Brexit: lights out for the UK

03/07/2018

More recently, Pete has published a blogpost which explores these issues, so that anyone who wishes to be informed has plenty of material to work from. Unfortunately, while some people read around in order to acquire information, many others avoid it, seeking only to reinforce existing prejudices.

This latter group would seem to include most politicians and Her Majesty's Government, with the latter preparing – if we are to believe the rumours – to include a Single Market in goods proposal for inclusion in the White Paper which is supposed to lay the foundations for our future relations with the EU, and settle the Irish border question.

How this is intended to work, nobody actually knows. Nothing has been published so far and it is not even certain that anything exists on paper. Nor can we rely on anything currently proposed surviving Friday's "pyjama party", where cabinet members are supposed to agree on what goes forward to Brussels.

If the government is planning a "looser relationship on services", though, it is very difficult to work out precisely what it has in mind. On the face of it, this allows the UK more leeway to set its own regulations and to cut trade deals for a sector representing about 80 percent of the economy.

But, as we've noted in earlier pieces, there is far more to this portfolio that just financial services, over which there has been so much concern. The scale and variety of trade in services is huge, and we could hardly expect (or even want) any leeway in regulation on aviation safety, covering what is a major service sector.

Selective inclusion of some services, however, would put ourselves in the position of cherry-picking the cherry picking. We would not be opting out of that part of the Single Market which covers goods, we would be picking a limited range of services to exclude, while asking the EU to provide regulatory coverage for many others.

Given the well-known and constantly repeated injunctions from the EU that they will not accept any cherry-picking, if a selective exclusion of services is part of the UK plan, then it is almost certainly doomed to failure.

However, just supposing – for sake of argument – that the EU was prepared to entertain a strict "Single Market in goods" relationship with the UK (and splitting goods and services was actually possible), this is not something the UK could afford to accept – and not just because of aviation.

A clue to the further undesirability of this also lies in the Notices to Stakeholders and, in particular, this one on the internal energy market – with special reference to the cross-border trade in electricity.

Of concern to the UK here is that we are progressively scaling down our coal-fired electricity generation and experiencing ongoing delays in building next-generation nuclear plants. This puts us on the very margins of production capacity and makes us totally reliant on interconnectors between France, the Netherlands and Ireland.

Currently amounting to 4GW capacity, this can represent at any one time more than ten percent of our production capacity, and we are looking forward to an additional 2GW coming onstream in 2019, one from France via the Channel Tunnel and the other from Belgium. A year later, we are supposed to get 1.4GW from Norway and a further 1GW from France.

This supply is doubly crucial to the UK. Not only does this capacity top up our own diminishing supply, it also serves as a balancing supply, available at very short notice to help our system cope with fluctuations in demand. Loss of these interconnectors could not only leave us critically short of electricity, it could also destabilise the entire national grid, causing the system to crash. In such cases. It can take weeks before supply is fully restored.

Looking at the detail of the Notice to Stakeholders, we see that cross-border trade in electricity relies on formal entities known as Transmission System Operators (TSOs). In the UK, this role is performed by the National Grid, a service supplier which does not itself generate any electricity.

Supply is formally regulated by a raft of legislation, including Directive 2009/72/EC which deals with the certification of TSOs "controlled by persons from a third country", with the Notice observing that Member States may refuse certification.

As much to the point, Regulation (EC) No 714/2009 and Commission Regulation (EU) No 838/2010 deal with the compensation procedures between TSOs which, on Brexit, will cease to apply to exports and imports of electricity to and from United Kingdom. Without a specific post-Brexit deal, there will be no formal mechanism for the parties to get paid.

The system of interconnectivity then relies on a complex system of rules, generically governing what are known as "market coupling services" operating within the EU through formally designated "nominated electricity market operators (NEMOs). And, as the Notice further observes, on Brexit, United Kingdom based NEMOs will become third country operators and will no longer be entitled to carry out market coupling services in the EU.

There are then further complications in that, for the purposes of trading electricity, market participants based in the United Kingdom will become third country participants. These will need to register with the national energy regulatory authorities of the Member States where they are active, prior to entering into transactions.

All of this means that there will have to be considerable adjustments and a number of formal agreements taking effect on Brexit, in order that cross-border trading can continue. And it is fair to say that, if the UK withdraws from the EU without a deal, there will be no system on which we can rely for continuing supplies of electricity from EU (or Efta/EEA) states.

In the short-term, at the very least, a Single Market in goods, or a "no deal" Brexit would almost certainly lead to power cuts and could, with a very high degree of probability, lead to a collapse in our entire electrical supply system.

And nor do our troubles end there. Going through the legislative system at the moment is a recast regulation which will introduce a number of major changes to the way the European electricity market operates. We will not be part of this but, since we are becoming so reliant of EU/EEA suppliers, we will have to pay close attention to the changes, and conform where necessary with EU requirements to ensure continuity of supply.

While our government is so keen to detach itself from the EU to open up trading opportunities elsewhere in the world, it is going to find it hard to replace European supplies of electricity. Although a link with Iceland is proposed for 2022, taking advantage of its cheap, geothermal supplies, it is not technically possible to hook up with Canada, the United States or more distant trading partners.

For the time being, we are reliant on the good offices of EU Member States, working within the framework of EU law. By 2025, it is anticipated that 22 percent of our electricity will come from interconnectors, with additional links from Denmark and Germany.

On this basis, it is hard to understand why the government seems intent on pursuing this course of action, especially as in May of this year, the boss of the North Yorkshire Drax Group warned that the increased reliance on European interconnectors could threaten our energy security – and that was without factoring in a "no deal" Brexit.

At least, though, Mrs May and her successors will not be troubled by rolling blackouts and cascade failures. Downing Street is supplied by an integrated combined heat and power system located in the basement of the Ministry of Defence building in Whitehall.

While us plebs are shivering in our candle-lit, EU-free homes, successive prime ministers will continue to enjoy the warmth and light that only taxpayer pounds can provide. Needless to say though, if Mrs May had decided to keep us in the Single Market, we would not need to be concerning ourselves with such problems.