Posted on: 29/03/2016
Leaving the European Union (EU) and its Internal Energy Market (IEM) could cost the UK £500 million a year by the end of the decade, according to a new report.
National Grid commissioned Vivid Economics to assess the impact of Britain leaving the EU, with the consultancy concluding that the impact of a “Brexit” is “very likely to be negative”.
Vivid predicted that uncertainty arising from Brexit negotiations would push up the cost of investment in new power stations and grids.
Any potential benefits are likely to be “limited” because the UK is already committed to air quality and decarbonisation targets that are either greater than or equal to those set by the EU.
Norwegian or Swiss models highlighted
Vivid said most of the negative impacts of Brexit could be alleviated if the UK was allowed to stay within the IEM, giving it the same status as Norway.
But the Norwegian model would give the UK less influence on IEM energy policy than it currently enjoys.
The alternative would be to take on the same status as Switzerland, which is neither an EU member of part of the IEM.
Such a move would lead to higher investment costs, higher gas costs, and less trading in cross-border markets, which would affect balancing and capacity.
Energy Secretary Amber Rudd said: “The UK’s membership of the European Union has helped keep our energy bills down.
“If we left Europe’s internal energy market, we’d get a massive electric shock because the UK energy costs are likely to rocket by at least half a billion pounds a year – the equivalent of British bills going up by around one and a half million pounds each and every day.”
She added: “Being in the EU helps us attract billions and billions of pounds of investment in our energy system and supply chain. Taken together, this investment helps support 660,000 jobs in the UK’s energy sector.
“Does anybody really think all of that investment would continue if we left the EU, and with no extra costs?”
But Vote Leave said there was no evidence that the single market in energy would reduce prices and highlighted research suggesting EU energy regulation cost the UK between £86.6bn and £93.2bn.
Vote Leave Chief Executive Matthew Elliott said:
“Amber Rudd’s absurd claims simply aren’t backed up by her own research. It is quite extraordinary the extent to which the Government is willing to do down Britain in its desperate attempt to win the referendum.
“In fact the EU makes our energy bills more expensive and costs us £350m a week. If we want cheaper bills, less commission interference and the ability to spend our money on our priorities, then the safe option is to Vote Leave.”
Planning specialist Jennifer Ballantyne, a partner at law firm Pinsent Masons, said a vote to leave Europe could remove legally binding carbon-free targets, which in turn could dilute the political will to deliver renewable power.
“It's a huge contradiction that Brexit could result in a system where it is easier to develop renewables infrastructure in the UK, but at the same time there could be no strong incentive to make it happen,” she said.
"There is good and bad for the industry in terms of the UK's current relationship with the EU. The downside is that some segments of the market - for instance onshore and offshore wind - are over-regulated, with the EU imposing particular requirements which means the development process needs to be conducted in a particular way and a layer of constraints and extra costs are introduced.”
> Download the report