Hallowe’en Brexit delay spooks energy markets

Hallowe’en Brexit delay spooks energy markets

The latest extension to the Article 50 process will add further unwelcome uncertainty for energy market players already trying to manage the implications of Brexit.  

Shepherd and Wedderburn regulation and competition law expert Gordon Downie explores some of the legal issues.

Contribution by Gordon Downie

Hallowe’en may be spookier than normal this year, coinciding as it does with the latest deadline for the UK and EU to conclude their first-round Brexit negotiations with a ratified Withdrawal Agreement.

Energy market players may have particular reason to bite their fingernails, given the implications of the fresh delay for them.

Not only does the latest extension prolong existing uncertainty, but the shift from an end of March to end October 2019 deadline adds (or at least highlights) some specific issues for the sector, namely:

  • Brexit contingency planning must now recognise that the EU’s Clean Energy Package (overhauling the EU Internal Energy Market) will be fully in force by Halloween. Parts of the package, such as the new Energy Efficiency Directive, have already begun to crystallise. However, the full legal effects of the package in the UK will depend on whether there is a further Article 50 extension, the UK has left without a deal, or has entered into the Withdrawal Agreement.
  • The GB capacity market (the subsidy mechanism which underpins security of supply in Great Britain) is currently suspended while the EU Commission examines whether it complies with EU State Aid rules. The outcome of that process, which is not expected to conclude until late 2019, will be directly impacted by events in the Brexit timeline, such as whether the UK (in a no deal scenario) has by then taken back control of State Aid matters from the Commission.
  • The UK’s participation in the EU’s Emissions Trading Scheme (ETS) has been suspended since 1 January 2019 and is not scheduled to recommence until signature of the Withdrawal Agreement. The UK Treasury has indicated that, in the event of a no deal, it would introduce a UK Carbon Emissions Tax, although it has also left open the options of remaining in the EU ETS or establishing a UK ETS (linked to the EU ETS or standalone).

These are only a selection of the sorts of issues energy market players are currently grappling as the Brexit uncertainty continues.

As we head towards European Parliament elections and a fresh set of EU Commission policy initiatives, that challenge looks ever more daunting.

Gordon Downie is an acknowledged leader in the field of UK and EU competition law and regulation

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