Brexit: Rising Energy Bills are the Latest Headache

Brexit could be about to  torpedo one of Theresa May’s most high-profile promises, her pledge to rein in energy bills for ordinary consumers. Leaving the EU carries a serious risk of lifting energy bills as soon as this winter, and over the longer term it could undermine both the security of supply and the level of investment in green energy.

The economic consultancy firm Vivid Economics says there is no doubt that consumers could face higher energy bills as a result of Brexit. Higher import prices because of the weaker Pound are an immediate problem but the firm’s analysts also highlight the longer-term importance of the UK’s participation in the Internal Energy Market, the system which enables tariff-free trade in gas and electricity throughout Europe.

The market was set up to create an Energy Union, which according to the European Parliament would “give EU consumers — households and businesses — secure, sustainable, competitive and affordable energy”. If Britain leaves the Internal Energy Market the UK consumer will no longer benefit from the lower wholesale prices of gas and electricity in other European countries.

Apart from losing that competitive pressure on suppliers, the UK consumer will face higher bills due to Brexit’s heavy impact on the Pound. The UK has been a net importer of energy since 2004, with most energy purchases conducted in US dollars or the Euro. That means the depreciation of the Pound will be felt by consumers this Winter.

Less Security?

It is not just the price of energy which may be hit by Brexit but also the supply of energy. One of the goals of the Internal Energy Market was to achieve a secure supply of gas, electricity and oil in Europe. Under the current system if there is any shortfall in domestic supply of electricity Britain can draw electricity from France, Ireland or the Netherlands using one of the UK’s four interconnectors. That ensures that domestic demand for electricity should always be met.

The continuation of such an arrangement is unclear if the UK were to crash out of the Internal Energy Market. In uncertain geopolitical times, with a hostile Russia and uncertainty in the Middle East, the stability and security of a European supply of energy may prove vital in years to come. Leaving the Internal Energy Market would confront energy firms with major logistical problems as they try to  keep the lights on in post-Brexit Britain.

A further impact of Brexit will be felt on the UK’s renewable energy policies and fast-growing renewables industries. If the UK leaves the European Economic Area as expected it will no longer be subject to the requirements of the EU Renewable Energy Directive, which sets renewable targets for the 28 EU member states. There will also be major funding implications because Britain has benefitted from 24% of the European Investment Bank’s €7.2 bn investment in renewable energy since 2007.

That means Britain’s decision to walk away from the European institutions could damage the UK’s low carbon ambitions unless the Government decided to make up for the shortfall in investment in renewable energy. With general economic growth and tax revenues expected to decline after Brexit the Government will already be besieged by demands to replace other foregone streams of EU funding, ranging from farm subsidies to university research grants.

The implications for energy security and the UK’s low carbon goals are significant but just as importantly consumers will probably face even more price hikes unless the Government waters down its renewable energy targets.

 

by Thomas Chambers

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