As European Union leaders display total firmness towards the United Kingdom following the referendum, the question arises of the impact Brexit will have on the economy and politics in the United Kingdom and in the European Union. In the energy sector, this event could singularly complicate matters.
Although this is an unprecedented situation, since it is the first time that a member state has taken the decision to leave the Union, certain consequences are already foreseeable. For the Brexit’s Impact On Uk Business Energy Prices this is essential now.
Costs of large energy projects rise
If Brexit is to take effect within two years under the Lisbon Treaty, its effects are already being felt. Because it fuels market uncertainties, particularly in the UK, Brexit causes borrowing rates to rise, which increases the cost of projects involving significant capital.
The electricity sector, in which massive investments are planned in the coming years for the replacement by 2020 of aging nuclear and coal-fired power plants, seems particularly exposed. Under the effect of increased risks, some projects could simply be abandoned. The development of the maritime wind farm, high-yield renewable energy, seems threatened because it tends to mobilize significant capital.
Customs duties on the rise
By leaving the European Union, the United Kingdom will also leave its single market. By default, this means that taxes for export to the European Union will, therefore, be governed by the rules defined by the WTO, involving additional costs.
In practice, this shift should have little consequence, firstly because the United Kingdom exports practically no energy. In addition, electricity, oil and natural gas will not see any increase in taxes, as these commodities are not taxed under the WTO agreements. On the other hand, certain production equipment, as well as certain derived products and substitutes such as biodiesel, could be more heavily taxed, like for example nuclear reactors at 5.7%, and gas turbines at 4, 5%.
Eventually, the customs duties that will be applied depending on the agreements that will be signed between the United Kingdom and the European Union. However, it is likely that the United Kingdom will seek to restore its access to the single market. Depending on the negotiations, these customs duties could, therefore, be revised to zero, conditions already obtained by Switzerland. To do this, the United Kingdom will no doubt have to agree to comply with certain rules, in particular by contributing to the budget of the European Union.
Freezing of interconnection projects
For its electricity supply, the United Kingdom accounts for 5% of imports from the European Union. This is made possible by the connection of power lines from France, the Netherlands and other countries. To support the network balance, new interconnections are currently under construction, with the aim of tripling delivery capacities by 2024. Due to Brexit, these projects could be frozen for regulatory reasons, which could lead to deteriorating energy security on the British Isles.
No impact on the EDF project at Hinkley Point
EDF has been preparing for more than ten years the launch of a construction site for two nuclear reactors at Hinkley Point, in England. Despite Brexit, the EDF line remains the same. EDF CEO Jean-Bernard Lévy clarified that EDF’s strategy is not linked to Britain’s political membership of the European Union, so we have no reason to change this policy.