Efforts to link the UK’s electricity grid with other European power networks would be set back if the UK decides to leave the EU, with some key projects likely to be put on hold, experts have told euractiv.com.
A decision to leave the European Union in the referendum scheduled for 23 June would mean that the UK would not automatically remain a member of initiatives and institutions working to harmonise EU energy prices and develop cross-border rules for electricity interconnectors.
Silke Goldberg, a partner focused on energy at law firm Herbert Smith Freehills, told EURACTIV that if the UK was to leave the EU, “one of the areas that would be immediately affected is actually interconnectors – both existing and planned projects”.
She explained that this is because the UK would no longer automatically be part of the EU regulatory framework for market coupling – an EU initiative to unify electricity trading and harmonise power prices across Europe.
Cross-border network codes
In addition, the UK would not automatically be able to influence decisions around the development of cross-border network codes – rules that regulate how networks are used to transport electricity for example through interconnectors.
Network codes are under development by the European Network of Transmission System Operators for Electricity (ENTSO-E). The UK’s Transmission System Operator (TSO), National Grid, is closely involved with the ENTSO-E discussions, but if the UK left the EU, it would have to negotiate with other member states to remain part of the association.
“It would mean trying to get back into a part of the single market we’d just left,” said Gavin Williams, a corporate partner advising on Brexit for Herbert Smith Freehills.
This was echoed by law firm Norton Rose Fulbright, which said in a client note that “the UK is unlikely to have a say in the formulation and interpretation of the [energy regulation] rules, unless the UK manages to negotiate to remain part of the institutions which co-ordinate EU energy regulation”, such as ENTSO-E, ENTSO-G for gas transmission operators and ACER for energy regulators.
The European Commission refused to comment on the potential impact that Brexit could have on electricity interconnectors.
Most developers of electricity interconnectors – which mainly comprise national TSOs such as National Grid in the UK, RTE in France and Tennet in the Netherlands – also declined to comment when approached by EURACTIV.
‘Prolonged period of uncertainty’
However, Charlotte Ramsay, National Grid’s head of strategy, markets and regulation, gave evidence to an inquiry held on 12 April by the UK Energy & Climate Change Committee – which is tasked with examining UK energy policy decisions. She was specifically asked about whether Brexit would threaten the company’s plans to build electricity interconnectors.
“Undoubtedly, there would be some disruption as we work out how we re-engage with some European institutions,” she told the inquiry. “One experience that we have had on the interconnector side is looking at how the Norwegians engage with the energy market … Being outside the European Union, they have had to work very hard to continue to be influential, and they have managed it.”
“Looking at the Norwegian example, would Brexit make a difference for us? Yes, it would, because we would have to try even harder to be influential in that space if we wanted to continue to access and change things for the good of UK consumers as well as the overall European consumer base,” she added.
UK Energy Secretary and Conservative Party politician Amber Rudd – who wants the UK to remain in the EU – has also said that Brexit would lead to a “prolonged period of uncertainty, including on the nature of our access to the EU single energy market”, which she said would have an effect on the purchase of electricity through interconnetors.
Eirgrid in Ireland, which owns and operates the operational East-West Interconnector between the UK and Ireland, agreed that a decision by the UK to leave the UK could create uncertainty around its network code arrangements, a spokesperson for the company told EURACTIV. But Brexit would have ”no impact” on the day-to-day operation of the interconnector, he highlighted.
A spokesperson for another European TSO, who did not want to be named because of his organisation’s policy to not comment on ongoing events, said that ”it is clear that the very idea of Brexit is creating unrest”.
Danish TSO Energinet.dk, which is planning to build the Viking Link interconnector between Denmark and the UK, was less concerned. “The joint development agreement between National Grid and Energinet.dk is based on commercial terms and does not have any dependency on the UK’s membership of the EU,” said a spokesperson for Energinet.dk.
Efforts to raise private capital to finance interconnectors could also be affected if the UK leaves the EU.
Chris Anderson, CEO of 4C Offshore, a UK-based consultancy, said that most of the capital needed to build the UK’s interconnectors “won’t come from the government but from private investors”.
“If through Brexit we must leave the Internal Energy Market, we potentially have to renegotiate planned deals on a country-by-country basis,” he said, adding that existing projects are also likely to have to go back and renegotiate some of their contract terms.
The uncertainty around the UK’s role in the EU energy market post Brexit would also mean that the financing costs for UK projects looking to raise bank debt could increase and that it could be more difficult for developers to find investment partners. While most interconnectors to date have been financed on the balance sheet of TSOs, it is understood that some developers are looking to bring in project finance debt and third-party equity financing from infrastructure investors and institutional investors to build their new projects.
In addition, it is uncertain whether interconnectors in the UK would qualify for funding from the European Investment Bank (EIB) or the European Fund for Strategic Investments (EFSI) if the country does not remain in the EU. Energy projects were the biggest recipient of the EIB’s €7.8 billion investments in the UK last year, accounting for 28% of all investments.
The bank has in previous years provided finance for two existing UK-continental Europe interconnectors – the EWIC project to the Republic of Ireland and the BritNed project connecting the UK With the power grid of the Netherlands.
A source close to the EIB said that “one would assume that financing wouldn’t be available” for new projects if the UK left the EU. An EIB spokesperson said there’s “no clear answer” on how the EIB would engage with the UK in a Brexit situation.