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12 | 3RD - 9TH FEBRUARY 2017 | UTILITY WEEK Policy & Regulation Analysis T here are few dissenting voices within the utilities sector about the impor- tance of the UK's continued participa- tion in the EU's single energy market. None of the respondents to a consultation exercise, carried out by the now disbanded energy and climate change committee (ECCC) last year, backed pulling out of the single energy market. A report conducted by National Grid estimated that quitting the pan-EU market would cost UK consumers £500 million. However, that risk looks more likely fol- lowing prime minister Theresa May's recent speech setting out her government's plan for Britain to quit the single market along- side the EU. Last week, the Business, Energy and Industrial Strategy (BEIS) committee initiated its inquiry into Brexit's impact on energy policy. The probe effectively reboots an exercise initiated by the ECCC before it was wound up. Centrica regulation and strategy director Paul Hallas explained to the committee how Switzerland's experience showed that energy could end up as a hostage in the wider Brexit horse trading. The Swiss and the EU have been negotiating what Hallas described as "a technically uncontroversial proposal to allow Switzerland to benefit as a non-member state from efficient electricity arrangements". However, these negotiations have become caught up in the increasingly fraught discus- sions between the EU and Switzerland, trig- gered by the latter's vote in 2014 to tighten controls on immigration, he explained. For committee member and Labour's Peter Kyle, energy policy risks being caught up in bigger debates about the UK's contin- ued relationship with the EU. "These deci- sions are being taken above the heads of the energy market by heads of government," he said, noting a conversation he had with the ambassador from a fellow member state in which the latter had explained that the rest of the EU would play hard ball with the UK. "The logic is that energy might be an area where they want to inflict a bit of pain. We need to get a sense of the potential danger we are walking into." Even if existing internal market arrange- ments remain in place, the UK will lose its ability to influence how the internal market is shaped, effectively becoming a taker rather than a maker of the rules. "All of us would be uncomfortable about following other peo- ple's rule without the chance of influencing them," said National Grid director of busi- ness development Ian Graves. And in what Hallas termed a "rational world", it would be a no-brainer to maintain existing arrangements under which energy suppliers from EU member states are free to enter one another's markets. Energy companies queued up at last week's evidence session to explain to MPs how consumers in both the UK and the rest of the EU would benefit from maintain- ing existing energy trading arrangements between Britain and the continent. "We don't want different rules on each side of the border," said Martijn van Gemert, electricity committee member at the Euro- pean Federation of Energy Traders, arguing that deeper markets encouraged lower and ultimately converging prices across national borders. The committee was told that around 10 per cent of the UK's gas supplies flow down the interconnector pipes that connect the UK with the continent. The rest of the EU is set to benefit from its single market relationship with the UK too, explained Engie UK director of strategy and communications Kevin Dibble. "It's not just beneficial to UK consumer but will benefit EU consumers as the UK renewable indus- try grows and we start to create more diverse energy sources." Underlining what he descried as the "importance of flows in both directions", van Gemert pointed out that on 12 December last year, the UK was actually a net exporter of electricity via the interconnectors that have already been developed. MPs were reassured by Graves that Brexit would not impede the drive to build fresh interconnectors. He argued that France was keen to develop new projects. "At times of system risk, having a connection to the UK gives them extra confidence they can main- tain supply." In the meantime though, van Gemert expressed concerns about how uncertainty surrounding the UK's future status in the sin- gle market could be "quite killing for inves- tors", deterring players from entering the market. A further complicating factor in the upcoming negotiations could be that the UK's energy companies have a more distant relationship with the British government than their EU counterparts, increasing the risk that the sector's voice will not be heard loudly enough when the wider Brexit nego- tiations begin. "When I talk to other energy develop- ers in the EU, if they are part of a national transmission system operator they are much closer to their governments than we are," said Graves. Utilities might take heart from a comment by John Kerr, the UK's former representa- tive to the EU in an article this week in the Financial Times. He said energy was an area where there should be a "perceived common interest" in devising structures for future co-operation. For the sake of their consumers, energy utilities will need to ensure that this message gets across in Westminster. The post-Brexit SEM Switzerland offers a warning about the UK's place in the EU internal energy market post-Brexit, says David Blackman. It will become an outsider looking in. Brexit negotiations proper have yet to start