Post-Brexit uncertainty in the Energy Market

Following the UK’s vote to leave the European Union, the pound fell to its lowest level in more than 30 years against the dollar earlier this week. The UK is highly dependent on imports, with approximately 50% of gas supplies being imported; the fall in sterling value is likely to drive up import costs. Energy Minister Andrea Leadsom has insisted Britain’s exit from the EU will not impact the country’s energy policies. Despite this, Vivid Economics’ report for the National Grid warned that if Britain was excluded from the Internal Energy Market in the EU, the potential impact ‘could be up to £500m per year by the early 2020s’.

EU countries currently account for over half of all foreign direct investment in UK energy infrastructure. In 2014, £45 billion from EU countries was invested in Britain’s energy system. With UK’s exit from the EU, investment and funding in new infrastructure is likely to be delayed. The current government has been working to lay out incentives for investment in new electricity infrastructure but the future of the new 18 billion pound French owned EDF nuclear power plant at Hinkley Point has been questioned following Brexit. The delayed project was originally due to produce 7% of the UK’s electricity by 2017 and with over a dozen power plants due to close in the next decade this raises further concerns of power shortages in the UK. EDF has insisted Brexit will have no impact on the projects future but other independent analysts have their doubts. It has been suggested that the Brexit vote has given EDF ‘the perfect occasion to pull the plug on Hinkley Point’. Other EU investors have shown concern as the German energy company Siemens have put a hold on new wind power investment following the Brexit vote until the UKs European relationship becomes clearer.

As well as a lack of investment from EU countries, a report by the Institute for European Environmental Policy (the IEEP) has said that an independent UK stands less chance of securing favourable bilateral deals with non-EU countries. A situation that is a cause for concern with regard to Russia, from whom the UK receives 16% of its energy imports.

The uncertainty of the direction of the future energy policy, energy trading outside of the EU and the UK’s political instability is likely to affect energy prices, though the outcome of the referendum and UK’s energy security is still uncertain.