CEP Energy Conversation 1 Summary: Uncertain Opportunities

Wind turbines with EU flag superimposed

Dr Antonios Katris, Research Associate, CEP

Dr Antonios Katris
Research Associate, Centre for Energy Policy

 Dr Gioele Figus, Research Associate, CEP

Gioele Figus
Research Assistant, Centre for Energy Policy

17 October 2017

We grew up with the idea that being European and inside the EU was not a choice but a given fact. However, the Brexit referendum has changed everything.  Ever since June 2016 many things have been said about Brexit. Yet, most of the discussions have typically focussed on broad issues rather than specific topics.

With the first energy conversation of this year, the Centre for Energy Policy drew attention to the specific and very important topic of energy and the future of energy markets after Brexit.

Stupid idea or great opportunity?

During the evening Brexit has been defined both as a stupid idea (the stupidest idea in the galaxy of stupid ideas) and a great opportunity. There has been consensus though that regardless of our personal views on the outcome of the referendum, Brexit is happening and we need to find a way to make it work.

However, in 90 minutes of conversation, the fact that Brexit can be an opportunity was been stated many times, but in the end, very few concrete opportunities were identified. Currently, there is still too much uncertainty, as very little is known about the future of negotiations.

Furthermore, despite energy certainly being a non-trivial industry for Scotland and the UK, it still is one among many industries competing for the Government's attention.

Uncertain future

The high degree of uncertainty fuels speculations over a number of topics associated with the operation and development of the energy sector in the post-Brexit UK. More specifically, there are different assumptions over the future of investments in new energy infrastructure.

The most pessimistic views suggest that leaving the integrated energy market, and the European single market as a whole, will make investments in UK energy sector less attractive due to the introduction of trade tariffs which will make UK-produced energy less competitive.

Moreover, the impact of Brexit on the exchange rate of the British Pound against the Euro and the US Dollar, along with a subsequent increase in interest rates, will even further reduce the profitability, and thus the attractiveness, of energy investments.

Potential to avoid disruption

The counter-argument was that EEA countries already trade with the UK via installed interconnectors and will have the incentive to continue this relationship post-Brexit, and the associated investment plans, to avoid any disruptions.

Furthermore, with the UK no longer bound by the EU market regulations, energy investments could be carried out by a largely nationalised energy sector and/or by using incentives such as state aid.

The latter has been suggested by many as the most significant counter-balancing mechanism for the investments. However, as it was pointed out during the conversation, if the UK is to have a trade agreement with the EU it is highly likely that it will have to regulate, limit or even abolish state aid as a policy option.

The need for skilled labour

In addition to the investment issues, uncertainty introduces problems to the acquisition of the skilled labour required to implement the investments as well as man the sector as a whole. At the moment, the necessary skilled workers had been recruited from abroad, primarily from other EU nations.

Leaving the EU would mean that recruiting EU workers would be subjected to the same controls and limitations that apply to workers from the rest of the world, essentially creating a recruitment gap. It has been proposed that this problem can be resolved by training new people and/or re-training currently unemployed ones, so that the necessary labour can be recruited from within the UK.

As it has been discussed in the conversation though, this is more of a long-term solution as it can take up to 2.5 years to create new degree programmes, which in turn would require 2-4 years (depending on the degree level) for the first graduates to be ready to enter the work force.

Moreover, it has been indicated in previous CEP events that the lack of clear signposting on behalf of the government, and therefore the added uncertainty due to Brexit, prohibits those involved with skills training from developing the appropriate training schemes. With these in mind it is unclear when the energy sector could realistically rely on employing UK-trained labour.

In general, the conversation organised by CEP was a great opportunity to raise awareness about potential issues in the future of energy markets. It was also a good exchange of ideas among people with different opinions on how we can all contribute to this epochal change.

Brexit is definitely seen as a hot topic at the moment and, given the current number of unknown factors, discussions like these are one of the few available tools to try and shed some light on what the post-Brexit energy sector, and UK as a whole, might look like.

Tags: Brexit Energy