Brexit’s Impact on Europe’s Energy Markets
March 13, 2018
Over the last few years, regulatory uncertainty has become almost a fixture of European energy markets. Unfortunately, the impact of Brexit on the wider whole energy market is even less certain. With just over a year until Britain leaves the EU, the whole process seems bogged down in a regulatory quagmire with no real progress on the key political issues that will determine the rules for how Britain’s wholesale energy market will interact with that of the remaining members of the EU.
Britain is part of the internal energy market (IEM). The IEM allows for the harmonized, tariff-free trading of gas and electricity across Europe – a system the UK played a major role in developing. This system is based on a foundation of three EU Directives which essentially created the region’s wholesale electricity and gas markets via non-discriminatory rules for access to transmission wire and pipelines, the extension of retail competition, and full deregulation of ownership.
Given the UK’s overarching goal of restoring the supremacy of UK law over EU law, there is a very strong possibility that the UK will leave the IEM, and by extension leave the institutions which coordinate EU energy regulation, such as the Agency for the Cooperation of Energy Regulators (ACER), the European Network of Transmission System Operators for Electricity (ENTSO-E) and the European Network of Transmission System Operators for Gas (ENTSO-G). Should that happen, the UK would have to negotiate a new agreement(s) with the EU to continue to coordinate with it on energy matters. This would require the UK to comply with EU energy laws without having any role in defining those laws. Nonetheless, there are examples of other non-EU countries doing something similar, including Norway and Switzerland via the European Free Trade Agreement (EFTA).
There are also a number of power interconnections between the UK, Ireland and the larger EU market (via France and the Netherlands). However, like natural gas, the rules for trading along these interconnections post-Brexit are yet to be determined. Prior to the Brexit vote, considerable investments were planned for increasing the number and capacity of power interconnections fivefold. While some of that capital has already been spent, many of these large projects have slowed or been put on hold pending the outcome of the myriad of negotiations that must still be settled.
In another area of concern, ESMA has told Trade Repositories to be ready for a number of different Brexit outcomes. They have reportedly reviewed contingency plans from those repositories and expect all plans to be in place by the end of the year. However, as with all things related to Brexit and energy trading, there remain many questions related to trade reporting that must be resolved – both within the EU 27 and the UK and between those two parties.
Unfortunately, when it comes to Brexit and the impact on the UK and EU energy markets, much has yet to be determined. With the deadline for Britain’s exit looming, energy companies will need to pay very close attention to market developments and heed any guidance provided by government, regulatory, or industry agencies going forward.