The uncertainty around the impact of the United Kingdom leaving the European Union on March 29 2019 is also raising questions about what this will mean for the price of energy after Brexit.
In this article we’ll consider the potential scenarios and how they may impact what we pay for our energy, in order to arm you with all the information you need to make informed choices about your energy.
The impact on imports
Currently, the UK imports much of its energy from mainland Europe via interconnectors – both electricity cables, and gas pipelines. Around 40% of UK gas and 5% of UK electricity is supplied this way by EU countries as part of Europe’s Internal Energy Market (IEM). It allows the free flow of power and gas between EU member states, so that energy can be produced in one country and exported to another, without any import or export tariffs being applied. There is uncertainty regarding the UK’s participation within the IEM after Brexit, presenting potential negative implications for imports. In addition, if the value of the Pound were to fall as it did after the referendum, and as many analysts are predicting, then the cost of imports would rise further still.
The impact on supply
If the UK were to lose out on the benefits of being part of the IEM and subsequently face import barriers then we could face a supply shortage in the event of extreme weather or unplanned generation outages. This is because EU countries support each other to maintain gas supplies in the event of a crisis. This issue is compounded by the closure of the UK’s Rough storage facility in June 2017 which means that the UK now has the lowest ever volume of stored gas. It means that the UK will be more dependent on imports from Europe via the interconnectors, along with pipeline gas from Norway, and LNG tanker deliveries. But the UK will be competing with other markets. There is already high demand for LNG from Asia where prices are high, making it a more favourable destination for shipments than the UK and elsewhere.
The impact on the environment
There is a possibility that a Brexit deal may release the UK from ambitious EU green targets, which could allow the investment in cheaper fuel sources, having the result of reducing the cost of energy. Nuclear plants supply around 20% of the UK’s electricity today, but the UK may be forced to rely more on gas generators or nuclear power, because an end to the free movement of energy across the continent puts at risk the current balancing of power between EU countries which ensures supply when wind or solar is low. It is more expensive to fire up a generator than to bolster supplies from Europe, meaning this will affect both energy prices and the fight against global warming.
Brexit also puts at risk the UK’s participation in the EU emissions trading system (EU ETS). The EU ETS was the first large greenhouse gas emissions trading scheme in the world, and is central to the EU's policy to combat climate change and reduce greenhouse gas emissions cost-effectively. In fact, it is the most cost-efficient way to price carbon and incentivise emission reduction investments, meaning that leaving the EU ETS could impact prices.
Market uncertainty – what next?
Energy suppliers procure energy weeks, months and years in advance in order to find the best deals and to limit customers’ exposure to the market’s volatility. We cannot predict with certainty what will happen to the energy market post-Brexit, but if you’re unsure about your business energy strategy, talk to an expert, like a business energy broker.