Brexit considerations for the energy sector – Since the Supreme Court ruling on the prorogation of Parliament and MPs arriving back in Westminster, attention has been re-focused on the UK’s departure from the European Union. The country is being told to get prepared for Brexit on the 31 October, and businesses are trying to navigate what it means for them and their respective sectors.
The energy sector is no different with developments at the macroeconomic level – such as exchange rate volatility, investment risk and regulatory uncertainty – jostling for dominance with matters specific to the energy sector.
The future of carbon pricing, cross-border energy flows and the potential for new energy tariffs are all among the issues under consideration which will affect the future direction of wholesale prices, and hence customers’ bills.
Dr. Craig Lowrey, Senior Consultant at Cornwall Insight, said:
“With the uncertainty over the UK’s future relationship with the EU showing no signs of clearing, it is essential to understand what the main challenges could be for the UK’s energy sector – both ahead of 31 October and beyond.
“The wholesale market is likely to be in a state of flux. With the risk of a depreciation of sterling, there is a real possibility of higher prices in both the electricity and gas markets. This will have an adverse effect for consumers with potential price rises and withdrawal of cheaper fixed tariff deals.
“The UK’s departure from the EU Emissions Trading Scheme (EU ETS) is set to result in the introduction of a Carbon Emissions Tax. However, the UK government has stated that its preferred long-term solution is a UK ETS. The outcomes of this transition will have consequences not just for carbon-intensive generators, but will also be reflected in wholesale prices – and again, impact on customers.
“As with other areas of the UK economy, investment in the energy sector will be dampened with the overall economic uncertainty surrounding Brexit. In the longer term, the industry may be adversely affected by the removal of the support from the European Investment Bank – which has committed c. €16bn to the UK energy sector – especially if this is not replaced.
“Determining the specific impacts of these issues remains difficult while the Brexit situation is still in flux, but it is clear that – like many sectors – the energy market is not going to be unscathed by the effects of Brexit, regardless of whether we leave with or without a deal.”
To download Cornwall Insight’s Brexit factsheet, please click here.