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The implications of Brexit on the British energy system: a disadvantageous consequence

di - 2 Settembre 2019
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Brexit is an event that brings several controversies with it and it is not even known if it will ever be delivered. Britan is going to face several problems in all areas and from the point of view of energy, it is possible to say that it brings a series of disadvantageous consequences. As a matter of fact, the Brexit was desired by a large part of the Britons that did probably not know what would have been the results in the field of energy, which is a very important aspect of daily life. If there are some aspects and features of the European Union (EU) that are questionable, these are not part of the energy system that the EU has created over the years.
The European Union has been creating over the years a reliable and effective system. The European energy market is an heterogeneous one, meaning that most of the Member States’ domestic market characteristics and prices vary notably among each other. The EU is a net importer of energy products, with crude oil largely dominating the import scene. This idea of a common energy market, which later became the Internal Energy Market, was put forward by the EU Commission and has been constructed through several directives over the years, in four main legislative packages, and through the creation of new EU institutions (ACER, ENTSO-E, ENTSO-G)[1]. The first attempts towards the liberalization of electricity and gas markets refer to the 1980s, and an effective gradual liberalization of the energy market started in 1997, commonly referred to as the “first legislative package”; a second and third legislative package were created in 2003 and 2007. [2] Within this EU picture, the UK has had a leading role in the development of the single market in energy, heavily influencing the EU-wide rules, which draw on UK practice. In the UK the central role in this field is yielded by Ofgem. According to Ofgem it is important to develop with and through the EU for several reasons: the UK is physically connected to Europe through pipes and wires, thus the European energy prices have a major influence here; the UK is subject to EU legislation and policy-making impacting on consumers and markets in Britain; the creation of transparent, integrated and liberalized European gas and electricity markets would contribute to higher levels of competition and increase the security of supply and contribute the safe and stable provision of gas and electricity to British consumers; finally, developments in environmental policy relating to energy are increasingly driven at a European level. Ofgem supports the vision of a competitive, secure and sustainable European energy market that brings affordable and secure energy supplies to consumers through working within the European Regulators’ organizations such as CEER [3] and ACER[4].
The UK has been reliable on the North Sea, which offered important resources and made it possible for the UK to be a net exporter for several years. In the 1970s the UK was a net importer of energy, but it was able to turn into a net exporter in 1981 following developments of oil and gas production in the North Sea. The production costs were relatively high, but the quality of the oil and the political stability of the region made it an important source for Western European markets. The peak has been followed by a slow return to becoming a net importer since 2004 and UK is now a net importer of all main fuel types with a 36% [5] of energy used in UK being imported.[6] UK’s key energy partner is the EU by supplying approximately 12%[7] of UK’s gas and 5%[8] of its electricity. Around half of the UK’s gas supplies (44%)[9] comes from the North Sea and the East Irish Sea gas fields. The EU has also importantly contributed to the creation of the ISEM (Integrated Single Electricity Market), in the island of Ireland, the wholesale electricity market, which allows the continous flow of electricity along the whole island.[10]
For all these reasons is it possible to say that Britain does actually not want to take the distances from the EU energy system, but as a consequence of Brexit it could be forced to do so. The main areas where Brexit shows the disadvantages it will bring in the British energy sector can be summurized in four points. It is possible to say that the whole IEM system and the relations between UK and EU insititutions have been well-functioning and reliable up to now and much of what will come next depends wether the Brexit will be with a deal or not. The deal was well received by the UK energy community, as it safeguards most of the current system, while the no-deal Brexit could lead to extreme situations, like energy shortages.
The first point addressed is about energy security and trade. Energy security has been solid up to now thanks to the IEM. The valuable features that should be highlighted are the market coupling and the REMIT Regulation. Market coupling is where participants use a shared algorithm to arrange international electricity trade, a tool which improves cooperation and guarantees a good functioning of the market. The REMIT Regulation, a tool that gives Ofgem access to data about market participants’ trading behavior and enables to monitor the market more effectively.

Note

1. European Agency for the Cooperation of Energy Regulators (ACER), European Network of Transmission System Operators for Electricity (ENTSO-E), European Network of Transmission System Operators for Gas (ENTSO-G)

2. Shubert, Pollack and Kreuter, “Energy policy of the European Union”, 2016

3.  Council of European Energy Regulators (CEER)

4.  “Ofgem and Europe”, Ofgem, accessed on 28/07/2019 https://www.ofgem.gov.uk/about-us/ofgem-and-europe

5.  Department for Business, Energy & Industrial strategy ,“UK energy in brief 2018”, July 2018

6.  Department for Business, Energy & Industrial strategy ,“UK energy in brief 2018”, July 2018

7.  HOUSE OF LORDS, “Brexit: energy security”, 2018

8. HOUSE OF LORDS, “Brexit: energy security”, 2018

9.  “Where does UK gas come from?”, The Source, Our World of Energy, accessed on 03/06/2019
https://www.britishgas.co.uk/the-source/our-world-of-energy/energys-grand-journey/where-does-uk-gas-come-from

10.  Department for Business, Energy & Industrial strategy ,“UK energy in brief 2018”, July 2018

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