The rising costs of Brexit


In the aftermath of the rejection of Teresa May’s Brexit deal, we relook at the implications for the UK and European energy sectors.

Impact on prices

It was reported in December 2018 that the looming date for Brexit has already had a significant impact on energy prices, with researchers at University College London saying that consumers paid an average “£75 more in the year after the EU referendum for gas and electricity.” They predict that “a hard Brexit could lead to a further average rise of £61 per year in the event of further devaluation of sterling to pound-euro parity.”

In addition to the impact of currency devaluation, ‘the average wholesale prices of electricity and gas rose by 18% and 16% respectively in the year after the referendum, translating into a £35 increase for electricity and £40 for gas.”

Lead author Dr Giorgio Castagneto Gissey (UCL Bartlett School of Environment, Energy & Resources), said: “The exchange rate depreciation plus the fact that energy prices are now much more volatile means consumers have been paying more and are facing even higher bills over the next several months.”

This view is supported by Alex Harrison (Hogan Lovells), writing for the London School of Economics blog. Harrison further says: “A Brexit crash landing will have a number of impacts for energy. It’s unlikely to mean that the lights go out, but it may well result in an increase in wholesale electricity prices and wholesale electricity price volatility. Interconnectors are not expected to stop flowing, but they will no longer do so on a frictionless basis…

“The EU has no tariff on electricity or gas imports from other WTO members, and as such flows of electricity and gas between the UK and the EU27 would be tariff-free. However, this does not automatically extend to the supply of energy plant and materials across EU/UK borders, which would be subject to tariff barriers.”

Continued uncertainty

Straight after the ‘no deal’ vote, Lawrence Slade chief executive of Energy UK said:

“Tonight’s vote means continued uncertainty for business. As the Parliamentary discussions continue, we reiterate our serious concerns over a possible no-deal Brexit which would be so damaging for the energy sector and its customers.

“It is critical we ensure the smooth functioning of markets, and the efficient flow of gas and electricity and cooperation on tackling climate change, in order to keep bills down for UK customers and businesses without compromising on protecting our environment. We will continue to work with the Government to ensure the best Brexit deal for the energy sector, its customers and the wider economy.”

Coupled with the fact that there are other agreements that will need to be finalised before Brexit on 29 March 2019, such as the UK’s involvement in the Internal Energy Market, membership of Euratom and the longer term effects on climate change obligations, the current situation and May’s ongoing political challenges do not bode well for the UK energy sector.