This is the first in a series of client alerts discussing the potential impact of Brexit on energy trading in the UK. This alert will focus on general trading and contractual issues, providing a high-level overview of the immediate and potential long-term repercussions of Brexit, at a time when the UK is still in the process of negotiating a permanent deal with the EU.
The EU’s internal energy market
The EU Customs Union and internal energy market (IEM) provide for an immediately accessible energy market, without internal borders or other regulatory obstacles, so as to ensure the proper functioning and security of the energy supply within the territory of the EU.
With Brexit now just over seven months away, the UK is in the process of negotiating a withdrawal agreement with the EU, which would include a transitional period during which the UK would continue to be treated in almost all respects as if it were an EU member state. Based on the text of the draft withdrawal agreement, published on 19 March 2018, the UK would be allowed to retain single market access and membership of the IEM and Customs Union, until the end of the transitional period on 31 December 2020. However, the UK government’s Brexit White Paper, published on 12 July 2018 (the White Paper) considers both leaving and remaining within the IEM post-Brexit. The details surrounding the alternative arrangements to IEM membership remain unclear, the White Paper noting only that such arrangements would need to be explored. Should the UK decide to remain within the IEM, the White Paper suggests that it would need a common rulebook with the EU regarding the technical standards required for the functioning of the market.
Negotiations notwithstanding, it must be noted that, given the divided opinions within the UK parliament, an accidental ‘no deal’ scenario remains a potential outcome. However, energy remains a sector where the European Commission is optimistic about reaching a positive, and mutually constructive, arrangement. Although the specifics of such a deal are still unclear, there are important issues that need to be considered in relation to the trading of energy products (such as gas and power).