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Energy United Kingdom Economic Development and Investment

United Kingdom Energy Market

The possible impact of Brexit on the UK economy could be far-reaching. However, the direct impact on the energy industry is likely to be more muted. As a member of the World Trade Organization (WTO), the UK will likely be granted the right to import and export energy free of tariffs from and to other WTO members. There should be no danger of blackouts or supply shortages and in the short-term we may see little day-to-day change. However, the longer-term outlook for post-Brexit energy may be altered, with one of the major issues being the UK’s relationship with, or role within, the EU’s Internal Energy Market (IEM).  

A UK energy sub-sector of particular interest for U.S. companies is civil nuclear and indeed the UK offers significant opportunities for U.S. civil nuclear exports, particularly in decommissioning (valued at over $2bn yearly) and advanced reactor development ($75m earmarked for R&D). When the UK commenced the Article 50 withdrawal, it also initiated in parallel its withdrawal from the European Atomic Energy Community (Euratom). Leaving Euratom’s regulatory umbrella has the potential to impact the UK’s current nuclear operations; including fuel supply, waste management, cooperation with other nuclear states and research. Changes to immigration policy may also adversely impact the availability of skilled labor, particularly engineers and professionals within the nuclear industry.  

The UK has now concluded all the replacement bilateral Nuclear Cooperation Agreements (NCAs) needed to ensure continuity of civil nuclear trade following Euratom Exit. A bilateral NCA with the US was signed on 4 May 2019. This replacement agreement will ensure that civil nuclear trade can continue unimpeded.  

Key Issues 

  • EU Internal Energy Market (IEM): Continued access to the IEM is a key priority for the UK Government. This would allow the country to continue to take advantage of various benefits associated with the IEM including increased security of supply, market coupling, cross-border balancing and capacity market integration. However, a number of UK Government negotiating positions appear incompatible with full membership of the IEM (e.g. leaving the internal market, ending the authority of the Court of Justice of the European Union and repatriating regulation to the UK). Continued participation in the IEM following Brexit would be likely to involve the UK adopting the relevant European legislation. Any failure to cooperate might result in divergence of the British and EU energy regulatory regimes.   
  • Interconnectors: Brexit is having no real impact on current interconnectors developments, with four new interconnectors now under construction. Regardless of Brexit, the UK’s energy networks’ connections to the EU will remain in place. The main area that may see impact is for proposed interconnectors, which are still in stages of project development, without final financial decisions.   
  • EU State Aid Rules: If the UK does not remain part of the EEA, the EU State aid rules would no longer be directly applicable in the UK in their current form. However, the UK Government has indicated that it will transpose existing EU State aid law into domestic law following Brexit. There may be some scope for the UK to diverge from the EU rules over time, although this freedom might be constrained by the terms of a future UK-EU free trade agreement. The UK, as a WTO member, will also continue to be bound by the terms of the WTO Agreement on Subsidies and Countervailing Measures.   
  • Investment from EU Institutions: There are a number of EU initiatives which represent an important source of funding for UK projects. For example, European Investment Bank (EIB) investments in UK energy projects has been $14.8 billion from 2010 to present. Post-Brexit the UK will cease to be eligible for new financial operations from the EIB reserved for EU Member States.    

For more information contact Claudia.Colombo@trade.gov

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