We’ll miss you Internal Energy Market

By Stephen Roberts February 14, 2018 2:29 pm

The House of Lords EU Energy & Environment Sub-Committee has published a report titled “Brexit: Energy Security” as part of its inquiry into the impacts of Brexit on the UK’s energy system. The Committee’s findings were that, given political drive for the UK to leave the European Single Market, it is highly unlikely that the UK will remain a part of the Internal Energy Market (IEM).

The IEM, which the UK was a leading proponent of, enables the tariff-free trade of energy between EU member states. This was based on the mutually beneficial principle that across different parts of Europe, as peaks and troughs in demand and supply occur, energy can be traded quickly, cheaply and easily. Enabling countries in need of greater energy to access it, whilst giving a place for those with excess energy supplies a place to trade.

The report highlights that the clear response from stakeholders was that the UK, following Brexit, will need to continue trading with Europe to meet demand. As a result, a new replacement mechanism to the IEM will be required, which is likely to incur extra costs, ultimately shared across consumer energy bills.

The Durham Energy Institute responding to the Committee’s inquiry pointed out that “the UK cannot presently meet its own heat and power demands with existing indigenous supply.” The Institute added that “supply risks will increase around issues such as importing gas through subsea pipelines or electrical interconnectors”. Whilst this is undoubtedly true, does all of the UK’s energy supply come from Europe?

In the winter period the UK imports a large amount of gas to meet our peak annual requirement for electricity transformation. According to British Gas, currently 43% of our gas is indigenously sourced, mostly from the North Sea; 44% comes from European states including Norway which is part of the IEM; whilst 13% comes from Liquid Natural Gas (LNG) imports which arrive in tankers. Eighty percent of the UK’s homes are powered by gas, and whilst the Government is looking to decarbonise this, most commentators will concede that, unfortunately, gas is currently a necessary evil to avoid a resurgence in both coal and oil.

The UK’s LNG facilities have enough capacity to supply half of the UK’s gas needs if required. However, most of this capacity is used for trading purposes to Europe from the Middle Eastern states, whilst the UK’s own North Sea supplies are in decline. The long and the short of it is that it is unavoidable that we are going to have to continue importing from the IEM and that there is no magic alternative.

Even by fully maximising our LNG import facilities – unlikely due to a host of other requirements – and bolstering our indigenous assets – North Sea oil and gas supplies are dwindling – we cannot meet our requirements without the IEM.

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