Brexit is happening and history is in the making but what does this mean for UK energy policy and the multitude of UK businesses that are affected by the potential impact of bills and tariffs?
The internet is awash with opinion but according to Nick Butler, visiting Professor and Chair of the Kings Policy Institute at Kings College London, writing for the Financial Times: “The UK’s exit from the EU should have very little impact on the energy business. The price of oil, gas and coal is set by international markets not by the institutions in Brussels.”
Butler goes on to say that the energy union proposed by the EU is much more focused on developing common infrastructure and in ensuring that there is an open market across Europe. Presumably we’ll no longer be a part of this but “there is no reason to think that the interconnection and trading links which already exist on straightforward commercial terms will not continue regardless of a UK exit from the European institutions,” says Butler.
It is, however, likely that the impact of Brexit will be felt less in terms of British interaction with Europe than within the UK itself but nothing is certain until the shape of the new government takes form. Which is all good and well but what business owners really want to know is will they have to pay more? Will the weakening sterling send energy prices into a tailspin?
“Brexit is unlikely to change much, if anything, in our energy relationships with our neighbours. Trade will go on. Oil and gas will still continue to be priced according to market circumstances at the global level. But within the UK’s own energy mix new ministers could radically alter the detailed balance. For investors this is another level of uncertainty to be added to all the risks around economic growth and the value of the currency. They will get no clear answers until a new government is formed in October.”
So ‘no’ (energy tariffs shouldn’t be subject to any sort of dramatic increase)…but this is dependent on new leadership and direction from government. It’s a waiting game, in other words.
Damian Kahya, writing for Greenpeace’s Energy Desk, has another opinion; arguing that Brexit could add billions to the cost of fuel in the UK, according to an analysis of government import data.
Kayha says that the data for 2015 suggests that a fall in the value of the pound could add up to £4 billion to the cost of oil, gas, coal and electricity imports, driving up costs for consumers and businesses.
If Brexit manages to wipe 20 per cent off the value of the sterling, as has been predicted, households and businesses, which spend nearly £21 billion a year on imported energy (as per coal, oil and gas UK trade data for 2015), could accrue and extra £4 billion in costs – the additional amount (20 per cent) needed to make up for the devalued sterling.
What this means, in practical terms is that: “Assuming that fed through the households and business – in the form of higher energy bills, fuel costs and more expensive goods and services – it would add up to £150 to their annual spending.”
Uncertainty is a frustrating thing but it’s good to be aware and consider all points of view – whilst getting on and doing business as usual. It’s also worth noting that both of the perspectives in this post are subject to various provisos and variables so it’d be worth checking out the original articles (see below sources).
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