Brexit Conundrum Punctuates Irish Energy Transition
The Brexit talks has prompted the energy industry to give serious attention to the possible impacts the negotiation outcomes could have on the energy system in the island of Ireland. Cornwall Insight explains why this is a cause for considerable uncertainty to market participants
Northern Ireland and the Republic of Ireland's energy systems cooperate in a unique way; the two systems operate as one though the Single Electricity Market (SEM), with both the UK and Ireland currently participating in the European Union's Internal Energy Market (IEM). In a worst-case scenario Brexit could trigger a breakdown in the energy relationship between the UK and the EU, leaving the Ireland effectively cut off from both markets.
At this point the future arrangements between the UK and the IEM remain unclear. Independent think-tank, E3G has recently laid out two possible scenarios for the Brexit process. They argue that a soft "economic transition" scenario "“ which favours collaboration and continued access to IEM "“ is a preferable outcome which would provide benefits in the form of reduced energy bills for consumers, an efficient market and security of supply on the island. Meanwhile they consider that a "Hostile Nationalism" scenario would negatively impact energy market regulation and climate change objectives. If the UK does not stay involved in the IEM, E3G see it as likely that Ireland will become physically isolated from the wider market, perpetuating more expensive energy bills and misaligned regulation.
This warning was echoed by recent research from Economic and Social Research Institute (ESRI), which cautioned that Ireland's energy policy should be comprehensively reviewed in order to "Brexit-proof" Ireland's energy future. With Ireland currently importing around 50% of its natural gas and oil supply via the UK, its energy security is heavily dependent on this rapport. Moreover, as EU legislation requires member states to have physical energy connections with other member states and store oil reserves within the EU, Ireland should receive additional flexibility on meeting obligations or exemption from EU legislation post-Brexit. Though infrastructure developments, such as the Corrib gas field, new LNG terminals or the planned 700MW Celtic power interconnector to France, could diversify energy supply, it seen as vital that all projects undergo a thorough cost-benefit analysis before construction to ensure they are economically viable. The cost benefit case alters given the potential overall impact of Brexit on its economy.
Brexit will also put pressure on the all-island SEM. Various groups including the Irish business lobby Ibec have said the SEM's position should be prioritised in the negotiations to ensure continued free and fair trade between the UK, Ireland and the EU. According to Eurelectric, divergence in UK energy policy, in particular renewable policy, as a result of Brexit would undermine the efficiency of the SEM. Both the UK and EU have stated the importance of addressing Ireland's situation in their respective negotiating documents. But continued operation of the integrated market in Ireland could require further legislative, jurisdictional, governance and administrative structures post-Brexit on top of those already planned for.
Where energy will finally sit in the final balance with other more virulent issues in the EU and UK negotiations is unclear. A recent paper by The Boston Consulting Group, Herbert Smith Freehills and Global Counsel highlighted that the complacent assumption that the energy market will be depoliticised and adapted pragmatically should not be taken as a certainty. While the arguments for continued cross border energy cooperation and integration are robust in their own right, it remains uncertain how the broader storm of Brexit could politicise issues that should be pursued collaboratively, such as the UK-Ireland energy relationship post-Brexit.
All of this is complicated by the SEM undergoing a radical overhaul synchronously with Brexit unfolding. The introduction of the Integrated SEM (ISEM), specifically designed to make the Irish energy market compatible with European regulations and directives, is in itself, a cause for considerable uncertainty to market participants, without the added ingredient of Brexit.
"This article was taken from Cornwall Insight's Energy Spectrum Ireland
publication. Cornwall Insight offers market intelligence, consultancy
and training in the GB and Irish energy sectors, to get in touch with
the team, email enquiries@cornwall-insight.com."
