Brexit cloud hangs over energy supplies from Dublin to Belfast

[LONDON] The Irish border issue isn't the only Brexit-induced headache the island is facing. How to keep the lights on in the long term is also far from resolved.

Weeks before the UK is due to leave the European Union, questions remain over trading agreements and Ireland's 12-year-old single electricity market, known as the SEM. While nobody thinks there will be serious disruption on Nov 1, problems could mount further down the line because of the large reliance on supplies from power plants in the rest of the UK

"Brexit with the energy sector is a bit like throwing sand in the fuel tank of a car - it doesn't stop at the time but the friction between the two has a longer-term cumulative effect," said Joseph Dutton, a policy adviser at climate change think tank E3G in London.

Britain has warned that in a worst-case scenario, a "rapid" split could occur months or years after the UK left the EU. Although the market would continue to function as usual immediately after Brexit, Northern Ireland would technically be pulled out of the SEM, lurching it into legally dubious territory and requiring new trading agreements to be written from scratch.

The single energy market has reduced power costs for consumers when it was introduced because it made trading more efficient. Wholesale electricity prices dropped 19 per cent in the year through June 2019 after closer integration and Ireland's ability to produce more wind power, which also benefits Northern Ireland.

"If there is a fragmentation, that would lead to increased prices for Northern Irish consumers,'' Mr Dutton said.

The Irish market imported as much as 88 per cent of its total energy needs in 2017, according the latest government data available. The UK met as much as 40 per cent of its gas demand. There are currently three electricity links between Northern Ireland's grid and the Republic. There's also one subsea cable between County Dublin and North Wales with one more being planned.

While as much as 44 per cent of the power in Northern Ireland came from renewables, there are also two gas-fired plants and a coal station due to close in 2025.

In Brexit negotiations so far, both the UK and the EU have agreed on the importance of cooperating on energy security. But this does not mean that the U.K would stay in Europe's Internal Energy Market.

The market would continue to function, even in the event of a no deal Brexit, Eirgrid Plc said in response to questions. But trading could be less efficient, as some platforms operated under EU rules may not be used in the same way as today, the company said.

The UK parliament has looked at issues that could come from leaving the EU but "absolutely none'' of them have been addressed, according to Silke Goldberg, an energy lawyer and partner at Herbert Smith Freehills, who testified in front of a House of Lords inquiry into post-Brexit energy security.

The UK's department for Business, Energy and Industrial strategy didn't respond to a request for comment.

Europe Links

In the meantime, grid companies are planning closer ties with continental Europe.

A link between southern Ireland and Wales is at an advanced planing stage with full regulatory approval expected early next year. Another cable between the Republic of Ireland and France that would be able to import enough supplies to feed 450,000 homes has been granted 530 million euros (S$800 million) in funding from the European Commission.

"A "no deal Brexit" could be much the same as a "deal Brexit" as the UK may leave the IEM in either scenario. In both cases, it is possible that the UK and EU could negotiate agreements to cooperate on electricity trading outside of the IEM," a House of Commons briefing said in September.

The Irish electricity market was unwittingly pulled into the tussle over the Irish backstop in Prime Minister Boris Johnson's proposed withdrawal agreement. The suggested deal, which keeps Northern Ireland and Ireland connected in certain sectors, says that the Northern Ireland institutions - the Assembly and the Executive - must be able to give their consent on an ongoing basis to the electricity market arrangements.

Drawing the internal market into the Brexit row was very short-sighted and potentially damaging, Eamon Ryan, the leader of Ireland's Green Party, said by phone. He stated that it would make the electricity market subject to a confidence vote of the Democratic Unionist Party, the largest political group in Northern Ireland's Assembly.

"It's a highly dangerous strategy because that uncertainty will undermine investment in Northern Ireland," where some plants are nearing the end of their life, he said.

BLOOMBERG