Chapter 6: Influence and cooperation
UK-EU policy divergence
86.According to BEIS, “The UK has been a leading advocate for the development of the single market in energy and has heavily influenced the EU-wide rules, which draw on UK practice.”145 Georgina Wright, Research Assistant and Co-ordinator, Europe, at Chatham House, agreed: “The UK was a key driver behind the creation of the internal energy market.”146
87.This will change following Brexit. The Institution of Chemical Engineers et al were concerned that the UK would “no longer have input into the EU policy- and decision-making process”,147 while Joseph Dutton, Policy Adviser at E3G, suggested that “if you lose an influencing force such as the UK, which is one of the more pro-market actors within the European Union … there could be a real rebalancing of power towards more state-centric and more interventionist policies”.148 The Durham Energy Institute agreed, and added that “this will not favour the countries outside of the single market”.149
88.The Energy Intensive Users Group, on the other hand, said it was “hard to see why this liberalisation process should go into reverse after Brexit, even in the absence of UK support for it within the EU”,150 and the Minister, Richard Harrington MP, saw “no evidence of de-liberalisation”.151
89.More broadly, several witnesses noted that, post-Brexit, “There are risks of a divergence in policy direction between the EU and domestic energy policy”.152 The Renewable Energy Association (REA) indicated that such divergence could affect the UK’s ability to trade,153 while Oil & Gas UK explained that divergence on issues such as technical specifications for gas “could impair connectivity”.154
Maintaining influence
90.Oil & Gas UK argued that “the Government should prioritise ensuring that the UK can continue to formally influence policy, so that the industry is not at undue risk from changes to regulation”.155 Paul Wheelhouse MSP, Scottish Government Minister for Business, Innovation and Energy, and Michael Russell MSP, Scottish Government Minister for UK Negotiations on Scotland’s Place in Europe, described “retaining influence over the content of EU energy and environmental policies” as one of their key areas of concern.156
91.Witnesses had mixed views on the likelihood of the UK retaining influence. Dan Monzani, Head of Energy Security at BEIS, commented: “I would expect us to be influential—partly because we have been for 20 years—by weight of our thought leadership and our leadership in the early liberalisation of our markets.”157 SSE concurred: “The EU has benefited from the UK’s participation in these organisations and arguments should be clearly presented by the UK to allow this to continue.”158
92.Conversely, Malcolm Keay, Senior Research Fellow at the Oxford Institute for Energy Studies, was “a bit less optimistic” about UK influence: “As we will have removed ourselves … everyone will be rather reluctant to listen to what we have to say, I am afraid.”159 Ms Wright told us that there was “evidence to suggest that the UK has already gone from being a key political actor in this field to a technical consultant”.160
EU energy bodies
93.SSE told us that “an acceptable level of influence would be the UK maintaining full membership of ENTSO-E, ENTSO-G with Ofgem maintaining a strong presence within the Agency for the Cooperation of Energy Regulators (ACER)”.161 The CBI and Energy UK agreed.162 The three bodies are described in Box 3.
Box 3: ACER, ENTSO-E and ENTSO-G
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ACER is the Agency for the Cooperation of European Regulators. It coordinates regional initiatives and monitors the functioning of ENTSO-E and ENTSO-G (see below). Its members are the energy regulators of each EU Member State, while non-EU countries can participate only in accordance with individual agreements concluded with the EU. Its missions and tasks are defined in the Regulation establishing an Agency for the Cooperation of Energy Regulators (EC 713/2009).163 ENTSO-E is the European Network of Transmission System Operators for Electricity. Its roles include drafting electricity network codes, contributing to their implementation and coordinating electricity Transmission System Operators (TSOs). It represents TSOs from 36 European countries. Its tasks are set out in the Regulation on conditions for access to the network for cross-border exchanges in electricity (EC 714/2009).164 ENTSO-G is the European Network of Transmission System Operators for Gas. Its roles include developing gas network codes, producing a network development plan, and publishing bi-annual gas supply outlooks. Its members include TSOs from 26 EU countries, 165 plus five observers from ‘EU affiliate countries’.166 Its tasks are defined in the European Gas Regulation (EC 715/2009).167 |
Source: Agency for the Cooperation of Energy Regulators (ACER), ‘Mission & Objectives’: https://www.acer.europa.eu/en/The_agency/Mission_and_Objectives/Pages/default.aspx [accessed 29 November 2017]; European network of transmission system operators for electricity (ENTSOG), ‘Who is ENTSO-E?’: https://www.entsoe.eu/about-entso-e/Pages/default.aspx [accessed 29 November 2017]; ENTSOG, ‘Mission’: https://www.entsog.eu/mission [accessed 29 November 2017]; ENTSOG, ‘Articles of Association of the International Non-Profit Association (AISBL)’, (Amendment - Approved by General Assembly on 22/10/14): https://www.entsog.eu/public/uploads/files/publications/Balancing/2010/LGT0207_1410207_Amendments%20to%20ENTSOG’s%20AoA_EN_GA221014_clean.pdf [accessed 13 December 2017]
94.The CBI saw enduring membership of these bodies as a way to “ensure that the UK maintains reasonable influence over the system, rules and regulations, and does not become a ‘rule-taker’”.168 Phil Sheppard, Director of UK Systems Operation at National Grid, agreed: “Maintaining our influence on the network codes that implement a lot of the details at a fine level and making sure that we have operation and trading that is as frictionless as possible would be very helpful.”169 According to Lawrence Slade, Chief Executive of Energy UK, “We need to make sure that we are still in the room having those discussions. If we had not been in the room when [past] discussions took place, the trading of energy might be a rather more expensive issue for us today.”170 Similarly, RenewableUK told us: “Engagement with these bodies enables the most efficient use of the interconnectors, and decreases regulatory costs for those active across markets.”171
95.There are various options for such engagement. Mr Monzani told us: “When it comes to the exact mechanisms for how that influence is exercised, we should look for the best routes … those may be membership, associate membership or observer status.”172 Centrica set out some of the UK’s options:
“Currently ENTSO-E does have some non-EU members (such as Norway and Switzerland), but ENTSO-G does not. We believe the UK (National Grid) should seek to secure observer status at both … In respect of ACER we understand that observer status may be dependent on adoption of IEM legislation. The UK Government should therefore have this requirement in mind when considering what model of IEM participation it will seek going forward, and how it will adopt updates and changes to the IEM acquis.”173
Regarding ACER, Ofgem set out its own position: “Ofgem could seek formal Observer status as a third country although this would depend on the extent to which the UK agreed to apply the acquis of EU energy legislation. Informal observer status at working level may be possible via a Memorandum of Understanding between Ofgem and ACER.”174
96.His Excellency Jean-Christophe Füeg, Head of International Energy Affairs at the Swiss Federal Office of Energy, cautioned that there were limits to the level of engagement possible for non-EU Member States. Despite being a member of ENTSO-E, Switzerland had been “excluded” from a working group on a subject with significant implications for Switzerland’s energy system;175 and he characterised Switzerland’s interaction with ACER as “extremely limited”.176
Non-EU bodies
97.Witnesses identified a number of non-EU organisations as means by which the UK might influence EU energy policy post-Brexit. Ofgem noted that it would “likely be able to continue to participate” in initiatives such as the North Sea Countries Offshore Grid Initiative.177 As the National Grid, Mr Sheppard informed us:
“National Grid as a system operator is a shareholder in a company called Coreso. That is a collaboration of seven transmission system operators in the western part of Europe; it is a regional co-ordination council … Part of our objective is to stay a member, and both influence and get operational day-to-day information.”178
98.Ambassador Füeg again offered a note of caution: “We are observing one trend by which some institutions that were previously not under the aegis of the EU are likely, according to current drafts, to become institutionalised: that is, they may move from being independent institutions to being under the remit of the EU and EU legislation.”179 Mr Sheppard acknowledged that this was indeed the case with Coreso.180
99.Mr Dutton emphasised the role of NGOs:
“The UK will have a really important role in the [business NGOs], of which there are lots in Brussels. It is important that the UK remains as active as possible in those … If there was a formal shut-out from the decision-making process, that is a way the UK would still be able to exert some influence.”181
Centrica agreed: “We believe that the UK energy industry should also aim to leverage membership of key European trade bodies such as Eurelectric, Eurogas and EFET in order to express views regarding future rule changes to the IEM”.182 Mr Slade told us: “You have a lot of influence on what goes on sitting round the board and committee tables in those groups. They are, in the main, open to EU and non-EU members. There are options for Government but also for industry as to how we maintain our influence.”183
Conclusions: maintaining influence
100.If the UK continues to participate in the IEM it will be obliged to comply with the relevant EU legislation. In this event it will be particularly important for the UK to maintain influence over EU energy policy post-Brexit, to maximise the efficiency of the UK-EU energy relationship and ensure energy trading works to the benefit of UK consumers.
101.There is strong support across the energy industry to maintain the UK’s membership of ENTSO-E, ENTSO-G and ACER, but full membership of ENTSO-G and ACER post-Brexit will not be possible unless the UK adopts the energy acquis. Furthermore, we caution that continued membership is no guarantee that the UK’s influence will be maintained at its current level.
102.There will be a role for businesses to influence EU energy policy post-Brexit through European NGOs and trade associations, and we urge the Department for Business, Energy and Industrial Strategy to encourage and facilitate businesses to make those connections.
103.Notwithstanding such measures, the UK’s influence on EU energy policy is likely to be severely constrained post-Brexit. The Government should conduct and publish a frank assessment of its potential degree of influence, taking particular note of the difficulties faced by other non-EU countries such as Switzerland and Norway.
Research and collaboration
104.The Energy Institute stated:
“UK energy security is best assured through ongoing collaborative action with EU members, including participation in joint EU research and demonstration projects, collaboration on tackling climate change and development of renewable technology, interconnection infrastructure and grid standards.”184
105.The Durham Energy Institute explained that EU membership “acts to reduce barriers and risk for scientists, engineers and entrepreneurs whilst also acting to drive ideas through to full commercial deployment”.185 By way of example, they noted that smart meters’ advanced functionality was “based on running demand response programmes. This is an area in which the UK largely relies on the EU to stimulate the appliance industry through common EU Standards.”
106.Witnesses also noted the value of such energy research collaboration to the EU. According to EDF Energy, “The UK and the EU benefit equally from shared access to facilities, material, people and data which are essential for developing cutting edge technology and innovation. The UK has a strong science base and track record of valued EU and international collaboration and contribution.”186
107.The Durham Energy Institute therefore concluded: “It is essential that mechanisms are put in place that allow UK research institutions and industry to continue to engage in collaborative pan-European research programmes and projects.”187 The CBI agreed that there should be “a framework for ensuring further research, development and collaboration with our European neighbours after the UK has left the European Union”.188
108.In the field of research collaboration, according to Mr Dutton, “The big issue is obviously Horizon 2020 and what happens with that.”189 Horizon 2020 is described in Box 4.
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Horizon 2020 is the financial instrument implementing the Innovation Union, an initiative aimed at securing Europe’s global competitiveness. It couples research and innovation to drive economic growth and create jobs. It will distribute nearly €80 billion between 2014 and 2020. Within Horizon 2020, energy has been allocated €5.2 billion of the overall budget, with 85% reserved for renewables, energy efficiency, smart grids and storage. |
Source: European Commission, ‘Horizon 2020: The EU Framework Programme for Research and Innovation’: https://ec.europa.eu/programmes/horizon2020/ [accessed 29 November 2017]; ENERU, ‘Horizon 2020: Secure, Clean and efficient Energy’, Irina Gerashchenko, Lapland University of Applied Sciences, p 2: http://eneru.eu/wp-content/uploads/2015/05/Horizon-2020-Secure-Clean-and-Efficient-Energy.pdf [accessed 29 November 2017]
109.Witnesses provided specific examples of Horizon 2020-funded projects that the UK is involved in, including RealValue, an energy storage project powering 1,250 homes in the UK, Ireland, Germany and Latvia,190 and “field trials of innovative new technologies such as residential Gas Absorption Heat Pumps and fuel cell microCHP technologies which stand to have an important role to play in enabling the UK to transition to lower carbon heating”.191
110.As BEIS told us, the UK is a major beneficiary of Horizon 2020 funding: “From the most recent results, UK organisations were allocated €63m (12%) from the available 2016 budget of €536m; were involved in 47% of the 106 projects supported; and are collaborating with 32 countries as a result.”192 The Chancellor has guaranteed that any EU funding agreed prior to the point at which the UK leaves the EU, up until 2020, will be matched from central UK funds. This includes funding to universities participating in Horizon 2020.193
111.The REA argued that “post-Brexit actions should be implemented to further facilitate not only funding for these projects but to maintain these relationships”.194 According to the Institution of Chemical Engineers et al, “Some EU programmes may require the exchange of academics between institutions. Restrictions on the free movement of people as well as goods and services may make this more difficult in the future.”195
112.The Minister told us: “We want the framework for future collaboration that we have now.”196 This confirms the approach set out in the Government’s White Paper, The United Kingdom’s exit from and new partnership with the European Union, which states: “As we exit the EU, we would welcome agreement to continue to collaborate with our European partners on major science, research and technology initiatives.”197
Conclusions: research and collaboration
113.The EU provides not only energy research and development funding, but also collaboration opportunities that are of value to both the UK and the EU. We therefore support the ambition of both Government and industry to continue to collaborate with the EU on research initiatives post-Brexit.
114.We emphasise that such collaboration must involve preserving both programme participation—for example by continuing to contribute to Horizon 2020 and its successors—and rules around movement of people that allow research to continue.
146 Q 7; see also Q 18 (Phil Sheppard), written evidence from Oxford Institute for Energy Studies (BES0001), Ofgem (BES0025), Statkraft UK Ltd (BES0026), Energy Institute (BES0028), EFET (BES0035).
152 Written evidence from Which? (BES0016); see also written evidence from REA (BES0020), Statkraft UK Ltd (BES0026), National Grid (BES0043), Chatham House and University of Exeter (BES0044), Q 7 (Georgina Wright).
162 Written evidence from CBI (BES0019), Institution of Chemical Engineers et al (BES0023), and Energy UK (BES0024)
163 Council Regulation (EC) No 713/2009 of 13 July 2009 establishing an Agency for the Cooperation of Energy Regulators, (OJ L 211/1, 14 August 2009)
164 Council Regulation (EC) No 714/2009 of 13 July 2009 on conditions for access to the network for cross-border exchanges in electricity and repealing Regulation (EC) No 1228/2003 (OJ L 211/15, 14 August 2009)
165 Malta and Cyprus are currently not members of ENTSO-G as they do not have gas systems.
166 ENTSO-G’s Articles of Association allow for observer TSOs from third party countries—candidates for EU accession, members of the Energy Community or EFTA: https://www.entsog.eu/public/uploads/files/publications/Balancing/2010/LGT0207_1410207_Amendments%20to%20ENTSOG’s%20AoA_EN_GA221014_clean.pdf [accessed 8 December 2017]. These countries currently include the Former Yugoslav Republic of Macedonia, Norway, Switzerland, Ukraine and Moldova: https://www.entsog.eu/members [accessed 8 December 2017]
167 Council Regulation (EC) No 715/20019 of 13 July 2009 on conditions for access to the natural gas transmission networks and repealing Regulation (EC) No 1775/2005 (OJ L 211/36, 14 August 2009)
193 HM Treasury, Department for Exiting the European Union and The Rt Hon Philip Hammond MP, News story: ‘Further certainty on EU funding for hundreds of British projects’ (3 October 2016): https://www.gov.uk/government/news/further-certainty-on-eu-funding-for-hundreds-of-british-projects [accessed 8 December 2017]
197 HM Government, The United Kingdom’s exit from and new partnership with the European Union, Cm 9417 (2017) p 59: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/589191/The_United_Kingdoms_exit_from_and_partnership_with_the_EU_Web.pdf [accessed 29 November 2017]