The effect on Britain exiting the European Union (Brexit) has prompted much debate and undoubtedly this will continue as we move towards the referendum. As business energy consultants we discuss the effect on energy.
Prices and Security of Supply
UK power supply is connected to mainland Europe through two interconnectors that provide 4GWh of capacity and this is set to increase by 7.3GWhs by the end of 2022. Leaving the EU carries some risk in terms of the completion of the projects and dependence on the national transmission operators in Europe agreeing the protocols for operation.
If the UK sits outside of the European strategic energy plan, demand requirements for the British market could become marginalised potentially causing upward pressure on prices as supply margins are threatened. Without the interconnectors it is likely that we will be unable to meet demand for electricity by the middle of the 2020s unless we are willing to move quickly to create generating capacity in the UK. Hinkley Point doesn’t demonstrate our agility in this respect.
For Europeans the fear is that Russia could turn off the gas and so they are investing to improve delivery options from elsewhere. This is not a problem we have. Plenty of storage capacity coupled with warmer winters means that we have not seen gas supply finely balanced with demand for the last two winters. Exiting the EU will not affect our gas supply status and as such it shouldn’t impact prices.
The UK will still be bound by global agreements on climate change but if we leave the EU we won’t have influence on how Europe legislates to achieve the targets. This presents a small risk in terms of the cost of compliance for organisations that are based in the UK but are trading with companies in the EU.
Short term the impact will be limited – perhaps a jittery market for a while. Long term the consequences might be more profound – it is worth noting that German electricity is roughly half the cost of ours – the integrated energy market is one market we perhaps should be in!