The UK's Decision to leave the EU: Implications for Energy and Climate - 24th November 2016
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The UK’s Decision to leave the EU:
Implications for Energy and Climate
24th November 2016
1
Outline
1. Introduction
• Brexit developments
• Key elements of UK and EU energy policy
• Energy mix in member states: diversity
• EU energy policy: ongoing developments
• Special characteristics of electricity and gas in international trading
2. Issues that will determine nature of relationship
• Non-energy specific issues are important
• Interconnectors
• Market coupling
• Ireland
• ETS and climate change
• Euratom
3. Lessons from other EU energy relationships
• Overview of options
• Conforming to the energy acquis
• Enforcement mechanisms
• Foregone benefits of electricity integration
• Policy taker, not setter
• EU funding limited in non-EU member states
4. Recommendations
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 2
Introduction
• Brexit developments
• Key elements of UK and EU energy policy
• Energy mix in member states: diversity
• EU energy policy: ongoing developments
• Special characteristics of electricity and gas in
international trading
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 3
Brexit developments
• In the UK:
• March 2017: UK government expected to trigger article 50
• High Court judgement (EWHC 2768): UK Parliament approval
needed
• Ongoing discussion: Soft vs. Hard Brexit
• In the EU:
• Council: UK from ‘key political actor’ to ‘technical consultant’
• Commission: Key UK civil servants retiring
• Parliament: Committees looking into implications of Brexit;
Loss of UK Presidency in 2017
• Deal expected before June 2019 and a new Parliament and
Commission
• Exchange rate: January 2017 review of UK contributions to EU
budget (increase very likely)
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 4
Brexit developments: Planned general elections in the EU
• 2016 = LT, RO
• 2017 = CZ, FR, DE, NL, LU
• 2018 = AT, BG, CY, IT, HU,
MT, SE
• 2019 = BE, EE, EL, FI, PO
Other important elections:
• 2016: Italian Referendum
(could lead to early general
election)
• 2019 European Parliament
Elections
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 5
UK inland energy consumption, 2014 (% share) Source: DECC (2015); DUKES 2015 Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 6
Key elements of UK energy
• The UK’s energy policy is dominated by fossil fuels (85% of total energy
consumption).
• Outside of EU commitments, UK has ambitious targets to address
climate change:
• 2008 Climate Change Act
• 2011 Finance Act and 2013 Energy Act
• Energy imports, currently at 38 % of total UK consumption in 2015, will
continue to rise. More electricity interconnectors will be required.
• Electricity: in 2015, around 6% of the UK’s electricity supply was
imported via interconnectors linking to France, Belgium and Ireland.
• UK’s pre-tax electricity prices among the most expensive in the EU.
• New infrastructure: 2016 UK Government decision to build Hinkley
Point C.
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 7Key elements of EU energy policy
• EU energy policy is closely linked to single market
• Forthcoming legislation
• GHG Communication and Effort-Sharing Regulation (July 2016)
• Winter package (November 2016)
• Energy efficiency – 2030 target
• Renewables – 2030 target
• New market design/ACER reform
• EU energy governance framework
• Energy Union: improve cross-boarder coordination and integration
in energy security, energy supply, market operations, regulations,
energy efficiency, low-carbon development, research and
innovation.
• Move toward greater regionalisation of the European energy
market.
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 88Energy mix in member states: diversity
Germany Italy
-1% 1% 2% 1%
9%
11%
25% 17% Poland
8% France
-2% 0% 0% 1%
0% 4%
0%
37% 9%
8%
20%
34% 14%
34% 30%
52%
43% 24%
13%
Source: European Commission (DG Energy), Statistical Pocket Book 2016.
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 9EU energy policy: ongoing developments
April 2017: April 2019: June 2019: European
UK triggers Article UK leaves Parliament elections;
50 the EU New Commission
Market Liberalisation
Climate and Energy Package
3rd Package:
Network codes Re-allocation of Pre 2020 EU Finances
implementation Conformity to
2020 renewable Energy Union
4th Package (Nov and GHG targets Horizon 2020
2016) Structural Funds Energy
2030 targets
ACER Reform (proposals in 2016) Governance
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 10Special characteristics of electricity and gas in international trading
Electricity Gas
Difficult and/or expensive to store √√ √
Infrastructure-dependent: technical standards √√ √
needed
Trade between neighbours – no trade outside √
Europe
Essential public service/strategic economic sector √ √
Significant differences in production types √ √
• Single energy market across the whole of Ireland could be
considered an exception
• A new UK-EU specific energy arrangement is possible and indeed
necessary
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 11Issues that will determine nature of relationship
• Non-energy specific issues are important
• Interconnectors
• Market coupling
• Ireland
• ETS and climate change
• Euratom
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 12Non-energy specific issues are important
• Many factors affecting EU-UK relations will have significant impact on
energy sector, including:
• Currency exchange rates
• May increase foreign investment (as UK assets and companies become cheaper), but imported
equipment is relatively more expensive
• Finance
• The most recent North Sea licensing round are not encouraging – only 29 applications were made this
year, compared to over 170 in the previous 2014 round (Norton Rose Fulbright)
• Standards
• EU equipment standards are likely to still apply for UK manufacturing and imports.
• Energy and Emissions trading
• As with the financial sector new arrangements maybe required to enable cross-European trading
activities
• Supply chains
• Special tariff and customs arrangement (free movement of parts) for UK manufacturing.
• EFF: ‘must ensure unrestricted access to – not necessarily membership of – the EU’s single market’
• Staff and employment
• ‘a new migration policy, which enables manufactures to access much needed skills’ (EFF)
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 13UK’s growing interconnection in electricity and gas
Electricity Interconnection Gas Interconnection
Source: Reuters Source: UK Government
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 14Growing need for electricity interconnection
Name Links to MW Completion EU Funding Status
Nemo Belgium 1,000 2019 Under construction
Eleclink France 1,000 2019 CEF 2014 – 1.7 million Under construction
CEF 2015 – 0.5 million
IFA2 France 1,000 2020 CEF 2015 – 6.0 million Awaiting final
investment decision
NSN Link Norway 1,400 2021 CEF – 2014 – 31.3 million Contracts signed
Greenlink Republic of 500 2021 CEF – 2015 – 0.8 million Under consideration
Ireland
FAB Link France 1,400 2022 CEF – 2014 – 7.2 million Pre-planning
Viking Link Denmark 1,000 2022 CEF – 2016 – 14.8 million Pre-planning/Planning
North Norway 1,400 2022 Pre-planning
Connect
Ice Link Iceland 800 – 2024 Pre-planning
1,200
Total 9,500
–
9,900
• EU political target: 10% interconnection by 2020 and aspirational target of 15% by 2030
• Driven by RES development concentrated at a distance from load centres, and allowing
for the required market integration, interconnection capacities should double by 2030 in
Europe (ENTSOE TYDP)
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 15Market coupling
• Implicit auctioning of interconnector capacity (change from
explicit auctioning before MC)
• GB power exchanges linked with EU regional exchanges via
EUPHEMIA for day-ahead (DA) trading and settlement
since 2014
• Contracts between exchanges
• DA coupling now covers 31 out of 40 borders (Oct 2016)
• EU-wide continuous intra-day (ID) trading go-live
scheduled for Sep 2017; ACER and ENTSO-E led process
• Requires adoption of legislative framework for cross-border
electricity trade (Directive 2009/72/EC, Regulations
714/2009, 838/2010), transparency of data (Reg. 543/2013)
and European Network Codes
• Benefits from greater trade and therefore price convergence,
but also from more efficient allocation of interconnection
capacity. Source: ACER
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 16European Network Codes
• 3rd Package: new legislation (Winter Package) will mean new ENCs in future
• NGSO has been esp. active in drafting electricity codes as GB is different from most other MS, i.e. a smaller synchronous
island with higher than average renewables penetration and HVDC interconnectors
Electricity Gas
• Capacity Allocation and Congestion • Capacity Allocation Mechanisms
Management (Regulation 2015/1222) (Regulation 2013/984) MARKET
• Forward Capacity Allocation (Regulation • Transmission tariffs (TAR) CODES
2016/1719)
• Electricity Balancing • Gas balancing BALANCING
CODES
• Requirements for Generators (Regulation CONNECTION
2016/631)
• HVDC Connections (Regulation 2016/1447) CODES
• Demand Connection Code (Regulation
2016/1388)
• Operational Security SYSTEM
• Operational Planning and Scheduling • Congestion Management
• Load Frequency Control and Reserves Procedures
OPERATION
• System Operation Guidelines • Interoperability CODES
• Emergency and Restoration
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 17ENC electricity timetable
Implementation will be largely complete by 2019, but n.b. Electricity Balancing Code may take up to 6
years
Source: National Grid
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 18Island of Ireland • A Single Electricity Market (SEM) operates across the whole of Ireland. It is jointly regulated and operated by the two jurisdictions. • Move toward greater interconnection: the new Integrated Single Electricity Marker (ISEM) with EU & network code compliance • Opinion is divided: does Brexit mean ISEM upgrade can still go ahead? Already worries and delays before referendum. • Huge investment in NI-RoI electricity interconnection to facilitate single market • ‘Hard’ Brexit: loss of security and stability that shared (EU) rules and regulations of the single market provide • Physical gas disruption unlikely but status of UK (GB) gas exports and EU proposals on gas solidarity and emergency supply is unclear • PCIs: Moffat gas pipeline reverse flow project, Cluden-Brighouse pipeline expansion (both GB-IoI) and Islandmagee storage(NI) • Gas fired power generation is growing – GB imports will increase Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 19
Northern Ireland • Northern Ireland: dependent on electricity imports from Ireland • SEM (and future ISEM) crucial to NI electricity supply/decarbonisation • Assessment by NIAUR: which energy legislative frameworks are hardwired into UK law but could be affected through leaving the EU yet staying in ISEM • North-South (NI-RoI) electricity tie-lines are now in doubt because of regulatory and investment uncertainty • NIAUR does not have EU representation (currently represented through Ofgem): this could change after Brexit to ensure role in ISEM at EU level • How will future EU energy regs/requirements needed for ISEM be devolved into NI law, outside of GB? • By 2050 NI expects to be exporting electricity to GB/RoI – requires new interconnection, but unclear how this would be financed and regulated • PCI: Islandmagee underground gas storage facility could be affected Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 20
Republic of Ireland
• In 2014, Ireland imported in excess of €6 billion of energy products from the
UK; Ireland exported 5% of energy products to the UK.
• Nearly all of gas used in Ireland comes from UK, though the share will
diminish in short term with the production from Corrib field and Bellanaboy
Bridge Gas Terminal (started in 2015)
• Ireland relies on a regional approach with UK to meet its EU commitments
on security of supply (EU Regulation 994/2010)
• Interconnection is needed for supply, plus balancing for renewables sector:
• Greenlink interconnector may not go-ahead
• Ireland looking to development of Celtic Interconnector to France
• A significant part of the Irish emergency oil supply is stored in the UK
• UK-Ireland gas supply agreements are intergovernmental treaties so likely
to be unaffected
• Ireland likely to be torn between facilitating the best deal for the UK and
aligning itself with remaining member states
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 21ETS and climate change
• ETS has 31 members: EU member states, plus Norway, Iceland, Liechtenstein which joined at 2nd
Phase
• 3rd Phase (2013-2020)
• Excess availability of credits, despite Market Stability mechanism, consequently lower price
(€4/tonne in September 2016)
• 4th Phase (2021-2030)
• Proposed by Commission in July 2016
• Likely to be agreed in 2017/18
• Enforcement
• Member states: ultimately the Commission may refer the case to the European Court of
Justice.
• EEA countries: Surveillance authority monitors compliance with internal market rules of the
EU – including the ETS.
• Linked systems
• Switzerland: technical talks completed in January 2016, but start date will be dependent on
resolution of issues around immigration.
• Impact of Brexit
• Result in recalculation of Effort Sharing Decision allocations amongst remaining EU
members.
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 22Euratom
Safeguards Euratom Supply Agency
• Trilateral agreement with Euratom, • Ownership of nuclear material in EU
UK and IAEA • Re-flagging required
• ONR resource increase needed • Complications for future waste/fuel
movements in/outside UK
BREXATOM
Likely
Political context Research and Development
• Changed nuclear balance in EU • Remaining inside Euratom FP
• Affect future nuclear legislation in unlikely
EU • Separate agreement and UK budget
on ITER needed
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 23Lessons from other EU energy relations
• Overview of options
• Confirming to the energy acquis
• Enforcement mechanisms
• Foregone benefits of electricity integration
• Policy taker, not setter
• EU funding limited in non-EU member states
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 24EU energy relations Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 25
Confirming to the EU energy acquis
• Energy policy is a shared competence. Both the EU and member states legislate in this field, in accordance
with the principles of subsidiarity and proportionality.
• In other words: while member states are, under existing EU law, free to determine their energy mix, the
acquis impacts the energy sector in a number of ways :
• Market rules: competition, unbundling, independent regulator, data transparency etc. (2009/72/EC, 543/2013)
• European Network Codes: detailed rules for gas and electricity systems for markets, balancing, connection and system
operation (1222/2015, 1719/2016, 984/2013, TAR rules, 631/2016, 1388/2016, SOG, + more coming)
• Cross-border and trade: network access, congestion rules, payments to TSOs etc. (714/2009, 838/2010)
• Interconnectors: framework for development and inter-operability (347/2013)
• Environmental protection: GHG emissions and pollution control
• Energy efficiency: product and building standards and economy wide (non-binding) targets (2012/27/EU)
• Renewables: binding economy wide energy targets (2009/28/EC)
• Security of supply: emergency energy stocks and solidarity of supply requirements (994/2010)
• State aid rules
• However, parts or all of the energy acquis can apply to non-member states when they are part of (such as
Norway) or even accessing (such as members of the European Energy Community) the internal energy
market.
Chatham House and University of Exeter | Implications of Brexit for Energy and
Climate ChangeConfirming to energy acquis
• While member states are, under existing EU law, free to
determine their energy mix, the acquis impacts on energy
sector in a number of ways including:
• Market rules
• Environmental protection, including GHG emissions and
pollution control
• Energy efficiency product and building standards and economy
wide (non-binding) targets
• Binding economy wide renewable energy targets
• Emergency energy stocks and solidarity of supply requirements
• State Aid rules
• However, parts or all of the energy acquis can apply to non-
member states when they are part of (such as Norway) or even
accessing (such as members of the European Energy
Community) the single energy market.
Chatham House and University of
Exeter | Implications of Brexit for 27
Energy and Climate ChangeEnforcement mechanisms
Category EEA-EFTA (e.g. EFTA-only (e.g. Energy Community Bespoke FTA WTO
Norway) Switzerland) (e.g. CETA)
Legal basis EEA Agreement EFTA Convention, Energy Community FTA GATT, GATS
(1992); requires Lugano Treaty (2005) Title VII
transposition of EU Convention,
law into national Bilateral sectoral
law, subject to agreements (e.g.
agreement of EEA EU-Switzerland
Joint Committee Electricity
Agreement)
Mechanism EFTA Surveillance For energy, Dispute settlement To be WTO Dispute
Authority and EFTA negotiated within mechanism resembling negotiated settlement
Court bilateral EU infringement within FTA mechanism
agreements (in procedure but without (e.g. CETA has
EU-Switzerland judicial decision in the a new
EA, jurisdiction is last instance. investor-state
still unresolved) Ultimately, Ministerial dispute
Council (which includes settlement
EU Energy and Climate court)
Commissioners) can
suspend membership
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 28Benefits of electricity integration
• Market coupling
• Benefits arise from lower wholesale prices and more efficient use of interconnection capacity
• Benefits from market integration sensitive to assumptions about future generation mix and
market structure
• Benefits to final consumers will depend on retail market structure
• EU-wide benefits estimated at €3-4bn/year; EU-wide benefits from shared balancing by
2030 potentially much higher (> €40bn/year)
• GB benefits estimated at €100m+/year in short-term (to 2020)
• Interconnection
• Estimates of net benefits sensitive to assumptions about generation mix, especially
penetration of renewables
• For more interconnection up to planned 15% of capacity, estimated benefits are of the order
of several £100m/year
• North Sea offshore grid
• Highly sensitive to network design and amount of wind built
• Benefits for meshed as opposed to radial design estimated at several €100m/year up to
several €bn/year
• Contextualising the estimates
• Size of the energy sector: annual revenue of Big 6 ≈ £40-45bn/year
• UK economy: GDP £1,870bn in 2015
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 29Benefits of electricity integration: market integration
Source Date Title Benefits
Newbery, Strbac 2016 The benefits of • Benefits of market coupling with existing interconnectors ≈ €4bn/year
and Viehoff integrating European across EU, of which €2.4bn due to lower prices.
(update of 2013 electricity markets • Potential gains from more efficient use of GB interconnectors in range of
report for DG €24m - €109m between 2012-2014.
Energy) • Models further potential EU-wide benefits of shared balancing under
different scenarios to 2030, which range from €5bn to €43bn by 2030.
Mott Macdonald/ 2013 Impact assessment on • Compares the annual benefits from cross-border trade in balancing
EC European electricity electricity in different countries and under different scenarios.
balancing market • Potential benefits of balancing trade between France and GB estimated at
~ €50m/year.
• Benefits increase with greater penetration of wind power. Benefits across
EU could be of the order of €3bn/year.
Vivid Economics/ 2015 Impact of Brexit on • Estimated benefits/cost of exit from market coupling at ~£90m/year at
National Grid the UK energy sector current levels of interconnection; up to £160m-200m/year by early
(based on 2020s if interconnection is expanded.
ACER/CEER • Benefits/cost of exit from cross-border balancing, based on Mott
assessment of market Macdonald/EC 2013 estimated at £80-100m/year by early 2020s,
coupling and 2013 DG assuming alternative bilateral arrangements not possible.
Energy report) • Benefits of interconnection, estimated at £160-170m/year in 2020s, lost
if projects are cancelled (Viking, IFA2, FAB)
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 30Benefits of electricity integration: interconnection
Source Date Title Benefits
Redpoint/ 2013 Impacts of further electricity • Assesses net benefits of (more) interconnection for GB across 4
DECC interconnection scenarios over 2015-2040. NPV of benefits ranged from -£9.5bn (i.e.
net cost) to £9 bn.
• Additional I/C is net beneficial in all scenarios, but optimal I/C
depends on scenario.
National Grid 2015 Electricity capacity report • Sharing reserves over interconnectors might reduce capacity needs by
2.8GW (= £43m/yr at 2015 CM auction prices)
Ofgem 2013 ITPR Impact Assessment • NSN interconnector (to Norway) will produce GB consumer benefits
of £3.5 billion over 25 years.
• Further 3 interconnectors could increase consumer welfare by £3-8
bn under the base case.
• Excludes CO2 emissions reductions benefits.
Imperial/ 2012 Understanding the • Model contribution of different elements, one of which is
NERA/DECC balancing challenge interconnection, to increased balancing challenges under 4 DECC
scenarios for achieving decarbonisation of the power sector.
• Cost optimisation model that builds capacity up to the point that NPV
= 0; at least 20GW of I/C is built up to 2040 and at least 25GW by
2050 across all 4 scenarios, between GB, IE and continental Europe.
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 31Benefits of electricity integration: North Sea grid
Source Date Title Benefits
E3G/Imperial 2014 Strategic development of • Models 4 different North Sea grid approaches from incremental to
College North Sea Grid increasingly strategic, under 4 different scenarios for offshore wind
Infrastructure to facilitate ranging from 50GW up to 204GW by 2040.
least cost decarbonisation • Estimated savings range from €5bn to €80 billion over 2015-2040 as
against default radial approach.
European 2013 Study of the benefits of a • Compared coordinated vs radial offshore grids for offshore wind
Commission meshed offshore grid in • Savings to all countries participating, including costs of losses, CO2
Northern Seas region emissions and generation savings, of €1.5 - 5.1 billion a year by 2030.
• If countries coordinate their reserve capacity, an additional €3.4 to 7.8
billion/year cost reduction could be obtained.
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 32Electricity Regulation: ENTSOE, ACER & EC
ACER Recommends
• Opinion and recommendations for EU TSOs,
EU MS
Govern regulatory authorities and EU institutions.
European
NRAs • Opinion on recommendations from ENTSO-E.
• Monitor implementation of network codes. Commission
Recommends Delegates
ENTSO-E
Wider European engagement: EU and non-EU MS; Ukraine & Georgia applying for
membership.
Govern • Board appointed by the Assembly.
TSOs • Members ‘share the objectives of completing and ensuring the optimal functioning of
and TOs the internal energy market. They also support the ambitious European energy and
climate agenda’.
• Official EU mandates: 3rd Energy Package, inter-TSO compensation mechanism, TEN
Guidelines, Transparency regulations.
• Pan-European network codes with ‘guidance from ACER’ and adoption by European
Commission.
• New network codes submitted to European Commission, Parliament and Council: they
have 3 months to raise objectives , then become binding on all MS – but not on all
members of ENTSO-E.
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 33European energy market governance
ACER
• Membership only open to NRAs from EU member states
(under review)
• Article 31 of Regulation 714/2009 states: 'The Agency shall be
open to the participation of third countries which have
concluded agreements with the Community whereby they have
adopted and are applying Community law in the field of
energy and, if relevant, in the fields of environment and
competition'
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 34Network codes: Decision-making process
Priorities for Request to ACER to
GB
network codes prepare Guidelines Code Drafting
Guidelines (ACER) TSOs
(European (European (ENTSO-E)
Commission) Commission)
Fine-tuning
Finalisation of the Public Consultation
(European Review (ACER)
draft (ENTSO-E) (ENTSO-E)
Commission)
Comitology
Formal Approval
(European
(Parliament + Entry into FORCE
Commission and
Council)
MS)
• Currently, TSOs of non-EU member states (but who are members of ENTSO-E) have direct influence over
drafting of network codes within ENTSO-E (but influence can be limited: see next slide).
• However, once ENTSO-E submit draft network codes, these can be modified by ACER, European
Commission and during comitology process (no presence/influence of non-EU member states/NRA/TSOs).
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 35European energy market governance: ENTSOE
• European Network of Transmission System Operators (TSOs): 42 TSOs from 35
countries across Europe.
• 4 Committees: System Development; System Operations; Market; Research,
Development & Innovation. Many committees & working groups currently chaired by
National Grid.
• Two types of voting methods within Committees depending on the decision under review:
– ENTSOE decisions: i.e. ENTSOE day-to-day activities (approval of policy papers,
public positions and advocacy). Outside of the EU, UK TSOs would continue to vote
and influence these decisions, although there are limits to voting capacity of non-EU
member states, namely:
• They cannot exceed 28% of the First Part of the Voting Power (one country-one
vote)
• And/or 35% of the Second Part (population based)
– ‘All TSO’ decisions: as formally set out in European Network Codes and Guidelines
(proposals, methodologies and implementing measures for European Network
Codes). Voting is restricted to EU TSOs only.
• Indeed: “Only TSOs which fully comply with the Third Package could be entitled to
participate in th(e) crucial part of ENTSO’s work” 2011 Commission staff working paper
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 36Member State and EFTA EIB borrowing
Member State and EFTA state borrowing (2011-2015)
60.00
50.00
40.00
EUR (billions)
€29,187,133,781.72
30.00
20.00
10.00
€668,081,000.00
0.00
• If UK leaves, it could take back €3.4 billion (16% of capital injection)
• 90% of lending goes to Member States
• The UK is joint (with Germany, France, Italy) largest shareholder however
non-Member States cannot be shareholders or on the Board
• Decisions are taken by the Board of Governors (Ministers) and Directors
• Voting = one country-one vote and on subscribed capital
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 37Member State and EFTA EIB borrowing
Member State and EFTA state borrowing (2011-2015)
60.00
Similar GDP
50.00
40.00
EUR (billions)
30.00
20.00
10.00
0.00
• If UK leaves, it could take back €3.4 billion (16% of capital injection)
• 90% of lending goes to Member States
• The UK is joint (with Germany, France, Italy) largest shareholder however non-Member
States cannot be shareholders or on the Board
• Decisions are taken by the Board of Governors (Ministers) and Directors
• Voting = one country-one vote and on subscribed capital
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 38UK – EIB lending by sector (2011-2015) (€bn)
1129
3268
8191
2124
7275
7129
Energy Transport and telecommunication
Water, sewage, urban development Industry, services and agriculture
Education, health Small and medium-scale projects
Total Public Sector Net Infrastructure Investment (2011-15) was
€182 billion – EIB infrastructure investment was €29 billion
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 39European Fund for Strategic Investment • Initiative launched jointly by EIB Group and European Commission in 2015 • Aim: overcome current investment gap in the EU by mobilising private financing for strategic investments • In particular, aim to mobilise €315 billion of additional finance • To date, 21% of agreed finance has gone to energy sector • To date, UK received over €8 billion, of which over a quarter was for energy projects (smart meters, off- shore wind) Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 40
Recommendations
• Interconnectors
• The UK should remain committed to trebling its interconnection by 2025. GB is a relatively isolated market.
Therefore, interconnectors will be increasingly important, especially for electricity, to competitively meet ambitious
decarbonisation objectives.
• The UK electricity and gas systems should remain fully integrated with the European networks, for economic,
environmental and security of supply reasons. This may require adoption of existing and future market and
environmental acquis. To avoid becoming a rule taker, maintaining policy and regulatory influence will be important
(see below).
• Ireland
• Regardless of the UK’s relation to the European single energy market, the UK and Irish Governments should make
clear their intention to facilitate the continued development of the ISEM. This will clear require support from other
member states and other European energy institutions/agencies, such as CEER, ENTSOE/G, ACER etc.
• There is a strong economic rationale for a regional approach to emergency oil and gas stocks and shared
infrastructure.
• Euratom
• The UK will need to ensure that there is a smooth transition from the current trilateral inspections safeguards regime,
to that solely between the IAEA and UK. To maintain confidence in the non-proliferation regime, there must be no
gaps or shortcomings in international oversight. This may require an increase in the UK’s contribution to the IAEA
and the ONR.
• ETS and climate change
• Remaining part of the ETS is likely to require compliance with EU energy acquis and possibly ECJ
jurisdiction/common dispute settlement mechanism; consideration therefore should be given to creating a linked
emissions trading scheme.
• Given current uncertainties, clear statements about domestic policies, such as maintaining the carbon floor price, will
aid investment.
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 41Recommendations
• Recognising jurisdictions: conforming with EU energy acquis and ECJ jurisdiction
• Those countries, inside and outside the EU, that are fully integrated into the European energy market have to
comply with EU’s energy acquis and are therefore fall under ECJ jurisdiction.
• Other countries that have access to the market, such as members of the European Energy Community, still comply
to parts of the acquis but have a separate enforcement mechanism. Recognition of this relationship is an important
starting point for the negotiations.
• Accessing the Internal Energy Market will require some form of regulatory oversight, either by granting oversight to
the ECJ or setting up a new dispute settlement body between the EU and the UK.
• The benefits to the EU as a whole of the UK remaining the single energy market needs to be communicated to other
member states.
• Maintaining policy and regulatory influence
• The UK should seek to reform the relationship between EU and wider European energy networks, to increase the
relative power of neighbourhood countries and therefore aid continental energy security. Proposals for the reform
of ACER to be published in November represent an opportunity.
• An enlarged and reformed European Energy Community could offer a platform for aligning EU policies with
neighbourhood countries including the UK, Norway, Switzerland and creating a larger European energy market.
• The UK will need to expand informal channels of influence in Brussels: this will require greater financial resources
and staffing from the UK government and energy companies to compensate for the loss of direct engagement in the
EU decision-making process.
• UK TSOs should seek to remain influential members of ENTSO-E and ENTSO-G.
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 42Recommendations
• Replacing lost EU funds
• The UK Government and devolved administrations need to establish a fund or financial mechanisms to
replace European loans (from the European Investment Bank) and project development funds (from the
Connecting Europe Facility), the Kreditanstalt für Wiederaufbau in Germany, a Government owned
development bank, offers a possible example
• Government assistance in project development is as important as loans. The establishment of the
Infrastructure Commission as a permanent executive agency in January 2017, is an important step, but
additional project finance will be need to bridge the gap between project conception and financing.
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 43Thank you
For more information contact:
Antony Froggatt: afroggatt@chathamhouse.org
Tel: 44 7968805299
Matthew Lockwood: m.lockwood@exeter.ac.uk
Tel: 44 7985097729
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 44Back ups- Old but potentially useful Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 45
Electricity market legislation
Electricity EU MS Norway/ Switzerland Energy FTA WTO Customs
EEA Community Union
Market Access Allowable – no tariff Y Y Y Y Y y Y
barriers
Membership Compliance with Required Required Y Required ? Not Not
current market acquis required required
Advanced market rules Required Required Not Not ? Not Not
– market coupling required Required required required
Governance European Commission Y N N N N N N
(Membership) ENTSOE Y Y Y Y ? ? Observer
ACER Y N? N? N? N? N? N?
Enforcement ECJ EFTA National Law Ministerial Part of FTA GATT, GATS, Bilateral
Surveillance Council, No WTO dispute agreement?,
Authority Judicial action WTO dispute
Influence CEER Full Full Observer Observer Observer Observer N
Eurelectric Full Full Full Full Full Full Full
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 46Gas market legislation
Gas EU MS Norway/ Switzerland Energy FTA WTO
EEA Community
Market Access Allowable – no tariff Y Y Y Y Y y
barriers
Membership Compliance with Required Required N Required ? Not
current market required
acquis
Governance European Y N N N N N
(Membership) Commission
ENTSOG Full Full Observer Associate ? ?
ACER Y N? N? N? N? N?
Enforcement ECJ EFTA National Ministerial Part of FTA GATT,
Surveillance Law Council, GATS, WTO
Authority No Judicial dispute
action
Influence CEER Full Full Observer Observer Observer Observer
Eurogas Full Full Full Full Full Full
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 47Investment
Energy
Investment EU MS Norway/EEA Switzerland
Community
FTA WTO
Connecting Europe
Y Y Y Y Turkey N
Facility
European Structural
Y N N N N N
and Investment funds
Fund
European Investment
Y Y Y Y Y Y
Bank
European Fund for
Y N N N N N
Strategic Investment
Chatham House and University of Exeter | Implications of Brexit for Energy and Climate Change 48You can also read
