It might have been cold snap that concentrated Theresa May’s mind on energy issues when she made her landmark speech on the government’s Brexit negotiating stance last week.
Concerns had been mounting about the UK’s gas supplies in the run up to the speech, which had to be shifted from Newcastle to London after poor weather ruled out a trip to the north east.
“We’ve been reminded how vital interconnectors are going to be,” says Tim Yeo, former chair of the energy and climate change select committee.
Until now, the UK’s energy relationships don’t appear to have figured in May’s thinking about Brexit.
“It’s never been mentioned in any of her previous speeches: I doubt that she has ever thought about the internal energy market (IEM),” says Yeo.
That omission was rectified though in last week’s speech, which identified energy as one of the areas for co-operation with the EU post-Brexit.
May told the chilly gathering at the Mansion House that the government aimed to protect the single energy market across Ireland and Northern Ireland, explore options for the UK’s continued participation in the EU’s IEM and maintain a “close association” with the Euratom on nuclear matters.
Earlier in the week, opposition leader Jeremy Corbyn had used his own Brexit speech in Coventry to signal that Labour, too, wanted to remain in the IEM and Euratom.
Anthony Froggatt, a senior research fellow in energy and environmental issues at the security thinktank Chatham House, says that May’s speech was a “really important positioning statement”.
Single market
Utilities shouldn’t purr too loudly though, Yeo warns: “It’s good that the single energy market was mentioned but a pity that there wasn’t an unequivocal commitment: there’s no need to prolong the doubt.”
And just because the UK may want to participate in the single energy market, it won’t necessarily happen.
Donald Tusk, president of the European Council emphasised this week that the UK could not cherry pick what it wanted from the single market.
May’s desire for continued participation in the IEM quickly runs up against the government’s wish to quit the broader single market.
Lord Teverson, who chairs the House of Lords EU energy and environment sub-committee, warns that participation in the SEM is intimately bound up with membership of the single market.
Based on the evidence presented to his committee during its recent inquiry into the implications of Brexit for the UK’s energy security, he predicts that it will be ‘very, very difficult’ for the UK to remain in the SEM.
“That is just a direct cherry picking: the IEM is very much a single market entity. The IEM will be seen as another area where you are in or out. It’s part of the single market architecture so it’s a very big ask.”
Mark Johnston, a Brussels-based energy policy expert, agrees: “The starting point is that the IEM is sub-set of single market. If she is outside the single market she is outside the IEM.”
Participation in the IEM requires UK involvement in the various cross-border bodies that carry out the EU’s work in the energy field.
“If the UK goes in and says it wants bilateral relations it’s not going to get far,” says Froggatt.
May signalled in her speech that she wanted to continue to participate in a number of EU agencies.
But again, the UK’s membership of these bodies looks likely to be precluded by the government’s determination not to submit to the jurisdiction of the European Court of Justice.
Bearing on British interests
“Unless there is an overarching legal framework it may fall down and we may not be allowed to do it because we are not part of the institution that oversees it,” says Froggatt, pointing as an example to ACER.
The European council of energy regulators isn’t open to non-member states and Norway only has observer status, even though it has signed up to the EU single market that the UK government has pledged to quit.
This message was underlined two weeks ago by the publication of the European Commission draft withdrawal treaty text.
This states that even though the UK will remain a part of the single market during the Brexit transition period, it will not have the right to attend meetings of the EU’s agencies, except for those governing fisheries.
Instead, the UK will only be able to attend such meetings at the invitation of the EU member states when a matter is being discussed that will have a big bearing on British interests.
Froggatt says: “The idea that we will leave and then they will reform the institutions is debatable. Even if they wanted to let the British in, they would have to change the basic legislation to enable that.”
The exception could be the all-Ireland energy market, which Lord Teverson believes is nearly impossible to disentangle from the EU’s IEM.
“Something may have to give on the EU side over Ireland,” he says.
More broadly though patience in Brussels is running thin with the British, warns Johnston, who went to a speech a fortnight ago by Tony Blair in the Belgian capital.
While on this side of the English Channel, the former prime minister is regarded by many as a euro-fanatic, his message that in order to accommodate UK concerns the EU needs to reform itself went down poorly.
Energy trading
The most visible manifestation of the UK’s existing relationship with the rest of the EU is the growing network of interconnectors.
Experts agree that trading in energy will continue across the existing interconnectors even if the UK crashes out of the EU without a deal.
Existing projects, like the interconnector being developed along the route of the Channel Tunnel, will continue, according to Yeo, who is on the board of that project’s backer Eurotunnel.
But prospects for future projects are dim, he warns: “It will certainly kill off any new interconnector projects if it’s not clear we are going to stay (in the SEM). It will be very hard to get investment in new ones.”
This is the kind of hard truth about the UK’s broader economic prospects post-Brexit, which May was groping towards at Mansion House.
Yeo is frustrated that the prime minister didn’t spell out this message during her first Conservative party conference speech as prime minister in 2016, when was streets ahead in the opinion polls and had ample political capital
“It’s the speech that she should have made to the Tory conference in October 2016: it would have been a dose of realism about what awaited us.”
However, Labour’s shift on the customs union looks set to make it harder for May to secure the hard break with the EU that she is still committed to, he says: “Once Parliament gets its teeth into this it can minimise the damage.”
Lord Teverson says that currently the nature of the UK’s relationship with Euratom is the focus of more Parliamentary scrutiny than the IEM.
However, if the message gets out that quitting the IEM will push up energy prices, it may fuel a buyer’s remorse in some minds about the direction of Brexit.
He says: “It’s something that affects people in normal life and may make people question whether it’s going to be really worth it.”