Separation from the EU is significant issue for the UK energy sector

EU flagThe government’s EU Referendum Bill paves the way for an Independence referendum on the UK’s continued membership of the European Union to be held before the end of 2017.

This will be the first time the UK has been asked whether it wishes to remain a part of the EU since 1975.

If the vote is to separate from the EU, this will have significant changes for the energy sector in Scotland/ UK, as the following analysis from law firm Shepherd & Wedderburn makes clear:

For electricity and downstream gas companies, UK separation from the EU would raise a range of significant questions.

There are a range of European companies with interests across much of the EU. They transfer staff and capital freely across the EU. Their ability to do so is underpinned by the EU freedom of movement of goods and capital. The continued ability to transfer key personnel to and from UK operations, and transfer capital in and out of the UK after separation would be a key issue.

EU law now sets critical aspects of the UK regulatory framework for electricity and gas. EU law requires that regulators such as OFGEM/GEMA must be independent from political influence.  

Regulatory independence is a key protection for investors, in particular as energy has become much more political. It also requires that Member States do not unlawfully discriminate between companies, thus ensuring that foreign investors are not disadvantaged against “national champions”.

For investors in renewables, EU law provides a legally binding target for the UK. That target is much more difficult to change than UK law targets. EU targets underpin significant investments in renewables because investors know that the EU target makes it much more difficult for the UK to reduce its domestic targets and related support schemes.

The EU energy market is becoming much more integrated physically and economically. The UK now sources much of its gas via the interconnectors with Europe, and there is now a significant degree of electricity interconnection with Europe.The trend is for greater integration.

This relies on a common set of rules against which large capital investments can be made. The rules also help promote security of supply. The EU is promoting more integration, and it is generally agreed that this is essential to promote energy security at an economical price.

Against this background, separation from the EU is a significant issue for the UK energy sector.

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