UK energy costs head higher with plan to leave single market

Bloomberg

Britain’s paper on leaving the European Union raised more questions for the energy industry than it answered, setting up the risk that the legal arrangements allowing power and gas to flow across borders could come unraveled and drive up the cost of doing business.
The government for the first time raised the possibility of leaving the EU’s single market, though it also said it wants to maintain a tra-ding relationship with neig- hbouring nations. The policy was short on the details needed to reassure utilities li-ke Centrica and SSE Plc that they will have access to energy supplies through three international power cables and three gas pipelines after the UK leaves the union in March 2019.
The trading arrangements matter to both sides. The UK is Europe’s third-biggest energy user and a net importer of energy, taking in gas valued at more than 10 billions euros ($12 billion) a year. London is also an important trading hub, particularly for gas, hosting one of the biggest exchanges, ICE Futures Europe Ltd.
The UK’s negotiating position on energy isn’t yet clear, and the ongoing uncertainty is the biggest risk to markets and investment, according to Andrew Perry, a principal focussed on utilities at Oliver Wyman LLC in London. Britain has 11 new electricity interconnectors to Europe planned, and investment in these could be at risk.
There’s a risk “either the arrangements we have post-Brexit become barriers to interconnectors working efficiently, or there’s so much uncertainty about the rules that investment doesn’t happen because people are so unsure about what’s going to happen,” he said. It’s a bad time to have investors uncertain about whether British projects will pay off. The government has estimated it needs to find 100 billion pounds ($132 billion) to keep the lights on after 2020. More than a dozen aging power plants are due to drop out of service within the next decade. Governments from both of the main political parties have sought encouraged companies to invest in a new generation of atomic plants.
Brexit’s biggest impact may be on the natural gas industry. While only a small proportion of the UK’s electricity is imported, more than half of its gas supply comes from abroad.