By Ella Hendrix
Whilst judgement day for the UK leaving the EU bounds toward us at an increasing pace, it appears that answers to the long list of changes that will occur post-Brexit
are stuck in neutral, not least for the impact on energy prices this side of the Channel. And with a House of Lords committee
recently claiming that Brexit will cause less eﬃcient energy trading, a hesitancy over European investment in UK energy infrastructure, and shrink the UK’s influence on energy regulations, the impact on prices will be less than ideal.
Through recent times, Britain and the EU have become ever more interconnected on energy, with the UK having become increasingly reliant on Europe for its energy supply. The EU Energy and Environment sub-committee
posits that around 40% of the UK’s gas supply comes from European pipelines, with around 6% of its electricity coming from France, Holland and Ireland alone. And whilst this has not posed an issue in the past, the UK’s departure from the single market could place this frictionless trade at risk.
From a business’s perspective, a rise in energy costs could have a major influence on how they perform, with energy costs often being a large part of their yearly expenditure; the average UK business currently spending around £4,000 on their energy bills yearly. And although figures show that business pay much smaller average unit rates than domestic customers, with VAT three times higher than that of domestic customers, with the Climate Change Levy on top, energy starts to get very expensive.
What could Brexit bring when it comes to the UK’s energy?
To begin with, power companies and industry bodies agree with the House of Lords that avoiding imposing tariﬀs or barriers on energy being traded across borders would be beneficial.
Because of the UK’s reliance on its four existing interconnectors (cables that connect the UK’s energy grid to foreign countries’ grids), and the expectation of eight more to be introduced in the coming years, tariﬀs or barriers would be passed down the supply chain and would see consumers paying increased costs.
The UK is currently part of the EU Emission Trading System, which puts a price on carbon through trading of emission permits. Were the UK to leave this system, there’s no clear answer to what would replace this mechanism causing uncertainty with regards pricing thermal generation. As chief executive of Energy UK, Lawrence Slade, puts it: “The lack of certainty around the future carbon-pricing mechanism as well as the rules underpinning the cross-border trade of electricity and gas create risk, and risk has a price.”
On top of that, whilst gas and power will still be able to flow through the interconnectors following Brexit, a sharp exit will heighten the risk of energy supply shortages in the UK and Ireland during certain emergencies, such as cold snaps or unplanned outages. Due to less reliable supplies, this would require an increase in demand for power from other member states and would push up energy bills.
However, because of legal rules with the Union put in place to ensure harmonising and faster trade, further down the line the rules that the UK is currently tied to would sever and tariﬀs that would likely arise from this would create further consumer costs.
To counteract - what would appear inevitable - rising energy costs, businesses will need to look at what they can do now to make sure they are ready for what Brexit may bring.
The first thing that businesses should be looking to do is finding an energy tariﬀ with a good fixed price. Business energy tariﬀs are often fixed so they would pay the same for energy for the duration of their contract, which can be for periods of between one month and five years.
Whilst this can mean paying a higher price when energy prices fall, taking the word of most information outlets and experts currently, this is an unlikely event in the months and years surrounding Brexit.
Looking to reduce your business’s energy bill can even be done through smaller, more simple means, by minimising energy output. This can be through turning computers oﬀ outside of oﬃce hours, putting oﬃce lights on a timer, and switching to energy eﬃcient and A-rated appliances. Measuring the energy efficiency of properties is carried out by obtaining an EPC rating. EPC providers EPC For You
have stated that:
“With the new Minimum Energy Efficiency Standard laws (MEES) which were introduced in April 2018, it would be useful for property owners to get an update on their energy ratings and if they make the new standard”
Removing older windows with more eﬃcient, and better-glazed replacements can also be part of the solution.
Some companies have even introduced incentive schemes for employees in a bid to create greener workplace habits in exchange for tangible rewards.
Developing a minor contingency plan could certainly help in preparing businesses for what’s on the horizon, and the forecasted eﬀects of Brexit on the energy costs of businesses may be more manageable than trying to ride the wave of uncertainty.
For expert guidance on what happens next, contact your Halo Financial currency specialist, watch the latest rates and keep an eye on our news updates.