When the United Kingdom withdraws from the European Union 29 March 2019, it will in effect also leave the Internal Energy Market (IEM) and lose the set of advantages it provides Member States with.
As an EU Member State, the UK has to comply with rules set by EU bodies and institutions such as the solidarity principle, designed to ensure security of supply in times of energy shortages in one or several EU member states. By leaving the EU, the UK will find itself excluded from such safety schemes as well as a significant number of EU funds for Projects of Common Interest (PCIs). Ironically, whilst the UK has voted to leave the EU to recover its sovereignty over its own policies, the country may in fact not regain full control over its own energy sector. Indeed, the UK cannot just disconnect from the continent like in any other sector or industry. After investing billions in gas pipelines, electricity subsea interconnectors, LNG terminals and new storage capacity over the course of decades, seeking always deeper integration and cheaper energy, the UK and the EU will have to find a settlement to keep benefiting from each other. But just how much is the UK ready to cede to the EU27 to keep its power?
The UK has traditionally been a net importer of electricity from the EU, mostly from France and more recently from the Netherlands. Electricity prices being higher in the UK, imports from the continent contribute to lowering British electricity prices in times of electricity generation shortages. With almost 30 percent of its energy coming from renewables and thus depending on weather conditions, the UK has grown more dependent on electricity imports from the continent to balance peaks and troughs in renewable power generation. No matter how large the share of the electricity generation mix renewables represent, they will remain unstable sources of electricity. Therefore, electricity imports from neighboring countries are bound to continue and even increase at times when the UK’s demand for electricity spikes.
Indeed, the UK takes pride in being a world leader in clean energy growth and reducing its carbon emissions faster than any other G7 country. In order to meet its target of 57 percent carbon emissions reduction, the UK has committed to invest £600 million by 2020 to promote ultra-low emission vehicles. The government aim “for nearly all cars and vans on our roads to be zero emission by 2050,” stated former British Transport Minister John Hayes. If the British government want to fulfill its ambitious plan they will need to ensure there is ample and reliable electricity supply for the 37.5 million vehicles circulating in the country. However, to keep benefiting from the IEM’s sophisticated trading arrangements, the UK will have to accept the powers of supra-national institutions over its own system. The European Parliament Report on the impact of Brexit on the EU energy system does not leave way for cherry-picking; deeper integration necessarily implies a loss of national sovereignty over national networks since the system aims to be arranged in regions and not states.
The UK currently benefits from the capacity mechanisms set by the EU to ensure adequate generation capacities are available at all times, whilst there is compensation from other member states in case of domestic shortfalls. Such mechanisms already exist in the UK and the country currently benefits from EU funds, which may no longer be the case after Brexit. As of November 2017, the EU was financing over 100 energy projects concerning the UK with €2.5 billion invested overall. By leaving the EU, the UK will lose direct access to funding for internal UK projects. It may receive access to EU funding only in the framework of cross-border projects with EU member states and only if the European Commission considers such projects to be in the EU interest. Internal UK projects that have already received a funding commitment from the EU and represent over €1.8 billion are no longer guaranteed to be fulfilled and will be subject to the Brexit negotiations.
Since 1956 the UK has become a nuclear country and, as of December 2017, nuclear power represented almost 25 percent of the UK’s electricity generation mix. As the 4th largest member state in terms of nuclear power capacity, the UK greatly benefits from the European Atomic Energy Community (Euratom) to ensure safety at its nuclear power plants, supply of nuclear fuels, free movement of capital for nuclear investments and free movement of employment for nuclear specialist and engineers. The atomic power supply agency also has the exclusive right to conclude supply contracts between EU member states and third countries, thus providing EU member states with a higher bargaining power during negotiations of contracts with external suppliers. The UK will lose these advantages as leaving the EU automatically implies leaving Euratom. Scientists already raised concerns about the UK leaving the institution and therefore putting the future of breakthrough projects, the supply of material used in cancer treatments and medical imaging, and the UK’s own electric cars revolution at risk.
Ironically, the UK is preparing itself to leave the IEM and Euratom when it needs them most. Demand for electricity is increasing, whilst domestic supply is becoming more unstable and even declining. As stated by Energy-UK, “the UK’s nuclear power stations will close gradually over the next decade or so, with all but one expected to stop running by 2025,” which means the country will most likely need to increase its imports from neighbouring countries such as France.
Gas and LNG
Since the 2000s the UK stopped being a major gas producer and exporter. Its gas fields in the North Sea are depleting and domestic production has halved in the last decade. The UK has become more reliant on gas imports from Norway and other European and international producers via pipelines and LNG terminals, with imports now representing half of the country’s consumption. This dependence on the IEM is reinforced by the UK’s limited gas storage capacity and repeated outages at its main storage facility which eventually had to be closed in June 2017 and may reopen in May 2018. Consequently, the UK has lost 70 percent of its gas storage capacity but it can still count on the solidarity principle. However, this principle will stop working as soon as the Brexit becomes a reality. Although it should be stated that the UK’s underused LNG terminals (only 23 percent of their capacity is used) should allow the country to import more LNG from international suppliers and circumvent the EU27. Brexit is therefore expected to have a relatively low impact on the UK’s gas sector.
In 2015 over 30 percent of the UK’s imported fuel was crude oil, mostly used for the transport industry. As the British government is seeking to drastically reduce carbon emissions over the next decade, its reliance on oil imports should decrease. Around 50 percent of oil imported into the UK comes from Norway and almost 40 percent comes from OPEC countries and Russia, which means the UK’s oil imports should not be affected by Brexit. Indeed, Scottish calls for independence should not be underestimated, as the vast majority of the UK’s oil is produced in Scotland’s Exclusive Economic Zone. Scotland is a strong EU supporter and has already expressed its desire to negotiate with the EU to remain in the Union. If this were to take place, the UK would lose about 80 percent of its domestic oil sources. Another pitfall following Brexit is the potential loss of oil stocks the UK holds all over the EU. The British government hold around 15 million tonnes of oil for emergency purposes; a significant part of this stock is held on EU member states’ territory. These stocks can be repatriated to the UK to supply the country for 61 days in case of global market disruption. The UK also holds stocks for EU member states. Such solidarity could end with the Brexit and the UK would have to store its emergency stocks on its territory, or, if it lacks storage capacity, sell it to EU member states which currently have these stocks on their territory.
Ireland and Northern Ireland
The Republic of Ireland and Northern Ireland are part of the Irish Single Energy Market (SEM) and energy co-dependent. As they possess no LNG terminal and no direct interconnectors with the continent, they are heavily reliant on gas and electricity transiting through or imported from the UK. This mutual dependence represents a key opportunity to find a settlement between the UK and the EU27. On the one hand, the EU27 is more likely to accept the UK’s full membership to the IEM so as to allow the Republic of Ireland to benefit from the IEM and the principle of solidarity. On the other hand, the UK might opt to lose some of its sovereignty for energy security in Northern Ireland. If neither side agrees to bend to the will of the other, the EU27 could fund the construction of subsea interconnectors directly connecting the Republic of Ireland with the continent. However, the profitability of such a project would depend on the UK’s willingness to cooperate with the EU27. The energy security of the island of Ireland will most likely play a crucial role in the Brexit negotiations.
Participation in regulatory bodies
When withdrawing from the EU, the UK will lose full membership to EU regulatory bodies and the right to vote and influence EU energy policies. In the case of the UK staying in the IEM, the European Parliament stated that “it will have to comply with decisions taken by these regulatory bodies while having little or no influence on them.” As the 5th largest recipient of loans from the European Investment Bank, the UK will have to give into EU demands if it wished to continue receiving funds attributed to internal and cross-border projects to meet its ambitious energy goals.
Current examples of third countries cooperating with the EU on cross-border projects- such as the Nabucco pipeline built within the framework of the European Energy Programme for Recovery – show that non-EU states can benefit from EU funding. Third countries can also participate in EU energy regulatory bodies but only with the status of observer and without any voting rights.
As the Energy-UK report underlines, the UK does not plan to be treated as a third country and seeks to obtain a special status in the EU key decision-making bodies. The UK’s capacity to negotiate such status will depend on how it can make itself essential to the EU’s IEM. This might be difficult since the continental energy market is much larger and already better integrated, while the overall the negative impact of Brexit is likely to hit the UK harder than the Union. The sooner a deal is reached, the better for the UK and for EU energy companies exporting energy across the Channel, since prolonged uncertainty of the market may deter investors and delay or cancel planned interconnectors.
Diane Pallardy studied an MA in Politics and International Relations at the University of Kent, and MA in World Politics and Fossil Energy at the Higher School of Economics, in Moscow.