Brexit and the energy sector

08 July, 2016

How will the UK Leave decision impact on the energy sector in Ireland?

Ireland and the UK are part of an increasingly integrated European market for electricity and gas. The move towards a single market for energy and the Energy Union brings benefits for all members such as increased security of supply at reduced cost. How Brexit will impact this integrated market and the associated arrangements and regulation is one of the uncertain aspects of the UK referendum decision.

The majority of EU law, environmental law and energy wholesale market regulation is made for countries that are in the middle of Europe, land-locked and that have a surfeit of transmission lines criss-crossing them. Ireland as an island has practically no interconnections, which places it in a unique and potentially difficult position.

Current arrangements are unlikely to undergo changes in the short term, as this would require significant variation of UK legislation and policy. However, a significant portion of Ireland’s primary energy products are imported from the UK and therefore Brexit will potentially have large impacts on the energy sector in the longer term, so the approach required at the moment is to take stock of current positions and make robust plans for the future.

One concern would be the imposition of tariffs on the provision of energy products which would have a significant impact on the Irish economy.  The likelihood of this taking place is, however, low. Norway, Switzerland and Russia are examples of non EU member states that are integral to the EU’s energy markets and do not face the imposition of tariffs. Funding of interconnectors with GB or Northern Ireland will be a challenge and there will be a greater focus on interconnection with countries such as France.

The risk to the Irish economy arises from the delayed or abandoned harmonisation of energy market arrangements. Ireland and Northern Ireland currently operate a single wholesale electricity market and voluntarily harmonised retail arrangements. Regulators are in the process of reforming the wholesale electricity market to fully conform to the EU Target Model. The reforms will facilitate more efficient trading with EU member states, allowing decarbonisation of the electricity system at reduced cost while maintaining security and continuity of supply.

In the immediate term, energy companies should review their hedging strategies in light of a probable continued weakening of Sterling.

Contact us

Kim McClenaghan

Partner, PwC Ireland (Republic of)

Tel: +353 1 792 6912

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