Brexit: energy security Contents

Summary of conclusions and recommendations

EU energy policy

1.UK and EU energy policies have become closely aligned over time, with the UK often leading the way in terms of market liberalisation. This alignment facilitates the efficient trade of energy, with benefits for energy security, affordability and decarbonisation. (Paragraph 19)

2.Brexit presents opportunities to develop energy policies that support market conditions that are particular to the UK, after the initial transfer of legislation through the EU (Withdrawal) Bill. (Paragraph 20)

Energy system fundamentals

3.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. (Paragraph 29)

4.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. (Paragraph 32)

5.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. (Paragraph 35)

Labour in the energy sector

6.The energy industry is reliant on workers from the EU, in particular to fill its engineering roles. These workers are necessary for the construction and maintenance of a secure energy system. While we encourage the Government to pursue opportunities to train more workers domestically, this will take time, and continued access to EU workers will be needed in the meantime. (Paragraph 47)

7.Dependence on EU workers is particularly acute in the nuclear energy sector. The evidence from EDF Energy is clear that without access to EU labour it will be difficult to complete construction of the new nuclear power facility at Hinkley Point. (Paragraph 48)

8.We call on the Government to assess the workforce needs of the energy industry and ensure they are reflected in the post-Brexit immigration policy. Neither a simple extension of the current points-based system to EU workers, nor an exclusive focus on ‘high skilled’ workers, would address the industry’s concerns. (Paragraph 49)

Energy trade

9.There is strong support across the energy industry for the UK to continue to participate in the Internal Energy Market (IEM) post-Brexit. We urge the Government to seek this outcome. (Paragraph 67)

10.However, the Government’s negotiating position—in particular its intention to leave the Single Market and its rejection of any enduring role for the Court of Justice of the European Union (CJEU)—places significant political and institutional constraints on the UK’s ability to remain in the IEM. (Paragraph 68)

11.It appears that the Government’s intention is to replicate current energy arrangements post-Brexit, but given the challenges outlined above we call on the Government to clarify its post-Brexit energy policy in the event that the UK no longer participates in the IEM. (Paragraph 69)

12.In the course of negotiations, the Government must clarify the extent to which the UK will be required to continue to comply with EU energy, environment and competition legislation in order to continue trading energy with Member States. (Paragraph 70)

13.The existing UK-EU interconnectors benefit all parties, by improving energy security, reducing cost, and facilitating decarbonisation. (Paragraph 79)

14.Regulatory convergence on either side of the interconnectors helps to ensure they operate efficiently. The Government should seek to maintain this convergence and the UK’s enduring access to common trading platforms such as PRISMA. (Paragraph 80)

15.We urge the Government to clarify as soon as possible what regulatory regime will apply to UK-EU interconnectors post-Brexit, in order to support the further development of the infrastructure, thus helping to maintain energy security and enabling the UK to meet its decarbonisation and international climate targets. (Paragraph 81)

16.It is unlikely that tariffs will be applied to UK-EU trade in gas and electricity post-Brexit, even in the event of a ‘no deal’ scenario. However, the energy industry could be affected by tariffs on products used in the construction and maintenance of the energy system. (Paragraph 85)

Influence and cooperation

17.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. (Paragraph 100)

18.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. (Paragraph 101)

19.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. (Paragraph 102)

20.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. (Paragraph 103)

21.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. (Paragraph 113)

22.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. (Paragraph 114)

Investment

23.EU investment, particularly from the European Investment Bank and the Connecting Europe Facility, has been helpful in constructing and maintaining a secure energy system in the UK, in part through facilitating interconnection with other EU Member States. The UK’s ability to draw on those investment sources after it has left the EU is open to question. The Government should seek a settlement with the EU which allows it to continue to participate in transnational energy projects; it should also consider the non-financial benefits of the Projects of Common Interest scheme and how these could be replicated domestically if necessary. (Paragraph 128)

24.In the absence of an overarching and enduring EU framework, the energy industry meeds to have as much certainty as possible regarding the future of UK energy policy, in order to support long-term investments in the energy system. Such investment supports energy security while keeping the cost to consumers as low as possible. The publication of the Clean Growth Strategy was a welcome step; the Government should also provide clarity regarding the future of the Carbon Price Floor, the Capacity Market and Contracts for Difference. (Paragraph 134)

The island of Ireland

25.The Integrated Single Electricity Market (I-SEM) will benefit both Northern Ireland and the Republic of Ireland in terms of energy security, decarbonisation and energy prices. We are encouraged that both the Government and the European Commission recognise its value and are seeking to preserve it. (Paragraph 148)

26.The complexity of maintaining the I-SEM will increase significantly if the UK leaves the EU’s Internal Energy Market. The UK’s negotiators must therefore plan for this eventuality, for example by addressing how Northern Irish organisations would be able to interact with the IEM as a non-member, and by establishing a forum for dispute resolution. (Paragraph 149)

27.If the outcome of the negotiations means that EU energy legislation will continue to apply in Northern Ireland, the Government will need to consider whether to devolve additional powers to the Northern Ireland Assembly. (Paragraph 150)

28.The construction of the North-South interconnector on the island of Ireland is vital for reducing consumer costs in both countries, and for maintaining energy security in Northern Ireland. The Government must satisfy itself that its construction is not at risk as a result of Brexit. If that cannot be established, the Government must underwrite its cost to provide investor certainty. (Paragraph 153)

Euratom

29.The Euratom Treaty is currently vital to the functioning of nuclear energy generation in the UK. Failure to replace its provisions by the point of withdrawal could result in the UK being unable to import nuclear materials, and have severe consequences for the UK’s energy security. (Paragraph 159)

30.In order to maintain energy security it will be crucial to establish a domestic safeguarding regime that satisfies International Atomic Energy Agency (IAEA) requirements by the time the UK leaves Euratom. We are encouraged that both the Government and the Office for Nuclear Regulation (ONR) recognise the urgency of this and have taken steps to do so. (Paragraph 166)

31.Euratom’s safeguarding standards are higher than those required by the UK’s international obligations. It will be difficult for the Government to deliver on its commitment to maintain Euratom’s standards at the point of withdrawal. The first priority should therefore be to ensure compliance with the UK’s IAEA obligations. (Paragraph 167)

32.It will be challenging for the ONR to recruit and train sufficient safeguarding inspectors by the time the UK withdraws from the Euratom Treaty. We urge the Government to provide any support possible and to consider what contingency measures may be required. (Paragraph 168)

33.The UK will need to establish new Nuclear Cooperation Agreements (NCAs) in order to maintain its existing nuclear supply chains. The UK currently trades nuclear materials with many other countries: Government should prioritise developing new NCAs with those with which nuclear trade would otherwise be illegal, such as the US, Canada, Japan and Australia. (Paragraph 172)

34.It is vital that the Government makes progress on developing new NCAs quickly. Given that these negotiations can only begin after the UK has satisfied the IAEA with regard to its safeguarding regime, it is essential for the Government to reach an agreement with the IAEA as soon as possible. (Paragraph 173)

35.The Government must ensure that its nuclear trade agreements allow the movement of nuclear material and equipment in a timely fashion and at reasonable cost. (Paragraph 176)

36.The UK has benefited substantially from EU nuclear research programmes, contributing to its status as a world leader in nuclear research and development. It would be to the benefit of both the UK and the EU to maintain those research connections post-Brexit. (Paragraph 182)

37.We welcome the Government’s commitment to continuing to fund nuclear research in the UK, whether or not EU funding is maintained. We recommend that the Government looks to maintain the post-Brexit viability of the Joint European Torus (JET), and ensures that the UK is able to participate in the International Thermonuclear Experimental Reactor (ITER) despite its withdrawal from Euratom. (Paragraph 183)

38.A form of associate membership of Euratom could be a means of maintaining nuclear research and development collaboration with the EU but, in the form currently held by Switzerland, it would not address the issues raised by the UK’s departure that are critical to energy security. (Paragraph 189)

39.The risk posed to the UK’s energy security if the safeguarding measures currently provided by Euratom are not replaced in time means that there is a distinct need to avoid a cliff-edge in relation to Euratom. It is therefore crucial for the Government to ensure that contingency arrangements are in place and ready to be activated if required. The Government should engage with industry regarding such arrangements as early as possible, in order to reduce commercial uncertainty. (Paragraph 190)

40.We also note that the United Kingdom’s membership of Euratom is legally distinct from its EU membership, and that in the Prime Minister’s Article 50 notification letter of 29 March 2017 a separate notification was made in respect of the United Kingdom’s withdrawal from Euratom. This suggests that separate transitional arrangements may also be possible, if they are needed in order to mitigate the risk of a cliff-edge. We therefore call on the Government to review and report to Parliament on the possibility of a Euratom-specific transition period separate from the wider Brexit process. (Paragraph 191)

Energy relationship models

41.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. (Paragraph 195)

42.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. (Paragraph 202)

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





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