Brexit: energy security Contents

Chapter 3: Energy system fundamentals

Energy security

21.In the words of Energy UK, “Energy is the backbone of our modern society and as such maintaining energy security is vital.”28 Similarly, the British Ceramic Confederation told us: “Secure energy that businesses can rely on is fundamental to the functioning of any modern economy.”29

22.The Durham Energy Institute pointed out that “the UK cannot presently meet its own heat and power demands with existing indigenous supply”,30 while National Energy Action (NEA) also noted the UK’s increasing reliance on energy imports.31 The British Ceramic Confederation (BCC) argued that this increasing energy interdependence “only strengthens the importance of maintaining energy trade and strengthening energy interactions with neighbouring countries”.32

23.Energy UK were clear that, post-Brexit, “it is very unlikely that the ‘lights will go out’, as both gas and electricity will physically continue to flow on a commercial basis”.33 But they also told us that “without a strong trade agreement or a type of membership that provides access to the Internal Energy Market  …  it is likely we will be operating in a less efficient market”. Similarly, Georgina Wright, Research Assistant and Co-ordinator, Europe, at Chatham House, argued that “of course, energy trade between the UK and the EU 27, and the UK and third countries, would continue even in the event of no agreement. The key risk is around how efficient that trade would be.”34 RWE concurred.35

24.The Durham Energy Institute concluded:

“Whatever the final detail of the EU exit terms the UK is likely to be more peripheral to EU energy markets which will mean higher prices and more unreliable supply. Also supply risks will increase around issues such as importing gas through subsea pipelines or electrical interconnectors linking the UK to other EU countries.”36

25.As an example of such risks, RWE cited the Security of Gas Supply Regulation, introduced by the EU in 2017.37 They noted that, should the Regulation cease to apply in the UK post-Brexit: “The UK may miss out on the possibility of closely assessing supply risks, collaboratively developing preventative action plans and implementing emergency procedures with its interconnected EU neighbours.”38 They added: “The UK would also not be able to rely on EU solidarity whereby EU states could interrupt gas supplies  …  in order to free up gas to send to the UK.”

26.The Institution of Chemical Engineers et al argued that the impact of Brexit on energy security would be “manageable, provided agreements are reached on specific areas of collaboration and arrangements put in place to ensure the continued operation of wholesale gas and electricity markets”.39 But, they cautioned: “This will not be a trivial task, and failure to reach agreement could jeopardise the UK’s energy security, particularly in the event of extreme winter weather requiring energy imports from the continent.”

27.Echoing this, Green Alliance stated: “Brexit can have severe long term implications for UK’s energy security if economically rational outcomes are not sought by both sides.”40 Lesley Griffiths AM, Welsh Government Cabinet Secretary for Environment and Rural Affairs, agreed: “It will [be] important to ensure that some of the key priorities for the energy system, including moving to a low carbon energy system, ensuring energy is affordable and ensuring security of supply, are facilitated rather than impeded by any future relationship.”41

28.Richard Harrington MP, Minister for Energy and Industry, expressed confidence: “Because we have a very well-functioning, competitive and resilient energy system now  …  with the technology and so many different sources of electricity and so many ways it can be adjusted in the short, medium and long term, I am not worried about security of supply.”42 In its written evidence to the Committee, his Department also noted that “the Government has taken, and will continue to take, measures which mean that homes and businesses have the secure supplies of electricity they need”.43

Conclusion: energy security

29.Post-Brexit, the UK may be more vulnerable to supply shortages in the event of extreme weather or unplanned generation outages. While we note the Minister’s confidence in future UK energy security, we urge the Government to set out the means by which it will work with the EU to anticipate and manage cross-continent supply shortages that will affect the UK.

Cost to consumers

30.ENGIE warned that “a potential impact on affordability could ensue should trading arrangements and codes differ significantly”.44 Similarly, Energy UK claimed that operating in a less efficient market “will have an impact on consumer bills”.45 Ofgem reminded us that “the benefits of cooperating with our European neighbours and making use of cross border markets include  …  a reduced need to procure capacity domestically (which would be at a significantly higher cost)”.46 Malcolm Keay, Senior Research Fellow at the Oxford Institute for Energy Studies, commented: “We could import a lot more [liquefied natural gas] from anywhere in the world. All of that is outside the EU and is very flexible. The only issue might be price. It might cost more. It is as much a price as a security issue.”47 As a result, National Energy Action warned that “the UK leaving the EU could  …  badly impact the people who struggle to keep their homes adequately warm”.48

31.Asked what assessment he had made of the impact of Brexit on consumers’ energy costs, the Minister responded: “I cannot attach cost to it because we do not know what the outcome of the negotiations will be.”49 He continued: “I do not think there is a question of limited supply or a significant price change.”50

Conclusion: cost to consumers

32.It is likely that the UK’s withdrawal from the EU will lead to less efficient energy trade, which could in turn increase the price paid by consumers for energy security. We call on the Government to conduct and publish an assessment of what impact leaving the Internal Energy Market would have on the price paid by consumers for their energy, and to take steps to mitigate this impact, particularly for financially vulnerable consumers.

Transition

33.A number of witnesses underlined the importance of a transition period immediately following withdrawal. SSE told us: “The impact of the UK’s withdrawal from the EU for the UK’s energy security can be minimised through agreeing a transitional period, which avoids a cliff edge for business and allows the energy industry to prepare for an altered operating environment.”51 National Grid contended that an implementation period “would allow an orderly process for all parties to change their regulatory frameworks, commercial contracts and IT systems”.52 Lawrence Slade, Chief Executive of Energy UK, suggested that such a transition period should last for a minimum of two years.53

34.The CBI believed that a transitional arrangement “should replicate much of the economic relationship that is in place between the UK and the EU”.54 Energy UK argued it should “ensure barrier free trade between the UK and the EU and the free movement of labour”,55 while EEF and UK Steel argued for participation in the Internal Energy Market.56 The key features of a post-Brexit transition period, and its basis in EU law, are discussed in more detail in the Committee’s recent report Brexit: deal or no deal.57

Conclusion: transition

35.A transition period, during which the key elements of the current UK-EU energy relationship are maintained, is needed to allow time for the industry to adjust its working practices, contracts and IT systems, and thus ensure secure energy supplies continue to be available to consumers.


28 Written evidence from Energy UK (BES0024)

29 Written evidence from BCC (BES0008)

30 Written evidence from Durham Energy Institute (BES0013)

31 Written evidence from NEA (BES0058)

32 Written evidence from BCC (BES0008)

33 Written evidence from Energy UK (BES0024)

35 Written evidence from RWE (BES0029)

36 Written evidence from Durham Energy Institute (BES0013)

37 Council Regulation (EU) 2017/1938 of 25 October 2017 concerning measures to safeguard the security of gas supply and repealing Regulation (EU) No 994/2010 (OJ L 280/1, 28 October 2017)

38 Written evidence from RWE (BES0029)

39 Written evidence from the Institution of Chemical Engineers et al (BES0023)

40 Written evidence from Green Alliance (BES0010)

41 Written evidence from Welsh Government (BES0056)

43 Written evidence from BEIS (BES0049)

44 Written evidence from ENGIE (BES0040)

45 Written evidence from Energy UK (BES0024)

46 Written evidence from Ofgem (BES0025)

48 Written evidence from NEA (BES0058)

51 Written evidence from SSE (BES0012)

52 Written evidence from National Grid (BES0043)

53 Q 12; also written evidence from Energy UK (BES0024)

54 Written evidence from CBI (BES0019)

55 Written evidence from Energy UK (BES0024)

56 Written evidence from EEF and UK Steel (BES0027)

57 European Union Committee, Brexit: deal or no deal (7th Report Session 2017–19, HL Paper 46)




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