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Brexit transmission costs could drive up energy bills

Energy industry chiefs have published a letter warning the EU and the UK against putting trade barriers on imported gas and electricity. Signed by leaders from energy and business interest groups among others, the letter said that imposing extra costs on the use of cross-channel electricity cables and gas pipelines would push up costs for consumers and harm efforts to fight back against global warming. The letter said that free trading of energy would help ensure a “level playing field that keeps costs down for consumers and ensures decarbonisation and security of supply.” There are currently only four connectors carrying electricity between mainland Europe and the UK and the UK and Ireland, but this number could increase with 11 new connectors either planned or under construction. While only 6% of the UK’s electricity currently comes from Europe, this figure could rise to 20% by 2025, according to the Government. The UK could leave the EU without a trade deal on March 29, 2019. If the UK leaves the EU’s internal market for energy, tariffs may be payable on gas and electricity imported from EU countries. The letter also warned that impact on energy interconnectors could affect the fight against global warming, because the process of ‘balancing’ between EU countries helps ensure supply when wind or solar generation is low. Without the free ‘movement’ of electricity across the channel, the UK may have to rely on more gas generators or nuclear power. There is also a question about the future of the Irish Single Electricity Market – part of the Good Friday Agreement – which would face a “possibly existential risk if cross border electricity tariffs were applied.” The letter, which has been signed by companies including the French EDF and Unilever as well as interest groups including Energy UK, Renewable UK and the British Irish Chamber of Commerce, echoes warnings from a House of Lords committee that Brexit could cut energy investment in the UK, complicate energy trading and increase costs for households and businesses. A government spokesperson said: “The UK has always been one of the most ambitious and leading countries in the world, including Europe, when it comes to tackling climate change and that commitment is unwavering. “As set out in the [Brexit] white paper, we will maintain our high standards after we leave the European Union and we will respond in full to this letter in due course.” Responding to the Government’s publication of ‘no deal’ advice papers last month, Energy UK’s Head of European Affairs, Marta Krajewska said: “A ‘no-deal’ scenario will have significant and negative consequences for the energy industry and would likely create cost pressure that could impact customers’ bills. “Energy UK believes that a deal, with a transition period, is by far the best way forward for the energy industry and the UK as a whole.”

Understanding business energy bills

As well as the itemised costs that appear on your energy bill, such as your standing charge and your unit rate plus taxes and other charges, business energy bills are also influenced by certain ‘unseen’ components. The two key unseen costs are the cost of wholesale energy, which changes with geopolitical events and currency fluctuations, and costs associated with transmission and distribution. While distribution tends to describe more localised dissemination of energy by the National Grid, transmission charges relate to longer-distance or international flows of energy. If transmission costs increase, it will influence the cost of your energy contract. Costs are also likely to be affected by uncertainty in the market. Whether they are big or small, energy suppliers procure energy weeks, months and years in advance. There is still no certainty on when or how Britain will leave the EU. It could crash out next March or a transition deal could be reached that would keep the UK inside the EU’s internal market for energy for a further two years. Energy companies may increase prices to account for this uncertainty and these costs are also likely to be passed onto businesses and domestic energy buyers. If you are planning to find a new fixed-term energy contract this Autumn, then there is a good chance that premiums will be slightly higher because of the Brexit risk.

For more advice on your next fixed-term business energy contract, speak to a member of the Utility Helpline team today. Call: 0800 043 0423.

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