Project Brexit

Energy & Climate Change

The renewables sector should be keeping a close eye on Brexit. The EU has defined responsibilities for supporting the energy markets of Member States and British energy and climate policy has been entwined with EU institutions over the last four decades.

The low carbon sector should be keeping a close eye on Brexit. The EU has defined responsibilities for supporting the energy markets of Member States and the energy and climate policy of Great Britain has been entwined with EU institutions over the last four decades.

Renewable energy and low-carbon industries are vital to the UK economy, particularly construction and manufacturing. The Office of National Statistics estimated in 2014 that the sector contributed £46.2 billion to the UK economy, and employed nearly a quarter of a million people.

And, while the UK might be leaving the EU, it was integral to the development of an internal European energy market that’s increased levels of interdependence of electricity and gas systems between Britain and the continent, while the EU has institutionally been a global political leader on climate change.

Sweeping assumptions about Brexit being either detrimental or positive for renewables and low-carbon industries are both unhelpful and premature. But, without doubt, there are opportunities and risks any organisation in the sector must be aware of.

Policy & regulation – a quick introduction

The EU’s primary responsibilities for energy and climate concerns are:

  1. An integrated energy market
  2. Ensuring security of supply
  3. Energy efficiency, energy saving and the development of renewables
  4. Interconnection of energy networks across and beyond member states

EU policy is currently being delivered through the EU Commission’s Third Energy Package (2009) and the 2015 Energy Union Package, underpinned by a 2015 Policy Framework including:

  • Binding Member State targets for emission reductions by 2030
  • An EU-wide target of at least 27% share for renewables in energy consumption
  • An EU-wide energy efficiency target of at least 27%

Looking ahead, the European Commission’s “Clean Energy for All Europeans” package (2016) contains eight new legislative proposals relating to energy efficiency, renewable energy, electricity market design and governance. Negotiations on two of the proposals (on energy performance of buildings and energy efficiency) are likely to progress at pace, to the extent that the UK may be required to implement these before it leaves the EU.

To ensure greater coherence between regulatory frameworks, the European Agency for the Cooperation of Energy Regulators (ACER) was formed in 2010 as a supervisory and advisory body.

Ultimately, however, despite greater integration across the EU, the bulk of energy and climate policy is (at least in the UK) determined at home. This has included the world-leading Climate Change Act 2008, which remains in place post-referendum and has legislated a 2050 target of an 80% cut in emissions and five-yearly carbon budgets. But the UK faces an uphill task to meet that target, based on its fourth and fifth carbon budgets (covering 2023-2032).

How could Brexit affect the sector

  • UK efforts to meet its emissions target will require decarbonisation across power generation, transport, heating and agriculture. The ability of these sectors to ‘up their game’ could be affected by Brexit trade deals and the retention or loss of EU regulations.
  • The Government has stated its intention to leave the EU Single Market – this increases the risk of the UK being excluded from the Internal Energy Market (IEM), and technology-specific programmes such as Euratom – the European nuclear research agency.

Risks

Foregone benefits of market integration will hit household and commercial electricity bills and decrease overall competition in power generation – historically reducing innovation and service provision.

  • The future relationship between the UK and the Internal Energy Market is unclear, but research commissioned by National Grid expected leaving the IEM would “very likely” be negative to the UK.
  • Nearly eight percent of Britain’s electricity is imported, and the pre-Brexit National Infrastructure Delivery Plan intends to increase this by 9GW of new interconnection. The Government has recently confirmed its continued commitment to this aim, but can it be achieved outside the IEM?
  • The Government’s decision to opt for a ’hard’ Brexit could exclude the UK from European protectionism, exposing the gas market to supply security risks.
  • Short term, Brexit could cause further delays to measures such as the Emissions Reduction Plan, with officials preoccupied with withdrawal negotiations.
  • Brexit will mean the UK pulling out of the European Atomic Energy Community (aka Euratom) – this could result in cuts to funding for nuclear fusion research and development programmes.

Opportunities

  •  The UK will continue to be seen as a favourable place for certain renewables to do business, with the launch of world leading new energy generation projects (e.g. Hornsea Project Two).
  • The depreciation in the pound and increased emphasis on domestic energy generation could boost the UK construction industry.
  • A boost to the UK construction industry could help develop greater low carbon expertise
  • The Government sees clean energy as a major export opportunity for post-Brexit Britain, with the new industrial strategy indicating that battery storage and offshore wind in particular will receive support.
  • The repeal of EU legislation once Brexit is finalised could mean the removal of the Minimum Import Price and mandatory VAT charges on solar panels.

For the energy and climate change sector, the process of withdrawal is likely to be one of evolution rather than revolution.

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For media enquiries, please contact Chris Rogers on 020 7793 2536 / 07720 054189, or email Chris.Rogers@whitehouseconsulting.co.uk.

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