As the UK approaches 5-year mark of leaving the EU, this essay collection explores the ongoing challenges and opportunities of the historic decision. In this blog, Senior Researcher Niamh O Regan explores impact on UK's energy security.
One of the many areas of discussion after the UK decided to leave the EU was where would it leave our domestic energy security. Five years on, the energy systems and security of the two remain inextricably linked but that does not mean that everything is going well.
Over the past three years, discussions of energy security have become a hot topic. Russia’s invasion of Ukraine caused wholesale gas prices to skyrocket, and in the EU, countries heavily dependent on Russian gas began rethinking their energy mix and security of supply. Energy security is not just having access to energy sources, but that the supply of that energy is uninterrupted and is at reasonable cost to the consumer. Increasingly, it is also about working toward energy decarbonisation. The UK continues to meet these criteria, but Brexit has made it more difficult.
What was anticipated: At the point when the UK left the EU, the two key concerns were how it would affect (1) supply and (2) cost
These concerns arose from the fact that the EU energy system is highly interconnected and, while part of the EU, the UK had become deeply involved and integrated into this energy system. This was true politically, through for example the development of the Internal Energy Market (IEM), which allows for relatively seamless day ahead energy trading. It was also true physically: fuel pipelines and electricity interconnectors crisscross Europe, enabling efficient, economical and uninterrupted supply.
Figure 1: Gas pipelines and electricity interconnectors to UK
Source: EnergyUK
Given the depth of integration and interconnectedness, there was an expectation that this would continue to define the energy relationship, even after Brexit. However, there were concerns over how the energy trading relationship would inevitably change, and the impact this could have on security.
In 2017, the House of Lord’s European Union Committee conducted an inquiry on the impact Brexit might have on energy security. Their report highlighted a number of risks to the UK’s energy security, including on energy cooperation and trade. The two core concerns were:
Supply: At the time of the Brexit vote in 2016, UK imported approximately 12% of its gas and 5% of its electricity from Europe. The physical trade of energy was expected to continue, without much jeopardy to supply, but if the UK left the single market (and so the IEM), there was a fear that trade could become more inefficient.
Cost: There was also a concern that less efficient energy trading system would also mean a more expensive one. While viewed as unlikely, there was considered to be some small risk that UK could face tariffs on energy imports. In both scenarios, it was anticipated that ultimately consumers would bear the brunt of increased costs.
What has actually happened: Energy security has remained relatively stable, but energy trading has become more inefficient, and so, as feared, more expensive
Five years on, the impact has not been as detrimental as it could have been. The UK and the EU continue to trade energy in a very similar way as they did before, but energy security has become more vulnerable.
The basis of the current energy trading arrangements are as a result of the Trade and Cooperation Agreement (TCA). The part of the agreement pertaining to energy included an agreement on the “optimised use of shared infrastructure”, deeper cooperation and improved efficiency. The agreement also established provisions and a framework on trading energy, recognising that the UK and EU would need to develop “a new model of efficient electricity trading across interconnectors”, to be implemented in 2022.
As expected, little of physical energy supply has changed. The UK continues to export energy to and import energy from the EU. Tariffs have also not been introduced on gas and electricity trading, keeping costs down.
Even without tariffs however, the cost of importing energy has gone up. The 2022 deadline for developing a new model of electricity trading this passed without change, and as feared, trade has become more inefficient. Energy UK estimates that moving from implicit to explicit trading has increased day ahead interconnector trading by £17m each year. They estimate that the cumulative impact of the trading arrangements has added up to 0.7% on electricity costs. This up to £370m in 2022 alone, and it could rise to £500m a year by the end of this parliament. More inefficient trading has also meant that in exporting energy to the EU, the UK is not seeing the return it might otherwise expect.
The future: inefficient trading could spell greater trouble for energy security down the line
The costs of trading inevitably land on the consumer in the form of higher energy bills. However, the effects of inefficient trading could be much more far reaching.
Firstly it has implications for investment in vital energy infrastructure. UK in a Changing Europe has highlighted that while the UK and the EU have deepened their energy cooperation, the failure to improve the efficiency of energy transfers risks increasing costs and subsequently hindering investment in infrastructure. This concern is also echoed by EnergyUK, who argue the inefficiency makes it harder to invest in complex infrastructure projects. European economic think tank Breugel meanwhile, argues that because the agreements on energy in the TCA are technically a temporary arrangement, there is a lack of confidence and certainty, weakening the business case for investors.
The knock on effect of lower investment is a risk to decarbonisation efforts, electricity supply and energy exports.
The UK and the EU are both working toward decarbonised energy systems, which means a much greater reliance on low carbon electricity. Doing so will require both more renewable energy generation, sufficient access to electricity supply, such as through interconnectors. The UK wants to reach 18GW of interconnection capacity by 2030, which will facilitate greater electricity trade and flexibility. As the UK moves towards an electrified energy system, and looks to generate more domestic electricity for sale, the need to be able to seamlessly export and import power becomes all the more crucial.
The situation is not set in stone. As referenced earlier, the UK and the EU still have the opportunity to develop a better agreement on how electricity is traded. A more efficient system would benefit all parties. But discussions need to begin urgently. The current agreement on trade and cooperation in energy only lasts until 30th June 2026, unless the parties involved agree to renew it. The new government has spoken of its desire and intention to reset the UK’s relationship with the EU. This presents the perfect opportunity to finally develop a more efficient trading system. Doing so will improve energy security, both for the UK and the EU, but action needs to be taken to work towards this now. At this stage of 2025, next summer may seem far away, but it will approach faster than we think.
