Posted on: 04/07/2017
The UK is “highly likely” to leave the European Union’s (EU’s) internal energy market, changing the current status quo for the domestic power industry, according to a new report.
Law firm Herbert Smith Freehills, along with The Boston Consulting Group and Global Counsel, analysed the implications of Brexit for both the UK and the EU.
It concluded that if the UK leaves the jurisdiction of the European Court of Justice (ECJ) and places greater controls on immigration then it looks set to also leave the internal energy market.
The report analysed the implications for both the UK and the EU.
‘Huge’ investment requirements
On nuclear power, the report concluded that it would be “inconceivable” for the UK to leave the Euroatom treaty without securing new arrangements for the sourcing of nuclear fuel for power stations.
Leaving the EU Emissions Trading Scheme (ETS) seems “likely” and so the UK may pursue a carbon tax or setup its own scheme, which could be tied to the EU ETS.
Technologies such as carbon capture and storage could receive a boost because the UK will no longer be tied to European state aid rules.
While the UK may have less to gain from electricity market integration initiatives such as the coupling of cross-border balancing and capacity market integration, its huge investment requirements will remain, such as grid upgrades and generation capacity.
Strong voice for business
The report said that the “cliff-edge” scenario – under which the UK leaves the EU without any arrangements in place – gave businesses a clear risk-management stress-test scenario.
From the EU’s perspective, the report noted that the situation facing the cross-border single electricity market on the island of Ireland is “exceptional in its complexity”.
“Ensuring that business retains a strong voice will be critical in ensuring that the outcome of negotiations is beneficial for both the EU and the UK,” the report added.