Increasing interconnectivity with continental Europe will necessarily require cooperation with the EU internal energy market in any Brexit scenario. Because the Government has been at the forefront of efforts to liberalise and develop cross-border energy markets, we envisage that this cross-border policy direction is likely to endure.
The issue is particularly important in relation to the electricity sector in Northern Ireland which is highly integrated with that of the Republic of Ireland – through the existing Single Electricity Market (SEM) and the new I-SEM (Integrated Single Electricity Market), which is under development and scheduled for go-live in October 20181. Whilst the Government has stated in its position paper on Northern Ireland and Ireland that it is seeking the continuation of the SEM, the framework for doing so would need a special arrangement to be found. Indeed, in the draft of 19 March 2018 of the EU Withdrawal Treaty2 (the draft Withdrawal Treaty), the EU and the UK have agreed in principle that certain EU laws governing wholesale electricity markets shall continue to apply in respect of Northern Ireland following Brexit (although notably the relevant annex is yet to be published).
In relation to Great Britain, the Government has recognised the benefits of coordinated energy trading arrangements in helping to ensure lower prices and improved security of supply3 and is therefore, seeking to retain as free as possible access to the IEM and to remain an influential player on energy in the EU4. However, a number of UK Government negotiating positions appear incompatible with full membership of the IEM (for example, leaving the internal market, ending the authority of the Court of Justice of the European Union and repatriating regulation to the UK). Continued participation in the IEM following Brexit would require an appropriate partnership with the EU and would be likely to involve the UK adopting - and complying with - the relevant European legislation. The UK may not have a say in the formulation and interpretation of the rules, unless the UK negotiates to remain part of the institutions which coordinate EU energy regulation, such as ACER, ENTSO-E and ENTSO-G. Any failure to cooperate might result in divergence of the British and EU energy regulatory regimes.
The Commission notice to stakeholders on the withdrawal of the UK and the IEM5 outlined some of the immediate implications if the UK withdraws from the EU without such a new agreement. For example the UK is expected to cease to participate in the allocation platform for forward interconnection capacity, the European balancing platforms and in market coupling. In addition, transmission system use fees are expected to be payable on all electricity imports and exports from the UK and participants based in the UK who wish to continue trading EU wholesale energy products will need to register with the Member State where they are active to ensure compliance with the regulation on wholesale energy market integrity and transparency (REMIT).