A no deal Brexit could cause a “significant” increase in electricity prices in Ireland and force some suppliers to exit the market, government documents have revealed.
Yesterday evening the government released its so-called Project Yellowhammer report, having been compelled to do so by parliament, which contains a raft of assumptions that could occur in the event of the UK leaving the European Union without a deal.
The report includes an assumption that a “rapid” split from Ireland’s Single Electricity Market (SEM) could occur months or years after leaving the EU. While this would not create any security of supply issues in Ireland, the government’s assumption is that there would “likely be significant electricity price increases” for both domestic and business consumers in the country.
Such a price hike would likely cause “wider economic and political impacts”, the report says.
Furthermore, any significant increase in price increases would cause some market participants – principally energy suppliers – to exit the market, which then further exacerbates the economic and political impacts, the report claims.
Speaking to Current±, Energy UK chief executive Lawrence Slade said: “The energy industry has long been working on Brexit preparedness, including a no-deal scenario, and we continue to work closely with multiple Government departments and our members to identify and prepare for any potential issues and minimise risks to security of supply.
“While we do not anticipate any major disruption to the GB energy system under normal circumstances, we have been consistently clear that no-deal Brexit could have a number of consequences for energy companies which are out of their control. We continue to believe that a deal with a transition period, allowing for the current trading relationship with Europe to continue, remains the best outcome for the energy industry and customers.”
Conall Bolger, head of Ireland at Cornwall Insight Ireland, explained that a split in the SEM would mean that instead of electricity being supplied on an all-island basis, it would large be provided within individual jurisdictions. This would stand to make the respective pools of competing generators smaller, diluting competition in these markets.
“For Northern Ireland, this means that older less-efficient plants are likely to be setting the price. Some of those assets have already contributed to very high balancing prices, and there is a real concern that consumers in Northern Ireland will face higher power prices.
“With both the recent acquisitions of Northern Irish power plants and the current ownership structure of the other assets, exits may be unlikely in that part of the market. For renewable players, the determining factor is likely to be the future energy policy of Northern Ireland rather than Brexit, which is under consideration by the Department for the Economy.
“However, if we do see price spikes, the Northern Irish retail market could potentially be vulnerable to supplier exits. Particularly, from smaller suppliers who may be more exposed. In this scenario, customer supply should be protected due to the regulations in place, but the prices paid for power could rise," Bolger said.
Analysis: Liam Stoker, Current± editor
Setting aside all the controversy stoked by the Yellowhammer report – both this week and previously – the government cannot claim that warnings over a no deal Brexit causing electricity price increases are anything new. Even before the vote took place in June 2016, economic consultants were warning that issues surrounding trade could cause consumer bills to spike.
But some of the wording in this report is interesting to see. The Department for Business, Energy and Industrial Strategy is clearly concerned over the wider political impacts the consequences of a no deal Brexit could have, and over the last few years what the public pays for its energy has been one of the few topics to cut through the Brexit fog and capture headlines.
A “rapid split” in the SEM, the market which bonds Ireland and Northern Ireland’s electricity markets, and the impacts it could have on consumer bills in Northern Ireland, could prove to be a particularly hot potato to land on BEIS’ plate.
The energy sector has long campaigned for the government to avoid a no deal and its impacts at all costs, calling for the country to maintain an energy relationship with the EU as close to the status quo as possible.
In December last year the UK Energy Research Centre warned that a hard Brexit could add as much as £270 million a year to energy bills in Great Britain. That report came just a week after trade bodies from both sides of the English Channel called for a “comprehensive relationship” on energy trading and climate issues, even in the event of a no deal.
Those reports followed a government report issued in February 2017 during Theresa May’s tenue as Prime Minister that stressed the intention was to avoid disruption to the SEM as much as possible.