How could a no-deal Brexit affect the UK's low-carbon energy transition?
As the Brexit deadline looms and Ministers struggle to take a no-deal option off the table, leading energy and policy experts have argued that leaving the EU without a deal would considerably increase the price of the UK's low-carbon transition.
During a high-level panel discussion at a briefing held by the Energy and Climate Intelligence Unit (ECIU) in Westminster late last week, representatives from the Confederation of British Industry (CBI), Chatham House and law firm CMS Cameron McKenna were asked how investment into UK renewables projects would be affected in a no-deal scenario.
The panellists agreed that leaving without a deal would “undeniably” lead to investors classing British renewable projects as more of a risk, and that leaving the EU under any deal could still limit the UK’s eligibility to apply for certain funding streams.
Chatham House’s senior research fellow for energy, environment and resources Anthony Froggatt explained that the European Investment Bank (EIB) currently ear-marks 80% of its clean energy finance for EU Member States – funding that the UK would potentially not be eligible to apply for under a no-deal. This belief was echoed by other panel members.
“In situations where the commercial plans may not be financially sufficient by themselves – particularly where emerging technologies are involved – it may be harder to secure investor interest,” CMS Cameron McKenna’s head of clean energy Munir Hassan added.
“People might not finance biomass or offshore unless we get an EIB-type entity to bring all the other banks into the conversation.”
Hassan’s sentiments come at a time when the UK’s perceived attractiveness for renewable energy investments is falling, according to consultancy EY. In its latest bi-annual Renewable Energy Country Attractiveness Index, the firm noted that the UK’s renewables market had entered “retrograde” in 2018, largely due to apprehensions around Brexit.
Indeed, the total amount of finance invested in clean energy projects in the UK fell by 43% during Q3 of 2018. This trend has been visible since the Brexit referendum was called, with investment falling by more than 56% between 2015 and 2017, leading MPs to call for more ambitious action from central Government. Part of this fall has, however, been attributed to falling technology and installation costs.
When asked if he was able to quantify the impact a no-deal would have on investments which could help decarbonise the power sector, Hassan argued that it was not yet possible to produce exact figures.
“People think that the impact of a no-deal on clean energy investment is an empirical fact for the UK, but it is not,” he added.
“The level of investment in any country is hugely dependent on a variety of soft factors. In the UK, the biggest soft factor has, historically, been the consensus that the UK is a stable investment landscape – but this opinion may change without a deal.”
Panellists then asked whether they - and other key players in the power sector - were heeding warnings that short-term economic uncertainty could drive up costs associated to carbon allowances and increase levies on power prices, ultimately giving coal and gas a “boost”, making renewable investments “make less sense”.
“To put it simply, policy changes to date have made low-carbon electricity more expensive,” ECIU director Richard Black argued, alluding to the Feed-in Tariff (FIT) scheme and attempts to stifle the growth of onshore wind.
“If you add onto this the uncertainties around carbon trading, currencies and trade via interconnectors, it presumably becomes less and less attractive to invest in renewables.”
Black’s sentiments were echoed by the CBI’s senior policy advisor for energy and climate change, Tanisha Beebee. She added, however, that she “definitely” didn’t see a “boom for coal” on the horizon, largely due to the measures outlined in the Clean Growth Strategy.
Interconnector anxieties and battery boons
As the discussion continued, panellists were asked how a no-deal scenario could impact the UK’s current arrangements to trade electricity via interconnectors with Belgium, France and Ireland - affecting the carbon footprint of our electricity in turn.
The nation’s current interconnector capacity with the EU stands at 4GW, with plans for a further 10-12GW in the pipeline. This capacity, Froggatt argued, has been “integral” to balancing the variable output of renewable arrays as more of these technologies come online.
“The EU has wanted more interconnection in order to accommodate more renewables on the grid, because they are a good means of flexibility within the system,” he said.
“Being able to send power this way relies on alignment of regulatory frameworks, and a no-deal means we may no longer be a part of this market coupling system. As we move to a flexible, low-carbon system, markets need to be operating more efficiently together, but I’d argue that this is what we won’t be seeing.”
Hassan disagreed, arguing that although a mismatch of trading laws could “disrupt” the economic case for exporting renewably generated electricity, policymakers and industry bodies in the UK and mainland Europe alike were more likely to adopt a “gentleman’s agreement” in the sake of continuity and security of supply.
Attendees were keen to find out, however, what would happen if this were not the case.
The CBI’s Beebee argued that reduced reliance on interconnectors would not leave the UK in an “energy deficit” but would spur the need for new technologies which could provide similar levels of flexibility. Specifically, she said that a decrease in available interconnector capacity would “accelerate” the development of energy storage solutions.
“Beyond Brexit issues, the need for battery storage will only grow as we move to a smart and flexible energy system and my initial reaction to a no-deal would be the need to excel that possibility,” Beebee said.
Her sentiments were echoed by Froggatt, who added: “The idea of moving low-carbon power within the electricity system and being able to offer more flexibility is key going forward.”
These comments come at a time when the UK’s battery storage industry is being forecast to help create savings for the nation to the tune of £8bn by 2030, following a plethora of energy storage announcements in the early months of 2018 and policy changes which could help fast-track battery storage projects.
Achieving these benefits, however, is estimated to require more than £6bn of investment in the UK's energy storage market by 2030.