Eurelectric has published an analysis paper, entitled BREXIT: Maintaining free and fair trade of electricity and gas in Europe. The paper sets out some electricity sector concerns about potential problems associated with Brexit and recommendations on managing scenarios.
The report asserts that it is unlikely that Brexit negotiations on energy trading will be finalized within the two-year period scheduled under Article 50, and therefore calls for early clarity on possible transitional arrangements relating to electricity trading “to prevent any cliff edges that could arise.”
The report is particularly mindful of the scenario being played out in the connections between continental Europe, the UK and Ireland.
“To ensure the integrity of the Internal Electricity Market, some common rules must be adhered to by connected third countries,” it said.
A breakdown in the energy relationship between the UK and the EU would be felt most by the UK and Ireland, “as Ireland not only connects to the IEM through the UK, it also operates a Single Electricity Market (SEM) between Ireland and Northern Ireland,” the association said.
Maintaining and boosting integration is crucial for Ireland, with the association supporting the UK’s continued participation “on an equitable basis” in the EU’s programs for Trans-European Networks for Energy, Projects of Common Interest and the Connecting Europe Facility.
“This is since instability could increase the costs of infrastructure projects and undermine their business case,” Eurelectric said.
Meanwhile the EFTA Court and the EFTA Surveillance Authority could be used to plug any jurisdictional gap left by Brexit, the association says.
The flow of energy between the UK and the EU will not stop on March 29, 2019, but the perceived risk of regulatory divergence, which Eurelectric says is already adding a risk premium, could lead to reduced efficiencies and competitive differences if common rules between the UK and the IEM are not maintained.
Meanwhile, with tomorrow marking the first anniversary of the Brexit vote, Anders Nordeng, senior analyst in the Carbon Team at Thomson Reuters, has outlined what impact the carbon market has seen since the vote.
“In terms of carbon prices, there was a marked drop immediately after the Brexit vote, down 12.1 per cent and continued to fall over five consecutive days closing at €4.47/t on 30 June, 21.3 per cent lower than before the Brexit vote,” he explained.
“Note that carbon was hit more than other commodities, something that probably reflects the extent to which the carbon market is strongly influenced by policy/regulatory changes.
Nordeng added that “prices have moved a lot since then, rallying last autumn, dropping in November, picking up in December, etc. Generally speaking, the intra-day variations have been less pronounced over the last few months, compared to last year. The reasons for the movements since July 2016 are not obvious, but we believe they are mainly linked to fluctuations in energy commodities relevant for carbon, namely coal and German power.”
Looking forward in the short term – between now and 2021 – he said: “We expect the market to be bearish. Reduced hedging by utilities and more sell-offs by industry will weaken demand/increase supply, aggravating the accumulated surplus. In the long term (post 2021) we expect things to be more bullish. The UK has been a net contributor to building up the surplus (has reduced emissions, hence demand for EUAs) more than most other ETS countries. Taking out UK issuance and UK demand will in the long run lead to a slightly more balanced market.”