How Brexit affects the energy market

Energy consultants Blue-Castle Group addresses questions from customers who have been asking how will Brexit affect the energy market.

Negotiations over the terms of the UKs exit from the EU continue to unfold. To date, no firm decisions have yet been publicised, leaving energy consultants such as Blue-Castle Group addressing questions from its customers who are beginning to ask how Brexit affects the energy market.

In truth, we've found it really difficult to provide any definitive answers as to how Brexit affects the energy market. Other than to say that as there is no precedent for withdrawing from the EU, the impact of Brexit is difficult to predict.

This is particularly the case in the energy sector where the impact depends on whether the UK remains in the IEM. If Brexit occurs and the UK does remain in the IEM, arrangements for the energy sector could look broadly similar, however leaving the IEM opens up a much wider range of possibilities, including the striking of bilateral agreements.

Obviously, the future of the UK’s membership of the Energy Union, the Internal Energy Market and Euratom are critical issues for the UK energy industry. At the time of writing this blog, perhaps reassuringly, the UK Government has already announced that securing affordable energy and clean development are at the heart of its Industrial Strategy and energy policy.

From this, it is probably fair to assume that safeguarding the achievement of these aims, and maximising the opportunities that Brexit will create for the sector, will be crucial elements of its strategy as politicians negotiate the future relationship between the UK and the EU27 in the European energy markets.

In the meantime, it is imperative to ensure that heightened uncertainties do not deter much needed investment in the sector by foreign and domestic investors and that energy users continue to monitor consumption and negotiate the best deals.

In 2015 and 2016, a leading strategic economics consultancy called Vivid Economics conducted two studies on the impact of Brexit on the energy market commissioned by the National Grid. In summary, the November 2015  report found that the overall impacts of Brexit on the energy sector were likely to be negative. The March 2016 report included a deeper discussion of potential impacts beyond departure from the IEM. This broader assessment found that the increase in the cost of investment due to the uncertainty arising from Brexit negotiations could also be a significant cost, given that the UK is undertaking a historic level of investment in energy infrastructure. You can read these reports in full by visiting the Vivid Economics website.

At Blue Castle, we will continue to monitor announcements, attend briefings and analyse the results of credible economic papers that have been issued by organisations who are researching the impact of Brexit on the energy market. We will also be taking part in forums in which industry experts will be sharing ideas and concerns with government.

We will examine possible scenarios as they unfold and do our utmost to prepare our clients for how Brexit affects the energy market, and ensure they are able to secure affordable energy post Brexit.