Ibec - for Irish business
Card 8 of 12

Priority 6: Energy

19 June 2017

The energy systems of Ireland and the UK are heavily and uniquely integrated. This is the consequence of historic intergovernmental agreements on gas and electricity supply, the creation of a shared all island single electricity market (SEM) and both countries’ active participation in the EU’s Internal Energy Market (IEM). Ireland also imports about 50% of its natural gas and 50% of its oil via the UK.

While the bilateral agreements on gas and electricity supply should remain in place after Brexit, it is unclear how involved the UK will be in the IEM after Brexit. A full UK withdrawal from the IEM would leave Ireland physically disconnected from the wider IEM.

The EU is also set to lose a key advocate for market integration and liberalisation. The IEM has helped deliver greater efficiency in the trade of electricity and gas, a more diversified fuel mix, reduced costs for consumers and enhanced security of supply. For Ireland, it is important that the UK’s decision to leave the EU does not alter this trajectory towards greater energy union. The requirement for greater regional integration and interconnection, including the delivery of the North-South Interconnector, remains unchanged.

A full UK withdrawal from the IEM could also put pressure on the SEM. Since 2007, the SEM has helped deliver efficient and transparent wholesale electricity prices and has provided for the dispatch of the cheapest generators across the island of Ireland to meet demand. The scale of the all island market has also helped attract new investment in modern generation capacity and the integration of renewables. The SEM is currently undergoing a major transformation to ensure full compliance with EU Network Codes and integration into the wider IEM. In this context, the EU should also recognise existing bilateral agreements and arrangements between the UK and Ireland which are compatible with EU law.
Challenge: An impaired IEM

A complete UK withdrawal from the EU’s IEM would leave Ireland physically disconnected from the wider IEM and could undermine the functioning of the SEM. The EU would also lose one of its biggest proponents for market integration and liberalisation.

Solution Further regional integration will be needed if Europe is to meet growing demand, fully achieve its renewable potential and enhance security of supply. If the UK leaves the IEM, alternative agreements should be put in place to ensure continued collaboration between the UK and the EU 27.

Solution If physically isolated from the IEM, Ireland should be granted additional flexibility on meeting its obligations e.g. interconnection targets and the oil stocks directive.

Challenge: Disruption to the secure trade of energy

Brexit should not affect gas and electricity interconnector supply as interconnectors are governed by bilateral contractual agreements outside the EU legal architecture. However, technical and regulatory issues will arise if the UK leaves the IEM. The introduction of border tariffs for energy products or transmission would undermine trading activities and could destabilise the SEM. The UK may also not participate in EU security of gas supply arrangements, including cross border cooperation on emergency planning and the new “solidarity principle” under which member states have agreed to help each other in the event of a shortage of supply or major price increases.

Solution A new agreement is needed between the UK and the EU to ensure the continued and secure trade of energy between jurisdictions and cooperation on energy security. Updated bilateral agreements between Ireland and the UK on gas and electricity interconnection may also be required.

Challenge: Pressure on the all island SEM

A UK outside both the EU/customs union and the IEM could bring a host of technical, commercial and regulatory challenges to the functioning of the SEM. For example, an alternate dispute resolution mechanism will be needed if the ECJ is no longer accepted as a final court of appeal.

Solution The UK and the EU should follow through on their commitment to recognise existing bilateral agreements between Ireland and the UK and reach an agreement early in the negotiations that ensures continuation of the SEM and its successor I-SEM.