3 possible impacts of a ‘no-deal’ Brexit on UK energy security – and 2 ways to reduce the risk
With the revised European Union (EU) Brexit deadline of 12 April looming, we look at three potential impacts of a ‘no-deal’ on UK energy security. We also suggest two risk reduction strategies for your business.
Read more below:
1. Major disruption is unlikely
If the UK falls out of the Internal Energy Market as a result of a ‘no-deal’ Brexit, major disruption to UK electricity supplies is unlikely. That’s because the UK only imports around 6.6%* of its electricity from the European mainland, using four interconnectors. Although this percentage fluctuates, it’s doubtful that it would lead to a significant problem - even if all the interconnectors were ‘switched off’ overnight, which is itself highly unlikely.
What’s more, Brexit is less likely to coincide with the winter peak in demand. This means there’ll be less load on the Grid, making it easier for generators to cope – even without imported power from the EU.
Haven Power doesn’t operate in the all-Ireland single electricity market. However, it’s worth noting that the functioning of the Integrated Single Electricity Market (I-SEM) may come into question in the event of a hard Brexit and the market’s underpinning legal basis falling away. In such a situation, one issue might be how to continue trading power across the interconnectors without a fungible* carbon price.
*Fungibility is the property of a good or commodity whose individual units are essentially interchangeable, and each of its parts is indistinguishable from another part.
2. Tariffs on imported electricity aren’t expected
The Department for Business, Energy and Industrial Strategy (BEIS) has announced that “if the UK leaves the EU without a deal a temporary tariff regime will be implemented. This would apply for up to 12 months while a full consultation, and review on a permanent approach, is undertaken. Under the temporary tariff regime, imports of electrical energy into the UK would be eligible for tariff-free access.”
Given energy’s tariff-free status, we’re unlikely to see more expensive bills for business customers. Haven Power’s customers have the added reassurance that the biomass used at Drax Power Station – owned by the supplier’s parent company, Drax Group – is zero-rated and expected to remain so.
3. Devaluation may lead to price rises
In the immediate aftermath of a ‘no-deal’ Brexit, a currency devaluation could make electricity more expensive. Should sterling fall, as some predict, imports of electricity (and its sources, or feedstocks, such as sustainable biomass and natural gas) would become more expensive. This is because the UK pays in foreign currencies.
Many generators that depend on imported feedstocks have anticipated this potential devaluation and taken precautionary steps. Drax Power Station, which provides around 12% of the UK’s total renewable electricity, has contracts in place to ensure its biomass supplies continue well beyond the end of 2019. In addition, Drax cites two key reasons for not expecting Brexit to have an operational impact. Firstly, most of the biomass (around 80% in 2018) comes from North America rather than Europe. Secondly, it has four dedicated port facilities on the UK’s east and west coasts.
Conversely, energy suppliers that haven’t hedged their post-Brexit risks could find it hard to absorb the potential increase in the cost of their raw materials. As a result, these suppliers would probably pass on the cost to customers.
If your business wants to manage the risk associated with a ‘no-deal’ Brexit, and at least ‘control the controllables’ in these uncertain times, here are two suggestions:
1. Fix your electricity contract
To reduce the potential impact of electricity prices rising after a ‘no-deal’ Brexit, you can fix the unit cost of your electricity – preferably before the exit date passes.
Fixing will help you forecast your costs - and budget accurately – for the duration of the contract.
2. Invest in self-generation and battery storage
While this option requires some up-front investment, the savings that it could bring – and the security of being more self-reliant – may well make it worthwhile.
Discover how Haven Power can help your business secure its electricity supply, post-Brexit. Alternatively, if you’re already on supply with us and want to discuss fixing your electricity prices pre-Brexit, please get in touch.
*Source: House of Commons Library, Briefing Paper number 4046, 19 October 2018, Energy imports and exportsContact us
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