Utility Week

6 | 31ST JANUARY - 6TH FEBRUARY 2020 | UTILITY WEEK News Inside story I t may seem as if Brexit is all over bar the shouting. And there wasn't even much of that last week when the House of Com- mons nodded through the government's EU Withdrawal Bill with barely a murmur. The muted tone was in stark contrast to the dramatic scenes last spring when mil- lions were tuning into the televised par- liamentary debates on ex-prime minister Theresa May's attempts to push through her withdrawal deal. However, this apparent calm could prove deceptive as the EU and the UK gear up to negotiate the trade deal that will determine future relations between their economies. For utilities, this will be a far more impor- tant stage than the wrangling over the withdrawal agreement. The mist surrounding the negotiation pro- cess will start to clear next week, at least on the other side of the English Channel, with the European Commission due to publish its dra‚ negotiating mandate. Once it has been considered by the Euro- pean Parliament, this document is on track to be signed off towards the end of the month. But the picture is less clear from the British side, says Sarah Williams, head of the Greener UK unit at the Green Alliance: "The way the negotiations are going to be struc- tured is pretty unclear at the moment." Here, Utility Week explores the key issues that will be at stake over the course of this year as Brexit enters its next stage. The internal energy market Energy companies would ideally like to retain the closely intertwined relationship that the UK enjoys with the rest of the EU through its participation in the internal energy market (IEM). However, this goal is complicated by the British government's insistence that the trade deal should be concluded by the end of the year. In practice, this means a sketch agreement must be in place by the middle of this year, in order to give the EU's various parliaments enough time to ratify it. Silke Goldberg, a partner at solicitors Herbert Smith Freehills, is sceptical a deal can be concluded by prime minister Boris Johnson's mooted deadline, which she labels "disastrous posturing". "It would help if the government didn't stand around posturing and saying it will get it done in a year with no extension: by doing that they are effectively prolonging the pain," she says. The compressed timetable puts the onus on resolving the most pressing issues and kicking other matters into the long grass, which will probably include energy. Shane Tomlinson, deputy chief executive of environmental consultancy E3G, says the concentrated timeframe will limit the scope of what can be achieved. "On timing, there is going to be a real sprint to conclude some- thing by the summer." The logic of the timetable suggests this year's negotiations will be the first of several phases over a five- to ten-year period. Even though Goldberg sees "no insurmountable problems" in the way of concluding an energy deal, she agrees that the future UK-EU energy relationship will be dealt with in this first round. When negotia- tions start, the main issue will be how close the UK remains aligned to EU rules and regulations. Most experts believe the outcomes for energy will closely reflect the nature of the broader deal on issues such as standards and trade that the UK eventually agrees with the EU. Chancellor of the Exchequer Sajid Javid has signalled that UK companies must be ready for divergence from EU regulations. And matters could be further compli- cated by Ursula von der Leyen's decision to make her European Green New Deal the centrepiece of her five-year programme as president of the European Commission. Tomlinson says: "The really important choice emerging for the UK government is about whether it wants to continue to play a part in that or diverges." The extent to which the government opts to prioritise the US or the EU when negotiat- ing its trade deal will be the other key part of this equation, he says: "The question mark is whether the UK wants to pivot towards the US." Maximising the scope for co-operation between the UK and EU is important for ambitions to decarbonise the grid, says Tom- linson: "The ability of the UK to continue to trade freely with the EU is really important for maximising the potential of renewables. "The real risk is of this becoming a drive for deregulation in the UK. From our per- spective, prioritising a deal with the EU Green New Deal would be desirable. "Given the quite tight timescale, there are going to be binary choices for the UK on whether it is prepared to access level playing field conditions or prioritise divergence and deregulation." The industry shouldn't give up on hopes of close co-operation with the EU on energy matters, insists Tim Yeo, former chairman of the House of Commons energy and climate change select committee. Pointing out that energy has historically not been subject to tariffs, he argues that the size of the Conservative majority gives the government a "huge opportunity" to preserve collaboration on energy. "They ought to be able to say that energy is an area where we don't need to have the same distance from the EU. It's in the inter- est of both sides for it to be treated in a very different way. It wouldn't be difficult for the government to depart from EU rules on man- ufacturing and services, but not on energy. "Energy quite logically could stay in a separate silo – and it needs to. It's not a good or a service like financial services." Trading places: clock already ticking on Brexit part 2 Whether or not Big Ben bongs to mark Brexit Day, celebrations could be shortlived because the pressure is on to agree a new trading relationship with the EU – quickly, says David Blackman. continued overleaf

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