Issue link: https://fhpublishing.uberflip.com/i/961476
THE DISRUPTION: BREXIT What's the deal: By this me next year, the UK will be on the verge of leaving the EU following last March's triggering of the Ar cle 50 withdrawal no ce. Brexit places a ques on mark over the UK's con nuing par cipa on in the EU's internal energy market (IEM), the Emissions Trading System and Euratom and has par cular ramifica ons for the development of the all-Ireland single energy market. Prime Minister Theresa May said in her Mansion House speech that the government aims to protect the single energy market across Ireland and Northern Ireland, explore op ons for the UK's con nued par cipa on in the EU's IEM and maintain a 'close associa on' with Euratom. Why it ma ers: In our survey, Brexit caused most concern among supply chain respondents, (six out of 10 on average). This is compared to energy genera on and retail respondents, who put it at 5.8 out of 10, water wholesalers and retail, who put it at 5.5 out of 10, and energy networks, who rated it 4.9 out of 10 on the disrup on scale. Top of the pile for u lity concerns in the Brexit process is the future of its rela onship with the IEM and the way in which the UK's growing interdependence with wider European energy networks will be managed in future policy and regulatory approaches. The UK's connec on to the IEM is physically manifested in the form of the 4GW of interconnectors that link the UK energy network with those of its EU neighbours. Another 7.7GW of interconnector capacity is currently being developed, following Ofgem approval. By facilita ng trade in surplus genera on, the interconnectors will enable the UK's electricity grid to be er cope with the peaks and troughs in output that will inevitably result from greater dependence on intermi ent renewable power. Experts agree that the interconnectors will con nue to be used to trade electricity and gas post-Brexit. But there are doubts about investors' willingness to invest in new projects amidst the regulatory uncertainty surrounding the future of the UK's trading rela onships with the rest of the EU. THE DISRUPTION: POLITICAL INFLUENCE AND INTERVENTION What's the deal: A surge in populist poli cs over the last five years has prompted a corresponding rise in poli cal appe te for intervening in u li es markets. The impacts of this urge to intervene on the behalf of consumers (and voters) have been most obvious and most heavily trailed in the energy retail market, where they have culminated in the introduc on of price caps to protect vulnerable customers and legisla on for wider price regula on. However, in the last 12 months, water companies and energy networks have also begun to feel the effects of poli cal influence on the shape and tone of regulatory frameworks. John Penrose MP – who made a name championing a cap on default tariffs – has triggered a blast of poli cal fury towards energy networks who he says have become "fat and lazy" under overly generous regulatory regimes. Ofgem's dra framework for RIIO2 reflects an awareness of such views and includes an array of poten al mechanisms for ensuring "fairer returns" are realised in the future. Why it ma ers: In our survey, policy change and uncertainty was rated 6.6 out of 10 on average, in terms of its poten al to disrupt. Energy genera on and retail rated it most poten ally disrup ve, at an average 6.9 out of 10. Whereas in recent research, available exclusively to U lity Week members, industry chief execu ves were clear they felt that a rising appe te for poli cal interven on in markets is significantly eroding the independence of economic regulators, with a poten ally deleterious effect on investor confidence. This view was most strongly expressed by leaders in the water and energy networks space, where the ire of public- spirited MPs and ministers is being most freshly felt. In the wake of sugges ons that the RIIO mid-point review could re- open revenue se lements, one gas network leader told U lity Week Ofgem's increasing suscep bility to poli cal pressure to take rapid ac on against perceived market failures run the risk of damaging the largely posi ve and effec ve regulatory approach established under the framework. P R E S E N T S I N A S S O C I A T I O N W I T H NETWORK / 34 / APRIL2018