- Brexit
- DER
- Electricity Generation
No-Deal Brexit and Energy Security in the UK
At a time when the UK is increasingly reliant on energy traded with other European countries, the implications of a no-deal Brexit, if it were to happen, could have significant repercussions on the UK’s energy security. As the country continues to invest in clean power sources and distributed energy resources, conventional generation capacity has declined over the last few years. The recent and well-publicized nuclear project pull-outs expand further on the risks to the UK’s future energy security, showing an increase in the UK’s reliance on electricity imported from Europe.
Interconnectors have played a key role in the UK’s energy security since the 1980s. The UK has four interconnectors allowing trade with Europe: England-France (2 GW capacity), England-Netherlands (1 GW), Northern Ireland-Scotland (0.6 GW), and Wales-Ireland (0.5 GW). Net imports (14.8 TWh) in 2017 accounted for 4.2% of electricity supplied that year. Additionally, there are 11 new generation interconnectors either in the pipeline or proposed under Ofgem’s cap and floor regime, which could provide up to a fifth of UK’s electricity needs by 2025.
Electricity Imports and Exports in 2017
(Source: Digest of UK Energy Statistics 2018)
Future Effects on UK Electricity
The carbon price floor aims to create the right impetus to decarbonize the UK’s economy. Wholesale electricity prices in the UK have been relatively higher than its neighboring countries, making it an attractive market for power exports. As a consequence of a no-deal Brexit, wholesale electricity prices in the UK are likely to increase due to devaluation of the pound and higher levelized cost of energy generated in the UK. Market coupling might have a restraining effect on seamless electricity trade given cross-border grid constraints. While interconnectors will continue to function in a no-deal scenario, strained UK-EU relations might potentially cause unnecessary tariff issues and protocols. The UK will also need to come up with contingencies to deal with any inefficiencies across Ireland’s Single Electricity Market. In the case of a no-deal Brexit, European energy laws may no longer apply to the UK, nor will UK’s cross-border flows be governed by European legislation. In such an instance, market participants and stakeholders will need to develop alternative arrangements for the purchase and sale of power across the border.
Emissions rights trading has largely been led by the UK (specifically London) in the integrated European Union. From market reference prices (Brent) and energy derivatives to actual physical trading, London has been the main exchange for energy futures. In case of a no-deal Brexit, UK operators may no longer be able to have their say in any EU-related trading arrangements.
Finally, despite the UK having more control over its future decarbonization plans, it will need to come up with a strategy to manage dependencies on electricity import at the earliest. It is extremely important that industry stakeholders and regulators focus their efforts on alternate trading agreements and any EU energy developments that should affect the UK’s energy security after Brexit.