Among the myriad issues arising from the UK vote to leave the European Union are key questions relating to the country’s role in the Euratom nuclear organization and the Internal Energy Market, writes Kelvin Ross
The final day of last year’s POWER-GEN Europe in Milan was also the day that the people of the UK voted on whether to leave the European Union.
Throughout the three days of the Milan show, almost every conversation I had eventually turned to whether Britain should cut itself loose from the EU, and there were always two common conclusions – one, that no-one thought it should happen, and two, that no-one thought it would happen.
But happen it did. I thought leaving the EU was a reckless idea and I still do, but we are where we are. “Brexit means Brexit” was Theresa May’s soundbite last June after she became Prime Minister, when the real question was – and still is – ‘what does Brexit mean?’
With the triggering of Article 50 of the Lisbon Treaty on 29 March, the journey towards Brexit is now definitively under way. Barring unlikely scenarios, the UK will most probably be outside the EU’s legal jurisdiction by March 2019.
In the UK itself, there is as much uncertainty surrounding Brexit and the energy sector as there is for any other industry.
However, one area which has already been subjected to some scrutiny is nuclear power. The UK government argues that Britain must leave the European Atomic Energy Community (Euratom) as a result of the triggering of Article 50, but legal opinion on this is said to be divided.
Two high-level, cross-party parliamentary reports have examined the current state of nuclear power in the UK and the effect that Brexit may have on it.
The House of Commons’ Business, Energy and Industrial Strategy Committee warns that the government has left the UK nuclear industry at risk and must act urgently to ensure its continued operation post-Brexit.
In a report published this month (May), the committee recommends maintaining access to the Internal Energy Market and retaining membership of the Emissions Trading System until 2020 at least.
Longer term, MPs are concerned that the UK will become a ‘rule taker’, complying with – but unable to influence – European rules and standards. The report cautions that Brexit must not distract the government from delivering essential climate change policies.
The committee warns that any interval between the UK leaving Euratom and entering into secure alternative arrangements would “severely inhibit nuclear trade and research and threaten power supplies”.
Indeed, the committee says withdrawal from Euratom is an unfortunate, and perhaps unforeseen, consequence of the Prime Minister’s objective of ending the jurisdiction of the European Court of Justice in the UK. “Ministers must end the uncertainty and resolve the matter by securing alternative arrangements as urgently as possible,” the report adds.
The committee highlights “strong concerns” in the sector that new arrangements will take longer than two years to set up and recommends delaying any departure from Euratom to give the industry more time to establish alternative arrangements. “If this is not possible, the government should seek transitional arrangements, which may need to be longer than the three years proposed by the European parliament”.
|Collaboration will be required on electricity markets
Committee chairman Iain Wright MP says the impact of Brexit on Euratom “has not been thought through. The government has failed to consider the potentially disastrous ramifications of its Brexit objectives for the nuclear industry. Ministers must act as urgently as possible. The repercussions of failing to do so are huge. The continued operations of the UK nuclear industry are at risk.”
He adds that “the Prime Minister has made it politically unfeasible to remain in Euratom long-term. The government now has a responsibility to end the uncertainty hanging over the industry and ensure robust and stable arrangements to protect trade, boost research and development, and ensure safeguarding of the highest level.”
The committee offers several recommendations. On climate change policy, it says the UK “must also remain committed to domestic climate change policies and not let Brexit undermine emissions reduction targets, enshrined in domestic law”. It is calling for clarity on the government’s long-term objectives.
On rules and standards, the committee is concerned that if UK standards diverge too far from those in the EU, “the UK could become a dumping ground for energy-inefficient products”. The committee is urging the government to “mirror or retain European standards for the immediate future at least”.
With regard to the Internal Energy Market, the committee recommends that the UK “should seek to maintain ongoing access” to the IEM, “with no accompanying tariffs or barriers to trade. This should include continued participation in trading arrangements established by the European Network Codes to ensure efficient use of interconnectors.”
And on the often-maligned EU Emissions Trading System, the committee is adamant that the UK stays a member until at least 2020. The report recognizes that “in practice the EU ETS is performing poorly” but says that the UK should seek to negotiate longer-term membership on the condition of commitments to future reform.
Iain Wright adds: “In the short term, the government should seek to avoid disruption to the energy sector and domestic climate change agenda. Government needs to provide as much clarity and stability as possible to support investment and avoid damaging UK competitiveness and adversely affecting consumers. In the long term, the UK must maintain standards and seek to retain our influence.”
|Nuclear standards must be maintained
On the same day as the Business, Energy and Industrial Strategy Committee published its report, the House of Lords Science and Technology Committee unveiled a study of its own, called ‘Nuclear research and technology: Breaking the cycle of indecision’.
The report pulls no punches: it states that Britain has “reached a critical moment for the future of the UK as a serious nuclear nation”.
The committee says that “the undoubted potential of the civil nuclear sector has been blighted by the indecision of successive governments. Now, within the context of the industrial strategy and amid the challenges of Brexit, it is critical for the incoming government to set out a decisive future for this industry.”
The report says the government must “decide as a matter of urgency whether it wishes the UK to be a serious player in developing nuclear generation technology, whether as a designer, manufacturer and operator, or to restrict its interest to being an operator of equipment supplied by others from overseas”.
“These delays in taking civil nuclear policy decisions have seriously damaged the UK industry’s potential ability to contribute effectively to the national policies which might ultimately be favoured.”
The report says that once the government has made this decision, “other strategic decisions will flow from this to define a clear set of objectives and timescales with which the UK nuclear industry can align itself through a revitalized nuclear industry council”.
|The benefits of Euratom must be preserved
The committee says that a prime example of government nuclear inaction is its “failure to make a decision on its strategy for small modular reactors (SMRs)”.
“Not keeping to the stated timetable for the SMR competition has had a negative effect on the nuclear sector in the UK and if the government does not act soon the necessary high level of industrial interest will not be maintained.”
The report further sets out the risks to the UK nuclear sector if membership in Euratom expires at the end of the two-year negotiating period without a replacement. “The UK risks losing its lead in fusion research as well as losing access to the markets and skills it needs to construct new nuclear power plants, and existing power plants could be unable to acquire fuel.”
The committee is pressing the government “to convene a working group of industry and government representatives to develop a plan to preserve the essential benefits of Euratom”.
Committee chairman the Earl of Selborne says that the UK “has long-standing and continuing commitments to civil nuclear energy and is now strategically positioned to capture opportunities, especially for small modular reactors. The incoming government must end its cycle of indecision on nuclear policy and we urge it to take a clear, firm view on SMRs and wider civil nuclear strategy.
“We also found that the amount of UK funding for nuclear research, development and innovation is much lower than public funding levels in other leading nuclear nations, including the US, France and Japan. If the government’s aim is for the UK to be active across the main areas of nuclear R&D it needs to make significant investments in new technologies or we risk falling behind the rest of the world.”
Internal Energy Market
The UK’s participation in the Internal Energy Market is a key concern of electricity trade group Eurelectric. It says the UK “has played an important role in developing liberalized energy markets, establishing the world’s first major carbon market and supporting the importance of energy security in Europe’s geopolitical relationship with its neighbours”.
Eurelectric adds that “given the mutual benefits and importance of energy to both parties in powering our economies and societies”, it believes that “this collaboration on energy should continue as closely as possible”.
It says negotiations on the IEM can be treated separately from those on the EU Single Market: “The unique networked characteristics of the electricity sector and importance of energy to both economies require mutual collaboration irrespective of wider negotiations between the UK and the EU.”
It adds that the free and fair trading of electricity is based on common rules so any IEM agreement “should ensure harmonized rules so that electricity can flow freely between UK and the EU”.
It is also calling for special focus to be given to the Single Electricity Market (SEM) between Ireland and Northern Ireland: “Not only does Ireland connect with the rest of the IEM through Great Britain, it operates a bi-jurisdictional market with Northern Ireland. A functioning SEM across Ireland and Northern Ireland should be maintained and to support this, flows of electricity and gas to Ireland should receive careful consideration.”
Eurelectric warns that interconnection targets may need to be considered if the UK does not count towards IEM energy targets, and is also urging the UK and EU to continue to work together internationally on climate issues, including UK participation in emissions trading with the EU. “A fundamental component for the fair trading of electricity is the carbon price paid by electricity generation in one country relative to another. To avoid disruptions, the UK should continue to participate in the current trading phase. Otherwise a linked ETS would be highly desirable in the longer term,” it says.
On the EU’s 2030 energy and climate framework, Eurelectric says that the UK’s departure could well require an adjustment of the non-ETS renewables and energy efficiency targets applicable to other Member States, or impact other political commitments in the 2030 framework such as the modernization fund. It also notes that the role of financial regulation will be an important element of the UK-EU negotiations.
“Rules on commodity trading affect not only some electricity contracts but also primary fuels and carbon,” the trade group notes. “The impacts of financial regulation on energy trading therefore need be considered when discussing the impact of Brexit on the energy sector.”