October 10, 2019 / 11:40 AM / a month ago

Factbox: How the UK's energy markets will work if it leaves the EU

LONDON (Reuters) - As the United Kingdom edges closer to a deadline of Oct. 31 to leave the European Union, below is an outline of the status of energy markets in that event.

FILE PHOTO: European Union and British flags flutter in front of a chancellery ahead of a visit of British Prime Minister Theresa May in Berlin, Germany, April 9, 2019. REUTERS/Hannibal Hanschke

CROSS-BORDER FLOWS

The United Kingdom imports around 5-6 percent of its electricity via power links with France, Holland and Ireland, while around 40 percent of the country’s gas supply comes via Norwegian and EU pipelines.

If the United Kingdom leaves the EU without a deal it will no longer be part of the EU’s Internal Energy Market (IEM), creating the potential for higher energy bills and supply disruptions.

Without the IEM, the trade of power through interconnectors, or power links, would be more difficult and more expensive.

Interconnectors with Europe should continue to flow in the event of Brexit. In the unlikely event flows fall to zero, there is sufficient surplus power to meet demand, National Grid said on Thursday.

However, the market could need to attract regular liquefied natural gas supplies to the UK, it said.

Interconnector operators need to prepare alternative trading arrangements and updated rules, the UK government has said.

NORTHERN IRELAND

Northern Ireland shares a wholesale electricity market with Ireland, called the Single Electricity Market, which involves cross border power flows between the two countries and operates under common EU rules.

The UK government has said it will do all possible to maintain the SEM but if it cannot, Irish markets will become less efficient with potential impacts for consumers and producers on both sides of the border.

MARKET LIQUIDITY

If the United Kingdom leaves the EU without a deal it would no longer be coupled to European power markets.

The intra-day and day-ahead markets are among the most liquid products of a power exchange. They represent power that is traded for use within the same day and electricity for physical delivery the following day.

Current high liquidity means that any loss of transaction volumes would hit profit at the power exchanges.

The liquidity of the United Kingdom’s short-term power markets is likely to fall by 10-20% if there is no deal, a senior executive at the EPEX SPOT power exchange told Reuters in August.

MARKET REGULATION

The EU’s Regulation on Energy Market Integrity and Transparency prohibits insider trading and energy market manipulation.

The government has said most of the existing regulation will be kept domestically.

Under a no-deal Brexit, a temporary UK tariff regime will be implemented. This would apply for up to 12 months. Under the temporary tariff regime, imports of electrical energy into the UK would be eligible for tariff-free access.

EU’s EMISSIONS TRADING SYSTEM

A UK tax on carbon dioxide (CO2) emissions from power stations and factories would begin on Nov. 4 if the country leaves the EU without a deal, the UK government has said.

The tax, set at 16 pounds ($20) a tonne for 2019, would replace levies under the European Emissions Trading System (ETS), which Britain would automatically leave under a no-deal scenario.

If it gets a deal, the United Kingdom government said it intends to stay in the ETS until the end of the current trading phase at the end of 2020.

It is also working on a domestic emissions trading system that it hopes will link to the existing EU scheme from January 2021.

EURATOM

After leaving the EU, the United Kingdom will no longer be a part of the European Atomic Energy Community (Euratom), the EU’s framework for nuclear energy safety and development, establishing a European market for goods and services and compliance with international nuclear safeguards.

The government has said a new UK nuclear safeguards regime will come into force run by the Office for Nuclear Regulation.

However, the status of future supplies of nuclear fuel have not yet been agreed as it would be part of a future trade agreement between the EU and the United Kingdom.

(This story corrects third paragraph in the EU’s EMISSIONS TRADING SYSTEM section to say the UK intends to remain in the scheme if it gets a Brexit deal until 2020, not in the scenario of no deal)

Reporting by Nina Chestney; Editing by Toby Chopra

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