Brexit black cloud casts a shadow over the power sector

GlobalData Energy 29 November 2019 (Last Updated December 6th, 2019 10:43)

Brexit black cloud casts a shadow over the power sector

Britain’s Brexit drama was extended until 31 January 2020 amid political twists and turns.

The UK’s power industry remains haunted by unknown risks and impacts of the post-Brexit scenario. A Brexit deadlock poses risks of higher prices for imported machinery and equipment.

The energy sector is varied, and the impact of Brexit will diverge for different players.

Cross-border supply chains

Border delays could arise in a no-deal Brexit. This affects the resilience of supply chains, especially in relation to critical spare parts or machinery. In a soft Brexit, cross border supply chains are expected to operate smoothly like before.

Electricity Supplies

A major disturbance to UK electricity supplies is unlikely due to “No-deal” fallout. That’s because the UK only imports around 6.6% of its electricity using four interconnectors.

Carbon Market

Brexit would mean that Great Britain would be disassociated with the EU carbon market. The UK’s strong emission reductions in past years have generated surplus emission allowances. However, it is likely that the UK will no longer able to sell these allowances.

Labour Market

The power industry is labour intensive and may need skilled labourers from outside. The UK power sector has a skilled worker’s shortage and Brexit could worsen the situation.

Investment

Several EU schemes promote investment in energy infrastructure, which embraces funding towards projects in the UK. It is estimated that Brexit could potentially result in a reduction and delay of investments in the UK. However, investment banks such as EIB, that have a policy to fund projects outside the EU will continue to provide the funding.

UK’s climate change ambitions

In any form, Brexit is unlikely to change the UK’s ambitious climate change goals. The UK passed a law in June 2019 to reach Net Zero carbon emissions by 2050 and all the related efforts will revolve around the law-making Brexit impact insignificant.

Nuclear

The UK’s exit would mean withdrawal from the European Atomic Energy Community (Euratom) and the associated treaty (the Euratom Treaty). However, the UK’s policy and deal makers have clearly stated that withdrawal from Euratom will not affect nuclear security and safety requirements.

Thermal

There is not expected to be any change in the prevailing stance towards the unabated coal-fired plants closure. The Government has confirmed its firm view to close all unabated coal-fired power stations by 2025.

Wind

Offshore wind, is likely to get hit the hardest, this is because new tariffs will affect the supply chain for wind turbines. This poses a risk for the cost of wind energy in the UK. The situation for wind turbine and equipment is complex because the supply chain can spread across several continents. WindEurope, the European wind energy association, warned that additional EU safeguards, if adopted, would push the cost of wind turbines in Europe up by 10%.

Solar PV

The Solar PV installation growth was largely driven by government support schemes. These were mainly through Renewable Obligations (RO) and Feed-in–Tariffs (FiT). However, the UK recently abandoned its past renewable energy subsidy schemes.

 

Determining the specific impacts of these issues remains a guessing game while the final conditions and outcome to Brexit remain unclear. However, it is clear that – like many sectors – the energy market is going to be negatively impacted by the effects of Brexit, regardless of whether the UK leaves with or without a deal.