Brexit and the Future of Energy in the United Kingdom, Part 1

The world is still reeling after the United Kingdom’s shock vote to leave the European Union (EU). So what does this mean for the country’s energy policy? And what does this mean for companies seeking to do business in energy in the United Kingdom?

The short answer to the first question is nobody knows, but it will either stay the same or get worse. Only a few short weeks after the world woke up to the reality of Brexit, there is far too much uncertainty to form a considered opinion about the extent to which the United Kingdom’s energy sector will be affected by the vote. However, it is worth taking a step back to assess the different scenarios that may evolve during the Brexit negotiations.

Period of Uncertainty

Until the U.K. government invokes Article 50 and formally notifies the EU about its intent to leave, the United Kingdom remains a full member. Article 50 will not be invoked until the new Prime Minister Theresa May enters Downing Street; however, there may be legal hurdles and a vote by Parliament before Article 50 can be invoked. There may even be a snap general election, further extending the period of uncertainty.

Brexit will either look very similar to the current state of affairs (although the United Kingdom will no longer participate in the European Parliament, it will still enact its laws), or the United Kingdom will cut itself off completely and face many years of trade renegotiations. So what can we expect the impact of Brexit to be on the U.K. energy market?

A Potential New Direction

The United Kingdom’s energy policy has been closely tied to wider EU policy for the last couple of decades. EU policy is heavily influenced by a low-carbon future and a pan-European energy market. The United Kingdom’s renewables, smart meter, and air quality targets were all set by Europe; a full departure from the EU via Brexit would mean the United Kingdom could tear up its commitments and choose its own direction.

Given the impending start of the United Kingdom’s smart meter rollout, this is probably an unstoppable train that has already left the station. However, if Brexit leads to a recession and higher fuel bills, there will likely be pressure on government to delay the smart meter deployment or rescind the legal obligation that forces suppliers to deploy meters. The United Kingdom has lagged behind many European countries in its commitments to improve air quality; a full Brexit from the EU will likely see the country delay further, given a likely shift back to fossil fuel-powered generation.

The short answer to the second question of what Brexit means for companies doing business in energy is “wait and see.” Look for more on this topic in the next post in this two-part series.