Great Britain could have left the European Union on March 29, 2019. At that time, no comprehensive agreement has been ratified and the current status is still unclear. We believe that the question of whether the Brexit is hard or soft is central to determining exactly how Brexit affects the UK energy sector.
If there is a hard Brexit, the UK could scale back many initiatives, especially those affecting the UK electricity market and energy trading. These include cross-border electricity trading with the EU and the expansion of a Europe-wide electricity grid. Such steps would make Britain’s energy policy much more independent.
This brings us to the next point:
1. The United Kingdom will replace EU directives for its domestic energy industry. Until now, England had to adapt to EU requirements in order to align with other EU member states. This harmonization of the rules of the individual EU member states enabled a closer integration of the EU electricity markets.
OFGEM has strongly supported cross-border electricity trading, partly because of its desire to link European energy markets with the UK. This has the advantage that electricity prices in the UK will fall due to international electricity trading. This will help to compensate for an over- or undersupply of electricity generated from renewable energy sources such as offshore wind power on days when there is no wind. Although the UK currently covers a large part of its own electricity generation with domestic gas and wind power, cross-border electricity trading can be beneficial.
It is not clear what impact this will have on the electricity networks in the UK after Brexit. A likely scenario would be the exchange of electricity based on a model similar to that of other non-EU members of the EEC, such as Norway. Norway would be an example of a country that is largely integrated into the EU electricity market with grid connections that the EU shares with Norway.
2. A hard Brexit could be advantageous for the energy policy of the United States. Energy policy would be part of the trade negotiations between the two countries.
American LNG would be the winner in the case of hard Brexit. The United Kingdom is increasingly dependent on energy imports due to the declining oil and gas reserves in the North Sea. The United States can supply Great Britain with energy in the short to medium term. This depends on the UK’s ability to conclude an economic agreement with the USA. This trade agreement will certainly also take into account the interests of the American energy industry.
3. Great Britain would benefit only to a limited extent from an integrated EU energy market.
But in the coming years, Great Britain will find trading partners for energy imports. The new trading partners will be able to partially replace EU electricity trade, not least because the UK is open to global trade. LNG supplies from overseas play a central role in diversifying energy supplies.