WF_Brexit

Energy – Top 5 Issues (Jan 2021)

Ireland's energy infrastructure and energy consumption is inextricably linked with the UK. Since 2007 Ireland has operated an all-island electricity market (SEM) with Northern Ireland and that market was redesigned in 2018 to further integrate that all-island electricity market into the EU energy markets.  In addition, all of Ireland's existing gas and electrical interconnection (the infrastructure through which gas and electricity are predominantly imported) is with the UK.  As such, the implications of Brexit is of utmost importance and despite the Trade and Cooperation Agreement (TCA) struck between the UK and the EU on 24 December 2020, Brexit may still have profound implications on Energy in Ireland.  Most notably, the UK will no longer participate in the internal energy market of the EU or the related trading systems.  Although the TCA provides a framework for the future trading of electricity and gas across the interconnectors, the agreed new model of trading on third-country terms remains to be developed over the next year or so.

Below, we identify five issues/areas impacted by Brexit and the TCA:

  1. SEM & the Ireland/Northern Ireland Protocol to the Withdrawal Agreement (the Protocol) -  the Protocol provides the basis for the continued operation of the SEM and trade of wholesale electricity on this island and the Dept for the Economy in NI will implement those provisions of the Protocol that relate to European energy law and are necessary to enable the operation of the SEM across Ireland (there will be some divergence in areas such as consumer protection but this will not impact market function);
  2. Security of Ireland's energy supply - Ireland has invested heavily in energy interconnection with the UK but currently has no gas or electricity interconnector to any other country.  The lack of political support for the proposed Shannon LNG terminal together with the continued depletion of the gas reserves at Corrib, will leave Ireland relying on imports from the UK to meet 90% of its gas supply requirements within five years.  As set out above, the TCA provides that a new model for the efficient trade of electricity across interconnectors is to be developed.  Until this happens, alternative preliminary arrangements will remain in place and interconnector owners/operators are advised to engage with the relevant regulator (in the case of the SEM, either the CRU or the NI Utility Regulator).
  3. Divergence between UK & EU Energy law (including Carbon Pricing) - The EU has been working steadily towards a harmonised single European energy market over recent decades, a market of which the UK is now no longer a part.  Although we consider any substantial divergence by the UK from EU standards to be unlikely, there is scope under the TCA for the UK to pursue its own divergent energy policy and regulations in many areas.  One such area is carbon pricing, the TCA does not link the UK and EU carbon credit trading schemes, although it does not preclude linking the respective schemes at some point in the future.  The Greenhouse Gas Emissions Trading Scheme Order 2020, adopted by the UK in November 2020, sets out the key elements of the UK ETS which will replace the EU ETS in the UK.  Note: NI electricity generators remain in the EU ETS under the Protocol.
  4. Tariffs and energy imports - A very significant amount of Ireland's energy products are imported from the UK.  While the TCA provides that there will be tariff free trade in electricity, once the agreed model of trading between GB and the EU and SEM has been implemented, a transmission system use fee may be levied on scheduled imports and exports on interconnectors between the EU and GB until the agreement is in place.
  5. Infrastructure Investment - Investment in energy projects and infrastructure requires a long term investment horizon and the deployment of significant capital.  Ongoing uncertainty as to the regulatory and commercial evolution of the energy markets under the TCA could delay key milestone and final investment decisions and lead to the cancellation of certain time sensitive projects, particularly those in the private sector, including projects which are required to support Ireland's decarbonisation targets.  It is worth noting in this context that EirGrid plc, in joint venture with its French counterpart Réseau de Transport d'Electricité (RTE), is proceeding with the development of a 700MW electricity interconnector between Ireland and France and the European Commission decided in October 2019 to provide €530m of funding to the project.

Contact:

 Fergus_Devine_Brexit    Colm Booth

Fergus Devine
Partner

Email Fergus
+353 1 639 5216

 

Colm Booth
Associate

Email Colm
+353 1 489 6403