Brexit vote: one year on

Exactly one year after the referendum and with negotiations just beginning, David Blackman assesses where we stand.

It is exactly a year ago today that the UK voted to leave the European Union. However, negotiations on Britain’s exit began only this week.

And the nature of Brexit is, if anything, less clear now than it has ever been, following the muddy outcome of 8 June’s snap general election.

The Conservatives’ failure to win an outright majority has left them reliant on the Democratic Unionist Party (DUP). These notoriously staunch defenders of the United Kingdom take a softer line on Brexit than that outlined by Conservatives earlier this year.

The close links between the economies of Northern Ireland and the Republic of Ireland mean the DUP is keen to ensure trading relationships remain as open as possible following Brexit.

That extends to energy, where the DUP’s manifesto backs the maintenance of the all-Ireland single energy market (SEM). The importance of this issue for the DUP, coupled with the European Commission’s insistence that Irish issues should be a priority in the negotiations, means it is much less likely that the future of the SEM gets lost in the wider Brexit negotiations, says Anthony Froggatt, a senior research fellow in energy and environmental issues at the security thinktank Chatham House.

That is good news, according to Munir Hassan, partner and head of clean energy at CMS Cameron McKenna, who argues that unwinding the SEM would be “completely unwise, potentially rewinding the clock back to a period we don’t want to go to”.

“On both sides of that border there will be a huge body [of interested parties] looking for sensible outcomes,” he says.

The combined votes of the DUP and the Tories’ 13-strong contingent of Scottish MPs means it will be very difficult for prime minister Theresa May to win a majority in the House of Commons for the hard Brexit negotiating position outlined by the government earlier this year, increasing the chances that the UK will remain involved in the EU’s energy arrangements.

“Putting jobs and the economy first might win the day. It gives those who are more anti-Brexit more leverage,” says former Conservative MP turned energy consultant Laura Sandys.

 “The DUP gives soft Brexiteers a bit more ammunition,” says Richard Black, director of the Energy and Climate Intelligence Unit (ECIU). “There will be the mother of all battles between different visions of Brexit in the Conservative party.”

Chancellor Phillip Hammond’s comments last week that the UK will take a “pragmatic” approach to the Brexit negotiations offered a hint of the jockeying for position taking place behind the scenes in government.

“Events have certainly improved the chance of soft Brexit,” says Tim Yeo, the Conservative former chairman of the energy and climate change select committee. “If May had got a bigger majority, she would have gone for a very hard Brexit. Now she is clearly constrained by her colleagues and there’s no majority for a hard Brexit. The fact that Theresa May has to run a more collegiate administration means that other views, including the Treasury’s, will be heard more.”

“The weakening of Theresa May’s position means that anybody from business who wants to make a case has a better chance of making it,” says Black.

May’s weakened position following the general election, further undermined by the PM’s plunging personal ratings, also means she is worse placed to pursue her pet project of removing the UK from the jurisdiction of the European Court of Justice (ECJ).

This could mean a watering down of the government’s plans to withdraw from ECJ, which arbitrates on disputes involving the EU and its sister bodies like Euratom.

Accepting the continued jurisdiction of the ECJ would make it much easier for the UK to remain part of Euratom, says Yeo, who now chairs industry body New Nuclear Watch Europe.

“Given that Euratom is a specific legal entity, soft Brexit means remaining part of Euratom is a stronger possibility, which would avoid that huge disruption to the nuclear industry,” he says.

And accepting a dispute resolution mechanism, whether in the form of the ECJ or another body, increases the scope for other forms of continued participation in EU energy arrangements, says Chatham House’s Froggatt. “If an international arbitration body can be agreed, it opens the door to more specific discussions over the UK remaining fully integrated in the IEM,” he says.

However, Yeo cautions that Tory MPs remain under pressure from local activists to pursue a hard Brexit. And the lack of a stable majority for the Conservatives in the Commons means hard Brexiteers as well as soft Brexiteers will be tempted to flex their parliamentary muscles.

Hassan, who is leading his firm’s Brexit committee, sees increased uncertainty as the main upshot from the general election. The need to build a consensus in the Commons means the UK will be less able to strike a tough pose when negotiating with the EU, he says.

Parliament’s hung nature also means it will be harder to push through the vast quantity of legislation required to extricate the UK from its relationship with the EU, and it will reduce the chances that the government will be able to present a final deal to parliament on a “take it or leave it” basis.

Hassan says: “The biggest problem last week poses is increased uncertainty, and it delays the point when we might get more detail. People won’t be in a position to reach decisions quickly on complex matters because they don’t feel they [the government] have a strong enough mandate to push things through.”

The year since the EU referendum has been a bumpy ride but could merely be a curtain raiser for the instability to come.

 

Who’s in, who’s out?

Licking her self-inflicted wounds after the June general election, Theresa May wasted little time initiating a reshuffle which attempted to rebuild her reputation with her party, and the public.

For utilities, the reshuffle has brought one major change, but more junior job switches. Here’s a brief review of who’s in and who’s out in key departments:

 

Defra

  • Michael Gove became secretary of state, replacing Andrea Leadsom, who is now promoted to leader of the House

    Theresa Coffey, remained as environment minister

    Lord Gardiner of Kimble keeps his role as parliamentary under secretary

 

BEIS

  • Greg Clark remains as secretary of state
  • Lord Prior of Brampton, stays as parliamentary undersecretary
  • Margot James keeps her role as parliamentary under secretary, small business, consumers and corporate responsibility
  • Claire Perry joined the department as minister for climate change, replacing Nick Hurd
  • Richard Harrington replaced Jesse Norman as BEIS minister

 

The return of Michael Gove

The return of Michael Gove to the front bench as environment secretary was the major reshuffle surprise for utilities.

Theresa May’s erstwhile leadership rival was unceremoniously sacked from his post as justice secretary last year following the Brexit vote. The new Defra head lost a lot of party friends thanks to his betrayal of fellow leave campaigner Boris Johnson in the wake of the referendum.  

If Gove hopes for a fresh start and a warm welcome in his new post, he may be disappointed. His voting history and track record on environmental issues has left many green groups aghast at his appointment.

Critics say Gove has tended to vote against measures aimed at tackling climate change, protecting wildlife or reducing emissions. They were also quick to resurrect allegations that he attempted to remove climate change from the geography syllabus in 2013 when he was education secretary.

Gove was forced to climb down on that one, but defended his intentions by saying that climate change would always have been retained on the science curriculum. His aim was to slim down the syllabus, not pour doubt on the man-made climate change and its threats, he insisted.

Reiterating the new environment secretary’s positions, a Defra spokesperson said: “The secretary of state wanted to enhance climate change in the national curriculum when he was education secretary. It was never his intention to remove it.”

In 2014, Gove described himself as a “shy green”, adding: “One of the things that I’ve learnt throughout my life is that I’m an environmentalist but a lot of time I didn’t realise it.” More self-aware environmentalists will want swift proof that Gove has cast off his bashfulness on green
issues.  

 

New climate change minister: Claire Perry

New climate change minister Claire Perry is from the 2010 intake of MPs to Westminster. She is also a ‘green Tory’, calling climate change “one of the most serious threats that we face”.

In a blog post, published in February last year, Perry backed the inclusion of an “ambitious set of targets” in the fifth carbon budget, prior to its adoption in July.

To achieve those targets, she wrote that it was “only fair to expect bill payers to support low carbon power as long as costs are controlled”.

Perry is also supportive of the development of Hinkley Point C.

 

New minister at BEIS: Richard Harrington

Richard Harrington, MP for Watford, has also been named on the junior ministerial team at BEIS. His responsibilities have not yet been announced, but he is set to replace former energy minister Nick Hurd who has left for the Home Office.

Harrington has previous served at the Home Office, the Department for Communities and Local Government, and the Department for International Development.

Column: Tony Ward

The energy sector has so far not felt any ill effects from the Brexit vote.

Exactly one year ago the UK was plunged into political and economic uncertainty following a knife-edge EU referendum vote that delivered a destabilising outcome. Twelve months on, anyone could be forgiven for thinking that nothing has changed.

So has the utility world ground to a halt? Far from it – it has very much kept turning, and the past year has seen many significant events or milestones reached, with a number of significant corporate transactions, the incessant rise of new technologies and an ever-changing generation mix.

One of Theresa May’s first acts as prime minister was to green light Hinkley Point C following EDF reaching its final investment decision. Two months later, in November, we saw the collapse of a UK energy supplier for the first time in years when GB Energy Supply ceased trading. The company’s failure was apportioned to rising wholesale prices, which necessitated tariff increases, and now the looming prospect of a legislated price cap.

The year saw Drax buy Opus Energy in the most significant acquisition of a retail business in recent times while many of the larger suppliers have expanded into broader energy services – EDF’s acquisition of Imtech and Engie’s acquisition of part of Keepmoat’s business being prime examples.

Overseas investors are clearly still comfortable investing in the UK energy industry despite a rapidly changing generation mix and political upheaval. The 21 April 2017 marked the first day since 1882 on which there was no coal generation on the UK power system, and just a couple of weeks ago the UK set a new renewable energy record as zero carbon power (wind, solar and nuclear) met more than 50 per cent of power demand for a period around lunchtime on 7 June. This was no doubt aided by installed UK solar capacity passing 12GW during the past 12 months, when five years ago it stood at barely 1GW. Meanwhile, figures released by the EU on 1 June 2017 noted that while UK greenhouse gas emissions fell significantly in 2015, those in the rest of the EU rose.

Of course, none of the above are consequences of impending Brexit but they do paint a fascinating backdrop against which the UK’s exit from the union will occur. The UK energy market in the past 12 months has reflected the momentum that has built up through policy interventions, technological advances and consistent financial investment in the preceding years.

The system is becoming less predictable, increasing the need for plant that can deliver system services and leading to the rapid emergence of battery storage (for example in the December 2016 capacity market auction), and with wholesale prices that are increasingly volatile. However, the UK has plotted a course that is delivering a more diverse, sustainable and innovative system, and in many respects it is in the vanguard of European action on market liberalism, investment and emissions reduction.