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Released July 12, 2016 | GALWAY, IRELAND
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Written by Martin Lynch, European News Editor for Industrial Info (Galway, Ireland)--The U.K.'s decision to leave the European Union (EU) is not expected to harm the country's energy sector in the short term, but there will be some negative impact in the coming years.
A referendum at the end of June to decide whether or not to leave the EU saw a narrow victory for the 'Leave' campaign with 52% of the vote. This has already resulted in some economic downturn for the nation due to uncertainty, and its currency, Sterling, has seen its value drop on a number of occasions to a 30-year low.
The U.K. and the E.U. will negotiate the terms of the country's exit over the next two years, after which a clearer picture will emerge for the energy sector when new trading, investment and legal practices come into force. Until that time, there is a question mark hanging over the level of investment in future projects, particularly renewable energy projects. The U.K. has been leading Europe in renewable energy investment in recent years, especially with regard to offshore wind. However, until the current economic uncertainty brought on by Brexit--the acronym for Britain's exit from the EU--settles and a clear picture emerges of future trading and financial arrangements with the EU, investment may decline in the next couple of years.
Renewable energy firms including Germany's Siemens AG (Munich), Denmark's DONG Energy (Fredericia) and Sweden's Vattenfall AB (Stockholm, Sweden), have been quick to reaffirm their commitment to the U.K. sector, but not without reservations.
DONG stated: "We don't believe that U.K. energy policy is dependent on EU membership, and we are confident that DONG Energy will continue to make an important contribution to provide U.K. homes with low carbon electricity supply in [the] future. Like many other businesses we will await clarity over the implications of the vote to leave the EU."
Siemens commented after the vote: "As a global business with significant, long-term investments in the U.K. and high local value creation, Siemens is not so much exposed to negative effects that we might see. Nevertheless, the government must now move swiftly to unify and agree the nature of the U.K.'s relationship with the EU and other trading partners, creating clear roadmaps to encourage future investment."
A spokesperson for Vattenfall told media: "Vattenfall is in the U.K. for the long term to grow its sustainable energy business thanks to a generally supportive energy policy framework, legally binding climate targets and strong market fundamentals. We still want to grow in the U.K., particularly in wind power, but clearly a significant change like an exit from the EU introduces more risk to the sector for an unforeseen period of time. We aim to understand and assess that risk on an ongoing basis, as we would with any policy or treaty change."
It's clear that these companies, which are the biggest renewable energy project developers in the U.K., are promoting a 'business as usual' message while also warning the U.K. government that it needs to work closely with the EU to make its future trading conditions attractive to outside players.
Energy industry groups have been less positive on the U.K.'s planned exit.
"The U.K. now looks small-minded and distrustful of others," said Angus MacNeil, chair of the Energy and Climate Change Committee to Utility Week Magazine."Do you want to go to a country with that attitude? So you can imagine a higher cost of energy as we continue along that path."
Nina Skorupska, chief executive officer of the Renewable Energy Association, added: "This result raises serious questions for investor certainty, energy security and much-needed investment in the U.K.'s energy infrastructure. Energy policy must be a priority for the government now."
"Anybody who says they know exactly what's going to happen in the coming days, weeks and months is kidding you because nobody is going to know what happens," said Mike Foster, chief executive, Energy and Utilities Alliance.
The U.K.'s exit also casts a shadow over the country's 2030 renewable energy commitments under EU law. Although the country has often called for higher targets on an EU level, there are concerns over whether the country--under successive governments--will feel the need to adhere to strict EU regulations for renewable generation and emissions reductions after leaving. There's also the question of whether the U.K. will continue to adhere to the Industrial Emissions Directive (IED), which imposed stricter levels of air pollution on industrial facilities, including power plants. From 2017, it calls on large combustion plants, including coal-, gas- and oil-fired power plants, to invest in equipment for cleaning up emissions, or agree to shut before 2024 or after 17,500 operating hours, depending on which comes first.
The Conservative government, which called for the U.K. to remain in the EU during the referendum, has stated that it is still committed to its energy targets.
"However we choose to leave the EU, let me be clear: we remain committed to dealing with climate change," stated Energy Secretary Amber Rudd, after the vote. "The Climate Change Act was not imposed on us by the EU. It was delivered with cross-party support by the U.K. Parliament. The Climate Change Act in 2008 underpins the remarkable investment we have seen in the low carbon economy since 2010. Investment in renewables has increased by 42% since 2010, and in 2014, 30% of all of Europe's renewable energy investment took place in the U.K. "We will continue to invest in clean energy."
She added: "We remain committed to new nuclear power in the U.K.--to provide clean, secure energy. Government has prepared the ground for a fleet of new nuclear stations. Three consortia have proposals to develop 18-gigawatts (GW) of new power stations at six new sites across the U.K. And we made a commitment to closing unabated coal-fired power stations--a commitment that was praised by leaders across the world. All these commitments remain in place. They will help us rebuild our energy infrastructure."
However, it should be noted that back in March, while campaigning for the U.K. to stay within the EU, her message was much less optimistic.
"Being in the EU helps us attract billions and billions of pounds of investment in our energy system and supply chain. Taken together, this investment helps support 660,000 jobs in the U.K.'s energy sector. Does anybody really think all of that investment would continue if we left the EU, and with no extra cost?"
The first of those nuclear projects mentioned is the Hinkley Point C project, which has had a rocky road getting to its current status. Before the exit vote, the project was still waiting for a much-delayed final investment decision from French developer Électricité de France S.A. (EPA:EDF) (Paris, France). For additional information, see May 2, 2016, 2016, article--EDF Delays Hinkley Point C Nuclear Decision until September.
Its viability following the exit vote has been called into question again, especially since the project has already divided senior figures within EDF and seen the departure of its chief financial officer earlier this year. After the outcome of the exit referendum, EDF said it remained committed to the project.
EDF Chief Executive Officer, Jean-Bernard Lévy, commented: "As of today, we believe that this vote has no impact on our strategy, and the strategy for our UK subsidiary [EDF Energy] has not changed. Our business strategy is not linked to Great Britain's political affiliation with the European Union, so we have no reason to change it."
It's far too early to know what the outcome will be at the time of the country's actual exit in a couple of years but some things are already clear. Economic uncertainty does not attract investors. And if uncertainty turns into an economic downturn or worse--a recession--then there will be a drop in the amount of power needed which, in turn, will lead to cancelled projects and less energy investment.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Our European headquarters are located in Galway, Ireland. Follow IIR Europe on: Facebook - Twitter - LinkedIn For more information on our European coverage send inquiries to info@industrialinfo.eu or visit us online at Industrial Info Europe.
A referendum at the end of June to decide whether or not to leave the EU saw a narrow victory for the 'Leave' campaign with 52% of the vote. This has already resulted in some economic downturn for the nation due to uncertainty, and its currency, Sterling, has seen its value drop on a number of occasions to a 30-year low.
The U.K. and the E.U. will negotiate the terms of the country's exit over the next two years, after which a clearer picture will emerge for the energy sector when new trading, investment and legal practices come into force. Until that time, there is a question mark hanging over the level of investment in future projects, particularly renewable energy projects. The U.K. has been leading Europe in renewable energy investment in recent years, especially with regard to offshore wind. However, until the current economic uncertainty brought on by Brexit--the acronym for Britain's exit from the EU--settles and a clear picture emerges of future trading and financial arrangements with the EU, investment may decline in the next couple of years.
Renewable energy firms including Germany's Siemens AG (Munich), Denmark's DONG Energy (Fredericia) and Sweden's Vattenfall AB (Stockholm, Sweden), have been quick to reaffirm their commitment to the U.K. sector, but not without reservations.
DONG stated: "We don't believe that U.K. energy policy is dependent on EU membership, and we are confident that DONG Energy will continue to make an important contribution to provide U.K. homes with low carbon electricity supply in [the] future. Like many other businesses we will await clarity over the implications of the vote to leave the EU."
Siemens commented after the vote: "As a global business with significant, long-term investments in the U.K. and high local value creation, Siemens is not so much exposed to negative effects that we might see. Nevertheless, the government must now move swiftly to unify and agree the nature of the U.K.'s relationship with the EU and other trading partners, creating clear roadmaps to encourage future investment."
A spokesperson for Vattenfall told media: "Vattenfall is in the U.K. for the long term to grow its sustainable energy business thanks to a generally supportive energy policy framework, legally binding climate targets and strong market fundamentals. We still want to grow in the U.K., particularly in wind power, but clearly a significant change like an exit from the EU introduces more risk to the sector for an unforeseen period of time. We aim to understand and assess that risk on an ongoing basis, as we would with any policy or treaty change."
It's clear that these companies, which are the biggest renewable energy project developers in the U.K., are promoting a 'business as usual' message while also warning the U.K. government that it needs to work closely with the EU to make its future trading conditions attractive to outside players.
Energy industry groups have been less positive on the U.K.'s planned exit.
"The U.K. now looks small-minded and distrustful of others," said Angus MacNeil, chair of the Energy and Climate Change Committee to Utility Week Magazine."Do you want to go to a country with that attitude? So you can imagine a higher cost of energy as we continue along that path."
Nina Skorupska, chief executive officer of the Renewable Energy Association, added: "This result raises serious questions for investor certainty, energy security and much-needed investment in the U.K.'s energy infrastructure. Energy policy must be a priority for the government now."
"Anybody who says they know exactly what's going to happen in the coming days, weeks and months is kidding you because nobody is going to know what happens," said Mike Foster, chief executive, Energy and Utilities Alliance.
The U.K.'s exit also casts a shadow over the country's 2030 renewable energy commitments under EU law. Although the country has often called for higher targets on an EU level, there are concerns over whether the country--under successive governments--will feel the need to adhere to strict EU regulations for renewable generation and emissions reductions after leaving. There's also the question of whether the U.K. will continue to adhere to the Industrial Emissions Directive (IED), which imposed stricter levels of air pollution on industrial facilities, including power plants. From 2017, it calls on large combustion plants, including coal-, gas- and oil-fired power plants, to invest in equipment for cleaning up emissions, or agree to shut before 2024 or after 17,500 operating hours, depending on which comes first.
The Conservative government, which called for the U.K. to remain in the EU during the referendum, has stated that it is still committed to its energy targets.
"However we choose to leave the EU, let me be clear: we remain committed to dealing with climate change," stated Energy Secretary Amber Rudd, after the vote. "The Climate Change Act was not imposed on us by the EU. It was delivered with cross-party support by the U.K. Parliament. The Climate Change Act in 2008 underpins the remarkable investment we have seen in the low carbon economy since 2010. Investment in renewables has increased by 42% since 2010, and in 2014, 30% of all of Europe's renewable energy investment took place in the U.K. "We will continue to invest in clean energy."
She added: "We remain committed to new nuclear power in the U.K.--to provide clean, secure energy. Government has prepared the ground for a fleet of new nuclear stations. Three consortia have proposals to develop 18-gigawatts (GW) of new power stations at six new sites across the U.K. And we made a commitment to closing unabated coal-fired power stations--a commitment that was praised by leaders across the world. All these commitments remain in place. They will help us rebuild our energy infrastructure."
However, it should be noted that back in March, while campaigning for the U.K. to stay within the EU, her message was much less optimistic.
"Being in the EU helps us attract billions and billions of pounds of investment in our energy system and supply chain. Taken together, this investment helps support 660,000 jobs in the U.K.'s energy sector. Does anybody really think all of that investment would continue if we left the EU, and with no extra cost?"
The first of those nuclear projects mentioned is the Hinkley Point C project, which has had a rocky road getting to its current status. Before the exit vote, the project was still waiting for a much-delayed final investment decision from French developer Électricité de France S.A. (EPA:EDF) (Paris, France). For additional information, see May 2, 2016, 2016, article--EDF Delays Hinkley Point C Nuclear Decision until September.
Its viability following the exit vote has been called into question again, especially since the project has already divided senior figures within EDF and seen the departure of its chief financial officer earlier this year. After the outcome of the exit referendum, EDF said it remained committed to the project.
EDF Chief Executive Officer, Jean-Bernard Lévy, commented: "As of today, we believe that this vote has no impact on our strategy, and the strategy for our UK subsidiary [EDF Energy] has not changed. Our business strategy is not linked to Great Britain's political affiliation with the European Union, so we have no reason to change it."
It's far too early to know what the outcome will be at the time of the country's actual exit in a couple of years but some things are already clear. Economic uncertainty does not attract investors. And if uncertainty turns into an economic downturn or worse--a recession--then there will be a drop in the amount of power needed which, in turn, will lead to cancelled projects and less energy investment.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Our European headquarters are located in Galway, Ireland. Follow IIR Europe on: Facebook - Twitter - LinkedIn For more information on our European coverage send inquiries to info@industrialinfo.eu or visit us online at Industrial Info Europe.
