continue without automatic capacity allocation via the IEM system.

The alternative option would be for the UK to participate in the IEM to preserve the existing efficient trading practices. In this case, a common rulebook with the EU would be needed on the technical rules for electricity trading, such as the market coupling mechanism, as well as a consistent approach to carbon pricing. However, it is not believed that a common rulebook is needed on wider environmental and climate change rules.

While no preference is expressed for either of these options, the latter may be less palatable to UK traders if they are required to follow a rulebook into which they have no or little input.

The other key point mentioned is cooperation on technical and regulatory energy arrangements and the wish to explore options for continued transmission system operator (TSO) participation in the Inter-Transmission System Operator Compensation Mechanism, as well as continued membership of the TSO organisations ENTSO-E and ENTSO-G, respectively for electricity and gas.

In addition, a close association is sought with Euratom on regulatory, research and other nuclear issues.

Europe energy cooperation - next steps

The proposals such as they are, are very much in line with those made previously by the trade associations both Energy UK and on the European side Eurelectric.

They now need to be filled out and also to be rephrased with greater clarity and direction. For example, while a ‘science and innovation accord’ is proposed inter alia for continued participation in EU research funding programmes, such as Horizon 2020 among others, no specific mention is made of research in the energy sector. And instead of reference to a “range of precedents” for such participation, the preferred option(s) should be set out.

In Energy UK’s response, Chief Executive Lawrence Slade states it: “It’s encouraging that the white paper again makes it clear that the government is looking to maintain broad cooperation over energy with the EU.  

“As an essential product for consumers, businesses and the UK economy, energy must be a priority in the ongoing negotiations with the EU. So, whilst we welcome the broad commitments, there is a lot of detailed work and discussions required in a short space of time to achieve these goals and provide the clarity urgently needed on issues such as participation in the internal energy market and the EU Emission Trading System – and the continuation of the SEM between Northern Ireland and Ireland.”