Brexit and energy: does ‘taking back control’ mean losing power?

The Brexit spotlight swung last week away from the familiar cast of bankers quitting the City and coffee-shop chains worried about recruiting staff to the fate of the energy industry tasked with powering the economy when the UK leaves the EU.

The loudest warnings came from MPs, peers, engineers and the industry itself over the impact that blocks to trade or freedom of movement would have on the nuclear and oil sectors.

However, the UK’s departure from the union also risks damaging urgent efforts to make the continent’s energy systems greener and more efficient, an adviser to the head of the United Nations has told the Observer.

Rachel Kyte, special representative on sustainable energy to UN secretary general António Guterres, said anything that hampered the global switch to lower carbon power would be regrettable.

“Brexit is at best a distraction, at worst a disruption of the need to continue to drive energy productivity across the UK and Europe – of having a much less energy-intensive economy and getting more productivity from each unit of energy, of having a cleaner energy system, of having much less use of carbon-intensive fuels,” said Kyte.

The former World Bank executive highlighted the increasing amount of renewable energy generation in the UK, which had led to what she branded “breakthroughs”, such as the country’s grid recently going a whole day without coal power.

As Europe gets an increasing amount of power from wind, solar and hydro, Kyte said it was vital that Brexit did not harm the growing number of interconnector cables being built.

“We are seeing the beginnings of a highly interconnected European market and there are benefits to the UK of being part of that, so one hopes that interconnectedness will not be affected,” she said.

From the power that keeps Britain’s homes lit to the crude that keeps its cars running, here is how Brexit could affect the energy sector:

Interconnectors

At least eight cables are being laid under the sea or through the Channel Tunnel to trade power between the UK, Ireland, France, Belgium, Denmark and Norway, tripling the existing number of UK interconnectors. Billions of pounds are committed to the projects under way, and ones even further afield have been mooted, such as a cable to bring Iceland’s volcanic power to the UK.

The government hopes these interconnectors will continue to operate post-Brexit, and wants more beyond those planned already.

“The ambitions are to go higher,” business secretary Greg Clark recently told MPs, citing a UK-France connector approved in February as a sign that leaving the EU was not affecting investor confidence. A UK that is more reliant on the variable nature of wind and solar power would make such interconnectivity with other countries even more important, he said.

Key to the future prospects for interconnectors will be whether the UK continues as a member of the EU internal energy market, in a similar fashion to Norway. Alternatives include tracking the EU regime without any formal arrangement, or striking a series of bilateral arrangements similar to those Switzerland has made with the bloc.

Being outside the EU market would be worse, according to experts. Silke Goldberg, a lawyer at Herbert Smith Freehills, said: “While the UK government is supportive of interconnectors, there are some concerns among investors that the economic case for new interconnectors in the Channel may be affected if the UK is not part of the internal energy market and electricity imports are subject to trade tariffs.”

Those building the cables, which are made from vast amounts of copper, appear undeterred. “As long as there is a need on both sides to do trade, there is not really a worst case I can see, as the interest is on both sides,” said Auke Lont, head of the Norwegian state grid operator Statnett, which is building the world’s longest undersea cable between the Norway and the UK.

The North Sea Link interconnector is expected to mostly be used for exporting hydro power from Norway to the UK when complete in 2020, after Brexit, but will also export surplus wind power from Britain in the other direction. “The moral of the story is there is enough economic interest on both sides that it will easily withstand the fact that the UK now leaves the EU,” Lont said.

Nuclear

The nuclear industry potentially stands to lose the most from leaving the EU. Buried in the small print of Theresa May’s Brexit bill in January was the news that Britain would quit a vital atomic power treaty: Euratom, which underpins the transport of nuclear fuel and other materials across Europe.

Last week saw a flurry of warnings from the industry, MPs and peers over the consequences of that decision. The nuclear trade body raised the prospect of disruption across the industry if alternatives are not in place within two years, urging ministers to avoid a “cliff edge”. Tom Greatrex, chief executive of the Nuclear Industry Association, said the difficulty was not the technicalities of putting in place new cooperation agreements with nuclear states or new inspection regimes for nuclear material, but the time window imposed by the article 50 process.

“It’s an extremely pressing timeframe,” he told the Observer. “We’ve already lost three months by the time the general election is factored in.”

Britain quitting the treaty has also raised doubts over the future of its involvement in research and development on nuclear fusion, a cleaner form of atomic power. The Joint European Torus (JET), a fusion research project at Culham in Oxfordshire, receives £50m a year from Euratom. But the current contract runs out in 2018, halfway through Brexit talks.

One way for the UK’s nuclear industry to get back on the front foot after leaving would be to focus on a new generation of mini-reactors, according to a leading engineering body.

“Pushing ahead on the demonstration and commercialisation of small modular reactors would be a key way for the UK to once again become a world leader in the field,” said Jenifer Baxter, head of energy and environment at the Institution of Mechanical Engineers. But delays to a government competition to develop such reactors do not bode well.

Carbon trading and renewables

The government has given no hints on whether it will retain membership of the EU’s flagship climate change regime, the Emissions Trading System. The carbon market currently costs industries such as oil, cement, and steel just under €5 per tonne of carbon they emit. The oil and gas industry are among the sectors seeking clarity on whether the UK will stay or go.

Some experts think the market’s links to EU institutions may mean an exit is inevitable. “The government has not announced plans to leave the ETS, although disputes are handled by the European court of justice, which may be a red line,” said the Energy and Climate Intelligence Unit thinktank.

When Nick Hurd, the climate minister, was recently asked if the UK had an alternative lined up to the ETS, he said: “We’re analysing it, as you’d expect us to do.” An obvious time to leave would be before the current phase of the scheme ends in 2019.

On green energy, Clark maintains no decision has been taken on whether the UK will stick to the EU’s renewable energy directive after leaving the union. But government sources have said that after Brexit the UK will probably scrap the EU target to get 15% of all energy from renewable sources by 2020. That would seem likely if the Tories win the general election.

The UK has lobbied Europe in recent years in favour of carbon-cutting targets and against ones for renewables, to leave ministers free to pursue their preference to largely use new nuclear to meet climate goals, rather than wind or solar.

Oil

The big post-EU concern for the UK’s ailing oil and gas industry is the prospect of new tariffs being imposed.

Industry body Oil & Gas UK warned last week that a hard Brexit, falling back on World Trade Organisation rules, would see trading costs almost double from £600m a year to £1.1bn because of changing tariff rates. At best, trading costs might go down £100m if the UK can strike more favourable deals outside the UK.

In a letter to Theresa May, the industry also stressed the international nature of its workforce, and called on the government to prioritise “frictionless access to markets and labour” during Brexit talks.