Brexit

Brexit update: Energy & Cleantech

Peter McArdle Peter McArdle

The UK referendum vote to leave the European Union has attracted attention across the globe. The full implications are not yet clear. However, policies relating to the Energy and Cleantech industries are largely the remit of the Irish Government rather than the EU.

Thus this may dilute the impact of Brexit on the sector in these industries, but there are still some issues to watch out for as set out below. Finally, whilst the most immediate impact of the Brexit vote is uncertainty it is worth reminding ourselves the Energy & Cleantech industry is well used to uncertainty. Uncertainty does also bring opportunity so all is not doom and gloom, especially for an industry that is in constant need for investment.

Security of supply

Ireland is heavily dependent on the UK as its primary source of gas and oil. Indeed, with the majority of Ireland’s imported gas and oil sourced from the UK, the UK’s decision to leave the EU leaves Ireland exposed to the possibility of being totally dependent on the supply of gas and oil from a non-EU member state which in an emergency situation could be problematic (as the EU regulations which provide for disaster relief across Europe and the sharing of resources between Member States in an energy crisis would no longer apply to the UK).

One consequence of the Brexit vote is to increase the likelihood of the proposed interconnector project between Ireland and France. Interestingly on the 21 July, Eirgrid and its French counterpart, Résaue de Transport d’Electricité (RTE) signed a memorandum of understanding to move onto the second phase of the proposed 700 MW Celtic Interconnector project.

Energy market implications

In the Republic of Ireland and Northern Ireland generators sell electricity into a combined electricity pool currently known as the Single Electricity Market (“SEM”). The Integrated SEM or ISEM is due to replace the existing SEM in 2017 and will be more aligned to the “target model” which is favoured by the EU and more aligned to other European energy markets. While the principles of the SEM are binding in that they have been passed into primary legislation both in Ireland and in the UK, how Brexit will impact on the proposed ISEM remains unclear.

Energy prices

With approximately 46% of electricity generation in ROI (49.1% in NI) reliant on imported gas, wholesale electricity prices in Ireland are heavily affected by sterling denominated gas commodity prices. Wholesale gas prices are down 35pc on average in July 2016 compared with July 2015, with Brexit and a weaker pound having an impact on gas prices.

If sterling is to continue to weaken, one could expect wholesale electricity prices to continue to fall. However, if the EU was to impose energy tariffs on the UK for energy sold to it from the EU, these tariffs would negate the benefit of lower sterling prices. Interestingly, some commentators believe that Ireland would probably be able to seek to get a rebate from the EU on these tariffs.  

Investment

The uncertainty caused by Brexit, which is likely to remain in situ until Article 50 is formally passed and the role of Britain within the EU clarified, may impact on projects such as the planned North-South Interconnection between the Republic of Ireland and Northern Ireland, though may well encourage interconnection with other EU member state’s such as France (as mentioned above).