Utility Week

News Inside story The growth of trade across interconnec- tors, which work on the basis that electri- city ows across borders wherever prices are higher, has been facilitated by the UK's participation in the IEM. Tari• s are unlikely to be a headache, given that the EU does not currently apply tari• s to energy imports from other countries within the WTO. But with the UK no longer a member of the IEM, trading of electricity across the interconnectors will become less e- cient, especially as the EU moves to allow hour-by- hour trading of electricity across its member states' interconnectors. The level of energy co-operation between the EU and the UK, which is currently embodied in the IEM, will be crucial for the "economic case for future interconnectors going forward", says E3G's Tomlinson. Already, relationships between French and British regulators have deteriorated, with the former discouraging their system operators from engaging on interconnector schemes. "They're probably the most sceptical of all [the EU regulators]," says Herbert Smith Freehills' Goldberg. However, so far there has been little tan- gible impact on plans for future interconnec- tors, says a senior legal source. "There were a couple of projects that could have been canned and weren't. It's surprising that peo- ple are so gung-ho and basically assuming that it's going to be okay." Goldberg agrees, but with a caveat. "It will happen eventually but it will take longer. Energy trading will be much more ine- cient." Ireland Northern Ireland is the part of the UK where concerns about post-Brexit power arrange- ments will be most acute. The province could be heavily exposed by a collapse of the all-island Single Energy Market (SEM). However, because the SEM is based on a bilateral co-operation agreement between the UK and Irish governments, rather than on EU legislation, trading should be able to continue if the UK leaves the IEM. In a letter to former European Council chair Donald Tusk, Johnson included a UK commitment to "retaining the bene– ts of the Single Electricity Market". However, even if it doesn't collapse, the operation of the SEM could become a lot more complicated in a post-Brexit world, warns Goldberg. "If Ireland implements the Green Energy for All package and the UK is on an entirely di• erent timetable, questions nobody has seriously addressed so far, the UK is at risk of being more quickly misaligned than it˜thinks. "Northern Ireland is much more urgent than people think. I'm always astonished at how blasé people in Great Britain are about what is happening in Northern Ireland." The EU Emissions Trading System Also on the industry's agenda will be the extent to which the UK continues to par- ticipate in the EU Emissions Trading System (ETS). Like the IEM, the industry wants to remain closely aligned to what is now the world's biggest ETS. The government agrees but has a fallback position, mooted during the no deal prepara- tions, which is for the UK to tax carbon. The industry is reluctant to go down this route, though, because of fears that this mecha- nism is more prone to political interference by chancellors tinkering with tax rates. However, if the UK is to establish its own ETS, it must be established sometime this year, says E3G's Tomlinson: "The timescales are really quite tight." Josh Burke, a fellow at the London School of Economics' Grantham Institute, agrees that the best outcome would be to stay in the EU ETS if possible, but this will become more di- cult the more that EU and UK rules˜diverge. But the EU should want to retain UK participation, he says, pointing out that UK emissions account for around a tenth of all those traded within the ETS – a powerful contribution to the depth and liquidity of the mechanism. The same logic makes it less worth- while for the UK to set up its own emissions trading arrangements, Burke says: "If it's a UK-only ETS it can be costly because it's di- cult to – nd counterparties to trade with and the volatility will go down as transaction costs go up. A standalone ETS would be the worst outcome." David Blackman, policy correspondent, Utility Week continued from previous page "If Ireland implements the Green Energy for All package and the UK is on an entirely diff erent timetable, questions nobody has seriously addressed so far, the UK is at risk of being more quickly misaligned than itthinks." Silke Goldberg, partner, Herbert Smith Freehills "If Ireland implements the Green Energy "If Ireland implements the Green Energy "If Ireland implements the Green Energy for All package and the UK is on an entirely for All package and the UK is on an entirely diff erent timetable, questions nobody has seriously addressed so far, the UK is at risk of being more quickly misaligned than of being more quickly misaligned than of being more quickly misaligned than itthinks." itthinks." itthinks." itthinks." Silke Goldberg And Yeo, who now chairs the New Nuclear Watch Institute, says the EU and UK have shared geopolitical interest in co- operation around energy security. "We don't know what is happening as far as Russia is concerned and east and central Europe remains quite exposed: we have a strong common interest which should tran- scend parochial concerns about Brexit." A senior legal source believes both parties would be cutting o• their nose to spite their face. "On a common-sense basis, it would be really surprising if something sensible is not done," they say. "In all areas, [the EU is] shoulder to shoulder with us. It's hard to think they would want to create something di• erent." But the Green Alliance's Williams is less optimistic that the UK will be able to remain inside the IEM. A presentation by the Commission's taskforce for future relations with the UK concludes that Britain will leave the single electricity market and that the two parties will need to develop new mechanisms to govern relations in this area. "If we are going for increased divergence, I don't see how that will be possible. Partici- pation depends on accepting certain rules and regulations. That will be one of the big questions. How that will be squared is di- cult to see," says Williams. Interconnectors The most tangible manifestations of the EU-UK energy relationship are the gas and electricity interconnectors, which have multiplied in recent years. Great Britain has – ve completed electricity interconnectors with mainland Europe and the island of Ireland, providing around 5GW of electricity interconnector capacity. In 2018/19, the UK imported 5.4 per cent of its electricity demand through intercon- nectors with EU or EEA countries (Norway), and 40.7 per cent of its gas. This reliance looks set to increase as the UK becomes more reliant on intermittent renewable generation. 8 | 31ST JANUARY - 6TH FEBRUARY 2020 | UTILITY WEEK

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