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Eurelectric urges early clarity on Brexit

Staff Writer |
It is unlikely that Brexit negotiations on energy trading will be finalized within the two-year period scheduled under Article 50, electricity sector association Eurelectric said in a report.

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The association is therefore calling for early clarity on possible transitional arrangements relating to electricity trading "to prevent any cliff edges that could arise."

Ongoing collaboration is essential if cross-border physical connections are to function efficiently, the report said.

"To ensure the integrity of the Internal Electricity Market, some common rules must be adhered to by connected third countries," it said.

A breakdown in the energy relationship between the UK and the EU would be felt most by the UK and Ireland, "as Ireland not only connects to the IEM through the UK, it also operates a Single Electricity Market (SEM) between Ireland and Northern Ireland," the association said.

Maintaining and boosting integration is crucial for Ireland, with the association supporting the UK's continued participation "on an equitable basis" in the EU's programs for Trans-European Networks for Energy, Projects of Common Interest and the Connecting Europe Facility.

"This is since instability could increase the costs of infrastructure projects and undermine their business case," Eurelectric said.

Meanwhile the EFTA Court and the EFTA Surveillance Authority could be used to plug any jurisdictional gap left by Brexit, the association says.

If the UK is to continue free trade of power and natural gas without the jurisdiction of the European Court of Justice and without automatically applying EU legislation, it will need a non-domestic dispute resolution mechanism, and a broader governance framework.

One existing solution could be that used for the European Economic Area Agreement, Eurelectric says - the EFTA Court and the EFTA Surveillance Authority.

Other mechanisms could be used, such as those in place for the EU's bilateral agreements with Switzerland, or the Energy Community Treaty.

"The lack of a solution to this jurisdictional gap could have the most disruptive near term unintentional impacts, in particular the unintentional split of the Single Electricity Market (SEM) in Ireland and Northern Ireland and a 2019 exit from the EU ETS by the UK," the association warned.

The flow of energy between the UK and the EU will not stop on March 29, 2019, but the perceived risk of regulatory divergence, which Eurelectric says is already adding a risk premium, could lead to reduced efficiencies and competitive differences if common rules between the UK and the IEM are not maintained.

While network codes are in place for day-ahead coupling, there are cross-border intraday and balancing codes that the UK is participating in which may need to be legislated for in the future.

"The possible impacts on day-ahead and intraday market coupling, as well as balancing platforms need to be considered as it is difficult to assess what mechanisms will be in place should there be decoupling between the UK and the IEM," Eurelectric said.

Given these impacts, if similar rules are not in place to ensure fair competition between generators at either end of interconnectors, "the free trade of electricity and gas and the associated benefits will be diminished as the EU or the UK could look to limit these negative impacts through regulation, custom tariffs or even restrictions on the trade of gas and electricity," the association said.

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