The Post-Brexit Energy Sector
Ian Holyoak
Posted on 12 Jul 2016

Democracy, Energy and Country Music - The Post-Brexit Energy Sector

It's 6 June, 1975.  Tammy Wynette is standing by her man at number one in the UK charts.  Faced with the referendum question, "Do you think the UK should stay in the European Community (Common Market)?" Britons vote emphatically "Yes".   A few weeks before that plebiscite, on 28 April, Newsweek had published a piece reflecting the climate concerns expressed at that time in large sections of the media. Potentially cataclysmic changes were going to affect the planet.   Supporting evidence was cited, along with an impressive-looking graph and map of the globe. It was entitled "The Cooling World" and stated authoritatively that "The central fact is that after three quarters of a century of extraordinarily mild conditions, the earth's climate seems to be cooling down"

Roll on 40 years or so.  The consensus on global temperature trends has changed diametrically, as has the popular vote in the UK on membership of 'Europe'.  Very few voters will have been swayed, then or now, by the EU's policy on climate change and its influence on the measures taken domestically to combat CO2 and other emissions.  Still fewer will have bothered to consider the role of the EU in relation to energy policy more generally.  However, both have had a significant impact on our day-to-day lives in the last few years and were set to continue to do so. 

Now that the UK has decided to go its own way, what might change?

Renewable Energy Developments and Investment

UK Government policy coupled with low oil prices have already sapped the vigour of the renewables industry, with investments in new projects dwindling as vanishing subsidies squeeze margins. Much of the remaining activity has links to Europe in one way or another, be it funding, developers or components coming from the continent. The effect that Brexit will have on these relationships is largely down to two factors – the uncertainty on investments and currency in the short term; and the landscape of the future relationships negotiated by the government in the coming months and years.  

Climate Change Targets

What does Brexit mean for climate change targets? This is likely to be one area unaffected by leaving the EU. The targets set by the European Union are just one part of the overall package binding on the UK, including the more ambitious Paris agreement.  In the absence of an agreement with the EU which includes climate change goals as part of the “package”, future goal setting and targets will be at the discretion of the UK Government, and so more likely to be impacted by economic and political pressures. At present, it appears that the Government remains committed to meeting climate change and carbon reduction targets – the recent Carbon Budget has been praised as a strong example of this commitment.  There are also signs that 'peer pressure' between multinationals may be a greater driver of carbon reduction in the future.

Hinkley Point

Widely regarded as an essential project in the future of the UKs supply mix, the nuclear power station set to provide 7% of the UKs energy needs has long been beset by issues. The issues pre-date Brexit, and the mainly French Government-owned EDF Energy will be making a decision as to the future of the project in the autumn. With costs projected to overrun significantly, the French government had previously pledged their support to the project. It is unclear whether there will now be the political will to carry this forward.  The implications for the eight other, planned nuclear projects (all of which will need some form of international input) are equally uncertain.  Without 'new nuclear', the UK may face a very serious energy gap in the 2020s.

Energy Security

Closely linked to 'new nuclear', the future energy security of the United Kingdom is an important consideration. Gas interconnections with the continent are unlikely to be affected, given that the infrastructure is in place (there are pipelines to Belgium, Netherlands and Ireland). The 4GW of electricity interconnectors with our close neighbours are equally unlikely to be affected.  However, in the face of depleting North Sea and offshore resources alternative energy sources may become more difficult to obtain in the long term, particularly if UK buying power is reduced. It is possible that shale gas reserves will be further explored. However, as is the case with much of the prediction about the future at this point, the measures to ensure ongoing energy security will be dependent on our relationship with the EU and other countries.

In balancing security, supply and environmental goals, the UK government (in whatever form it takes over coming months) will face a challenge in forming and maintaining its energy policy, as Brexit becomes a reality and the post-Brexit landscape takes shape. The renewable energy sector, already grappling with the impact of recent government policies, will undoubtedly face further challenges. Conversely, with the recent National Infrastructure Commission report on 'Smart Power' in mind, rapidly developing technology and progress towards a 'smart grid' system will also provide opportunities for the sector.

Like Tammy, we will undoubtedly find the D-I-V-O-R-C-E difficult, but as the UK's new relationship with the world becomes clear those organisations able to weather the storm may find much to be positive about in the coming decade.