Brexit updates – latest news on energy regulation

How plans for legislation, licences, industry codes and climate change will impact the electricity and gas sectors.

Impact on energy legislation
The Department for Business, Energy and Industrial Strategy (BEIS) has published four proposed statutory instruments that amend UK and EU energy legislation.

These statutory instruments are intended to amend EU legislation incorporated into UK laws, to make these operable under a no-deal Brexit, rather than make changes to government policy. Most of the changes replace references to EU law/regional European institutions (with UK law or institutions) or remove references where the legislation is no longer relevant.

The most essential change is to remove the electricity capacity and congestion management processes. This is because these apply across the EU and the UK cannot individually choose to participate in the process. EU laws governing connections to electricity networks will only be partially incorporated, as many of their provisions apply from a date after exit day and most of the anticipated system operation guideline obligations will be removed. Regulation on Wholesale Energy Market Integrity and Transparency (REMIT) remains as is but would require registration with Ofgem for GB (see article below).

You can read the statutory instruments here:

  • The Electricity and Gas (Amendment etc) (EU Exit) Regulations 2019 Click here
  • The Gas (Security of Supply and Network Codes) (Amendment [Etc.] (EU Exit) Regulations 2019 Click here
  • The Electricity Network Codes and Guidelines (Markets and Trading) (Amendment) (EU Exit) Regulations 2019 Click here
  • The Electricity Network Codes and Guidelines (System Operation and Connection) (Amendment etc) (EU Exit) Regulations 2019 Click here
  • The Electricity and Gas (Market Integrity and Transparency) (Amendment) (EU Exit) Regulations 2019 Click here

Impact on licences and industry codes
Ofgem has also published an update on its licence change process in preparation for Brexit, including expectations about the industry-led code change process. Few problems are expected if a deal is agreed with the EU. However, if a deal isn’t agreed, Ofgem expects approximately 200 changes across the majority of licences. This reflects various legislative changes being put in place by the Secretary of State.

Ofgem says that the effect of the changes will be to retain the existing obligations and duties on licensees. To achieve this, Ofgem has published a statutory consultation on the proposed licence modifications. Several changes to industry codes have also been raised, to remove references to European institutions and processes. Priority will be given to ‘day 1’ changes.

You can read the latest Ofgem assessment here.

Electricity and gas sectors
BEIS has published guidance on cross-border electricity trading for industry participants and other stakeholders that would be affected by a no-deal Brexit scenario.

Though EU legislation will have been incorporated into UK law including REMIT (see article below), European energy law will no longer apply to the UK. This means the UK’s electricity markets would be separated from the Internal Energy Market. Ofgem, the Northern Ireland Utility Regulator and the Government are working with member states to provide for continuity of arrangements with respect to both the gas and electricity interconnectors and the Single Electricity Market in Ireland, with new access rules under development with interconnector operators. BEIS has said that “Consumers need to take no action, but trade on interconnectors will be less efficient.”

In both markets, BEIS expects interconnector operators, code administrators and UK market participants to carry out contingency planning if there’s no deal. This includes reviewing existing energy contracts to see if they would still be valid. You can read the latest electricity sector guidance here. For gas it’s here.

Meeting climate change requirements if there’s a no-deal Brexit
BEIS has published guidance on how Climate Change obligations will be met if there’s no deal. To summarise:

  • The UK will be excluded from participating in the EU Emissions Trading System (EUETS) so requirements to surrender emissions allowances from participants will be removed. However, monitoring, reporting and verification arrangements will remain. 
  • Allowances issued by the UK in 2019 won’t have any value on the carbon market, so the UK Government stopped issuing them from 1 January 2019. The deadline for reporting 2018 emissions is now 11 March 2019, to allow time for ETS participants 2018 obligations to be met. Allowances for these emissions must be surrendered by 15 March 2019.
  • The UK will not have guaranteed access to the Consolidated System of European Registries (CSEUR). This includes the EU ETS Union Registry and the UK’s Kyoto Protocol National Registry. BEIS advises operators and traders of these registries to plan for a loss of system access, including possibly setting up a second account. 
  • To ensure the policy on carbon costs is met, it is proposed that the EU ETS costs (currently around £16/tCO2) will be recovered through a new Carbon Emissions Tax. This will maintain the current level of the Total Carbon Price along with the Carbon Price Support (CPS) price. (See next page for more information on this).
  • BEIS expects that businesses that currently benefit from Energy Intensive Industry (EII) relief schemes should continue to comply with the requirements set out in the Government guidance for these schemes.

The current guidance can be found here.

You can read our latest regulatory report here