Brexit: energy security Contents

Chapter 10: Energy relationship models

Norway-EU energy relationship

192.Energy UK told us that “currently the only option for full participation in the IEM is the EEA/EFTA model, the ‘Norway model’.”355 Norway is a non-EU country, but maintains the ability to trade energy in the IEM through membership of the European Free Trade Association (EFTA) and the European Economic Area (EEA). According to RWE, “Norway is part of the European power market, but not part of the EU gas market. It is integrated in the Scandinavian power market ‘Nordpool’ and it is applying EU electricity legislation. Its gas sector is treated as a non-EU gas source, so EU legislation does not apply.”356 Statkraft stated: “Our experience in Norway typifies that it is possible for a non-EU country to be fully integrated into the EU energy market, enjoying all the benefits that this provides.”357

193.According to Energy UK, although most aspects of the Norway-EU energy relationship would be satisfactory, “the main issue is around the influence the UK would have”.358 Centrica commented: “It has, at best, only ‘soft’ influence over the development of new market rules which it will be bound by.”359 Joseph Dutton, Policy Adviser at E3G, told us:

“The view within the energy industry is that being part of the EEA works as a political compromise domestically but is not good for Norway’s energy sector. Being on the outside and trying to negotiate in when you do not have a formal role means that, essentially, you have to start with what the EU wants. Your interests come second.”360

194.We note that, as the REA pointed out, “In terms of the UK itself, there seems little political appetite for [a Norway-style agreement] given the requirement to accept the free movement of people and the jurisdiction of the European Court of Justice.”361

Conclusion: Norway-EU energy relationship

195.We note that the ‘Norway model’ would bring benefits to the UK in terms of energy security, but that it is contingent upon membership of the EEA and EFTA, which the Government has ruled out.

Switzerland-EU energy relationship

196.An alternative to EEA membership, as the REA told us, is the ‘Swiss model’: “The UK could gain access to the IEM through multiple bilateral treaties with the EU as Switzerland has achieved”.362 Centrica pointed out that “Switzerland sits physically at the centre of the EU energy system and trades electricity extensively with its neighbouring countries”.363 According to the Aldersgate Group, “Switzerland shares 40 interconnectors with the EU”.364

197.Nonetheless, as BEIS noted: “The terms of a Swiss-EU electricity agreement remain subject to further negotiation, including those which would regulate cross-border electricity trading, secure market access and attain membership in key technical rule making bodies in the EU.”365 His Excellency Jean-Christophe Füeg, Head of International Energy Affairs at the Swiss Federal Office of Energy, provided the example of Article 1.4 of the Capacity Allocation and Congestion Management Regulation (CACM),366 “which specifically targets Switzerland. It states that Switzerland is excluded from this cross-border trade—this new mechanism, which is called market coupling—as long as we do not adopt EU legislation on electricity and as long as we have no bilateral agreement with the EU”.367 EEF and UK Steel pointed out that “the net result is higher costs for consumers both sides of the Swiss borders than if efficient cross-border market trading took place”.368

198.Ambassador Füeg further explained that although the Swiss tried to amend the drafting of the CACM, “all that was simply unsuccessful. The EU wants to have an internal electricity market as one coherent thing, and either you are in it and abide by the rules or you are not in it.”369 For an exception to be made, “you have to have a very strong case that you as a country bring something to the internal electricity market that is indispensable to the functioning of the energy market”.370

199.Citizens Advice told us that the EU and Switzerland have yet “to establish a common institutional framework”.371 Ambassador Füeg explained that such a framework would settle “the absolutely crucial issues of the dispute settlement, of the mechanism whereby future acquis will be taken over or applied to the market access agreement, and of oversight over those particular agreements”.372 He noted that, while “there may be some instances where from an electricity viewpoint, the exclusion of Switzerland simply does not make sense  …  The reality is that since electricity has been tied to the institutional agreement, there is no scope for movement.”373

200.Energy UK noted that political rather than commercial or energy-related factors had impeded EU-Swiss negotiations: “In particular, discussions were suspended for some time following the 2014 Swiss referendum relating to freedom of movement.”374 The European Federation of Energy Traders (EFET) told us it had “made the electricity sector of Switzerland vulnerable to external influences and to the politicisation of decisions, which would more rationally be based on technical and economic considerations”.375

201.Malcolm Keay, Senior Research Fellow at the Oxford Institute for Energy Studies, commented that the extended negotiations between Switzerland and the EU showed that “it will not be that easy to do your own special deal”.376 Furthermore, the REA told us: “Switzerland’s negotiations with the EU have proved very time consuming and costly, and there appears little desire to repeat this process at the EU level.”377

Conclusion: Switzerland-EU energy relationship

202.The Swiss experience shows that mutual benefits and a history within the system are no guarantee of EU energy market access. While the Government appears confident that a post-Brexit energy relationship with the EU will favour the UK, we are concerned that this confidence is based on a misplaced expectation of pragmatism and that broader political considerations may affect the degree to which the UK can engage with the IEM post-Brexit.

Applicability to the UK

203.As Dan Monzani, Head of Energy Security at BEIS, pointed out, “The size, geographical location and natural resources that different countries have affect their relationships cross-border.”378 The Minister, Richard Harrington MP, highlighted three features unique to the UK: “The first is bulk—our size relative to the Swiss and, therefore, our importance to the Single Market. The second is history—the fact that we helped to form it. Thirdly, there is the fact that we are already in it, unlike the Swiss, who are not.”379

204.EEF and UK Steel agreed, and further noted that the UK’s “role as a transit country for electricity and gas  …  should all give it greater weight in negotiations with the EU on the future relationship”.380

205.Ambassador Füeg struck a note of caution:

“I am not aware of the UK having anything that I would call a unique selling point; that is, something that you would bring to the Internal Energy Market, both electricity and gas, which in the countervailing scenario of you not bringing it to the market would put the Internal Energy Market in some sort of jeopardy.”381

A study requested by the European Parliament’s Committee on Industry, Research and Energy concluded: “With or without the UK, the EU will be able to complete its market, to achieve its climate and energy targets with feasible readjustments, and to maintain supply security.”382

Conclusion: applicability to the UK

206.In order to improve its negotiating position, we urge the Government to assess what irreplaceable services the UK can offer the EU energy system.

355 Written evidence from Energy UK (BES0024)

356 Written evidence from RWE (BES0029)

357 Written evidence from Statkraft UK Ltd (BES0026)

358 Written evidence from Energy UK (BES0024); see also written evidence from Institution of Chemical Engineers et al (BES0023).

359 Written evidence from Centrica (BES0031)

361 Written evidence from REA (BES0020)

362 Written evidence from REA (BES0020)

363 Written evidence from Centrica (BES0031)

364 Written evidence from Aldersgate Group (BES0011)

365 Written evidence from BEIS (BES0049)

366 Commission Regulation (EU) 2015/1222 of 24 July 2015 establishing a guideline on capacity allocation and congestion management (OJ L 197/24, 25 July 2015)

368 Written evidence from EEF and UK Steel (BES0027)

371 Written evidence from Citizens Advice (BES0039)

374 Written evidence from Energy UK (BES0024); see also written evidence from EEF and UK Steel (BES0027), Centrica (BES0031) and Q 5 (Georgina Wright).

375 Written evidence from EFET (BES0035)

377 Written evidence from REA (BES0020)

380 Written evidence from EEF and UK Steel (BES0027)

382 Gustav Fredriksson et al, Impact of Brexit on the EU Energy System, European Parliament, Study for the ITRE Committee (November 2017) p 12: [accessed 4 December 2017]

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