Post-Brexit implications for utilities

If anything is growing post-Brexit, it has to be an industry in predicting the implications. However, this is largely meaningless speculation until the terms of any new UK relationship with the EU has been negotiated.

For example, will the UK be able to cherry pick which EU schemes it remains in. The current government might seek to remain a member of the EU Emissions Trading Scheme (ETS) because it views it as a “cost-effective” way of cutting emissions. However, it was less keen on the EU Renewable Energy Directive, which requires the UK to source 15% of its energy from renewables by 2020. Osborne was much happier doling out tax breaks for fossil fuels – creating investor uncertainty across the renewable sector.

Security of energy supply in the UK is increasingly reliant on interconnectors with Europe. Therefore it seems likely that the UK will try to remain part of the EU’s Energy Union, that also seeks to open up energy markets to private competition. Disrupting the current energy arrangements is not in the interest of the EU either. Given the level of investment by European firms in the UK, it could harm investor confidence not just in the UK, but in Europe as a whole.

Whatever the Brexiteers may have claimed, our climate policy is not all determined by Brussels. The UK and Scotland have their own Climate Change Acts, that are more ambitious than the EU targets and were passed with cross-party support. It remains to be seen if ministers like Osborne will use Brexit to argue that cutting carbon faster than the EU is bad for business. His early announcements on Corporation Tax would indicate that his strategy may well be to create a dirty, off shore Britain, that offers a race to the bottom on climate, tax dodging, workers rights and much else. The irony would be that first-mover advantage in green goods and services could and should be a precious lifeline for the UK in these troubled economic times.

There has been early speculation that Brexit could be the final nail in the coffin for a new nuclear power station at Hinkley Point. French unions are already unenthusiastic about the investment and the Chinese may regard the UK as a less attractive investment destination, without full access to the single market. UK unions regard EDF’s decision on whether or not to proceed with Hinkley Point C as a ‘litmus test’ for investment in big infrastructure projects post-Brexit.

We shouldn’t forget that Westminster had already created much uncertainly before Brexit by scrapping renewable energy subsidies. Experts have warned the cuts could see a loss of up to £3 billion in investment and put more than 5,000 jobs at risk. As Niall Stewart of Scottish Renewables put it; “The many questions thrown up by Brexit just add to the huge uncertainty that was already surrounding Scotland’s renewable energy sector following numerous changes to support by the Westminster government over the last 12 months.”

For the water sector, much of the current capital investment programme is driven by the need to meet EU regulatory standards. However, while that may have been the driver, this investment was long overdue in the UK and Brexit is only likely to change decisions at the margins and over many years. Other concerns will include the loss of EU research and the impact, particularly on the supply chain, of the U.K. losing the AAA credit rating.

Many other aspects of the wider negotiations will impact on the energy sector. The free movement of labour is important, particularly for specialist skills. Will the UK still be bound by State Aid provisions? If not this could lead to new decisions over support for different types of energy. The same applies to procurement law. Without EU rules, would the UK introduce local sourcing requirements?

While second guessing the Brexit implications is difficult, there is a great deal of uncertainty around – never a good thing for investor confidence. A full trade deal will probably come with most of the current EU provisions. If that doesn’t happen, the case will need to be made for a cleaner, greener UK. Without that, Scotland may have to consider its own future outwith the UK.

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  • Posted in: EU

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