We have been considering the impact of Brexit’s “deal or no deal” come 29th March 2019 and have been working in partnership with our major suppliers to draw up details surrounding some of the main issues affecting the energy procurement in particular.
What impact will Brexit have on the commodity price of Gas and Electricity?
- Since the Brexit decision went through, the value of the pound has fallen signigicantly and so we have seen an increase in the cost of imports for all commodities, not just gas and electricity.
- Dependent on the outcome of discussions around the Internal Energy Market (IEM), there may be the imposition of additional tariffs for the cross border trades which will mean UK energy costs could rise.
What impact will Brexit have on the non-commodity pricing?
- Potential investors in infrastructure require additional incentives (£s) to encourage their interest, this in-turn leads to increased costs which could feed through to industry non-commodity charges.
What impact will Brexit have on taves and levies?
- There is no decision given on charges to taxes and levies as a direct result of Brexit, although it is expected that the UK climate change objectives will continue along a similar path as currently laid out.
- There are however, significant charges to CCL come April 2019 as announced back in 2016 budget.
Is there a risk of security of supply?
- There are strong commercial incentives for the UK and EU member states to continue trading and whatever the outcome, there will be a desire to find a workable solution.
- Europe and the UK are heavily connected by our energy infrastructure and this is key to our ability to fill demand. There should be no physical change to our energy network although future plans may be delayed until full details of Brexit are in place.
- Security of supply may come more into question if tariffs on trades were seen as an unreasonable and alternative approaches to supply and demand are needed.
How much of the UK energy supply comes from EU (and Norway)?
- Approximately 50% of our gas supply comes from the EU and Norway.
- Approximately 5% of our electricty supply comes from the EU.
What is the Internal Energy Market (IEM)?
- The Internal Energy Market has been build up since 1996 to help build a transparent, fair, competitive and regulated market across the EU.
- By exiting the IEM, the UK would lose voting rights for the various organisations that set the rules on how trades occur.
- If the UK leave the IEM - a new free trade agreement will be needed to maintain the current tariff-free trading on gas and electricity - this would include covering items such as carbon pricing.
What are the main milestones for Brexit?
23rd June 2016 - UK voted to leave the European Union.
29th March 2017 - UK Government triggered Article 50 to set exit date of 29th 2019.
On-going - UK and EU work towards agreeing the terms of the Brexit arrangement and how relationships will operate.
2018 - European Union (Withdrawal) Act 2018 gives UK Parliament legal supremacy but maintains existing UK law derived from EU law.
October 2018 - Deadline for withdrawal agreement.
Q1 2019 - Politcal declaration on the future relationship.
29th March 2019 - UK leaves the EU.
31st December 2019 - Transition period ends.
We recognise that this blog post does not cover all aspects of the Energy industry or Procurement processes that may be effected by Brexit.