House of Lords recommends engagement on the issue of Brexit and energy security

Posted in Energy

The House of Lords EU Energy and Environment sub-committee published a report on the impact of Brexit on the UK’s energy security. Although entitled “Brexit: energy security”, the committee defined energy security as the UK’s “ability to ensure secure energy supplies for UK consumers, at a reasonable cost, while also decarbonising the energy system”. As a result, the report is wide-ranging covering topics as diverse as the impact of Brexit on energy trading, interconnection, investment in energy infrastructure and nuclear safety.

The full report may be read here. We set out some highlights below.

  • The report called on the government to engage actively with the key issue of energy as part of Brexit negotiations, which has to date been a second-order issue. The committee also recommended that, given the degree of integration of the EU and UK energy markets, a transition period is implemented during which the key elements of the current UK-EU relationship are retained.
  • Changes to immigration policy would be likely to adversely impact the availability of skilled labour, particularly engineers and professionals within the nuclear industry, required for the UK energy industry. These concerns were acknowledged by ministers.
  • There was strong support for the Internal Energy Market (IEM) amongst witnesses and the committee urged Government to seek continued participation post-Brexit. The committee heard that the IEM had promoted efficiency in electricity and gas trading, with the introduction market coupling, a shared EU-wide algorithm facilitating cross-border trades highlighted as being particularly beneficial. However, continued access is likely to require compliance with relevant EU laws and acceptance of the jurisdiction of the Court of Justice of the EU.
  • Despite Brexit, the UK’s energy networks will remain physically connected to the EU. Ofgem gave evidence that interconnectors resulted in lower costs for consumers, enabling spare capacity in neighbouring countries to supply British consumers. To maintain operating efficiency post-Brexit, the committee recommended that the government seek regulatory convergence and urgently clarify the regulatory regime which will apply to interconnectors after withdrawal from the EU,
  • In relation to investment, the committee heard that the UK receives EUR 2.5 billion in energy loans and grants from the EU each year under a variety of programmes. Witnesses were divided on the significance of the funding, some observing  it was not critical to investment, others observing that the UK would need to replace the funding, particularly from the European Investment Bank and the Connecting Europe Facility (CEF). The CEF supports trans-European networks in the transport, energy and digital sectors, and projects which have been identified as projects of common interest are eligible for CEF funding, as well as non-financial benefits such as expedited permitting processes. The committee urged that the government seek to continue to participate in transnational energy projects with the EU post-Brexit.
  • The committee heard that interconnection with Britain is important for energy security on the island of Ireland. Witnesses were unanimous in their support for the Single Electricity Market (SEM) to continue post-Brexit on social and economic grounds, but noted the challenges in the event that the UK is no longer part of the IEM. Whilst the government has stated in its position paper on Northern Ireland and Ireland that it is seeking the continuation of the SEM, the framework for doing so would need a special arrangement to be found. The committee expressly recommended that government underwrite the cost of the North-South electricity interconnector planned to link Northern Ireland and the Republic of Ireland if this were considered to be at risk.
  • The committee heard that failure to replace the regulatory framework of the European Atomic Energy Community (Euratom) at the point of withdrawal would have severe consequences on the UK’s ability to trade in nuclear material and that the quick conclusion of various nuclear cooperation agreements between the UK and other nuclear states is needed in order to maintain the UK’s supply chains post-Brexit.  However, the safety of nuclear sites would not be threatened as safety is already largely governed at the domestic level.
  • In relation to safeguarding, the committee concluded that in order to maintain energy security, a domestic safeguarding regime that satisfies the International Atomic Energy Authority’s requirements would need to be established, subject to oversight by the Office of Nuclear Regulation.  Euratom’s safeguarding standards are generally higher than those imposed by the balance of the UK’s international obligations, and so it will be challenging for the UK to maintain Euratom-grade safeguarding standards post-withdrawal. As mentioned above recruitment and training of safety inspectors was also highlighted as  a challenge.
  • The committee welcomed the Government’s commitment to continue to fund nuclear research in the UK and highlighted the importance of continuing the Joint European Tour and ensuring that the UK remains a participant in the International Thermonuclear Experimental Reactor post-Brexit.
  • The committee also examined models for a future energy relationship with the EU. Whilst the ‘Norway-model’ would bring benefits, this would require EEA and EFTA membership, which the Government has ruled out. The committee examined the ‘Swiss-model’ in detail, noting that no electricity agreement has as yet been agreed, with sticking points being a common institutional framework for dispute settlement and oversight, and free movement.

For those active in the energy industry, the report’s conclusions are unsurprising. However, the evidence highlights the concerns of the industry and the need for regulatory certainty to provide certainty to investors in the sector. Politically the report serves as a useful tool in raising the profile of energy security issues in the context of the Brexit negotiations.

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