Energy

What does the Trade Agreement say?

• The FTA’s provisions for energy cover electricity and gas trade over interconnectors, support for renewables integration, cooperation to develop offshore renewable opportunities in the North Sea as well as on a number of technical areas including security of supply and functioning of energy markets.
• The agreement aims to ensure efficient use of the interconnectors and reduce barriers to energy trade between the UK and the EU. To this end, the two parties will be required to develop and implement a new trading model by April 2022. This model will be separate from the current day ahead (market coupling) mechanism, but ensure that there is implicit trading in capacity allocation and that capacity on the interconnectors is maximised. For electricity, alternative trading arrangements will be in place while the system is being developed and implemented. For gas, trade on the PRISMA trading platform continues uninterrupted. 
• The agreement promotes energy efficiency and the use of renewable energy sources. It also supports the integration of electricity from renewable sources into the respective electricity markets. 
• The EU and UK are encouraged to cooperate to harness the North Sea’s large renewable energy potential. This cooperation shall focus on the technical, regulatory, planning and financial aspects of developing hybrid projects that combine offshore windfarms and interconnectors, thus opening up the potential for a North Sea Grid. This largely replicates the The North Seas Energy Cooperation (NSEC) grouping which the UK left on its exit from the EU on 31 January 2020.
• The arrangement calls for cooperation on a number of technical areas, including the development of energy infrastructure connecting the EU and UK, security of energy supply, risk preparedness and emergency plans. As the UK is no longer part of the EU’s Agency for the Cooperation of Energy Regulators (ACER), administrative arrangements need to be developed as soon as possible with ACER to cover several technical areas surrounding electricity and gas trade as well as offshore energy development. 
• Finally, the energy agreement expires on 30th June 2026. Annual negotiations will take place after this date, unless the Partnership Council decides to roll the agreement forward to the following year. 

How does this compare to what was expected?

• Both electricity and gas trade was expected to continue through the interconnectors without any threat to the security of energy supply. In this respect, the agreement did meet expectations. 
• The commitment to develop and implement market arrangements to allow the UK to continue access day-ahead markets is a welcome addition. While these arrangements will take time to be put in place, they will allow more efficient trade over interconnectors in the future. 
• Calls for cooperation to develop the North Sea’s renewable potential and to establish administrative relationships between regulators on both sides are both practical and welcome provisions.
  

What are the actions for business?

• Operators, code administrators and interconnector owners need to use the previously developed alternative trading arrangements until the new electricity trading model is implemented. 
• Market participants also need to ensure that the status of their contracts and licences with EU member states remains unaffected. 
• Both electricity and gas operators/interconnector owners need to continue to work with the EU national regulators to understand how the Transmission System Operator certifications are being reassessed. Ofgem and the Northern Ireland Utility Regulator will offer support to interconnectors for this process. 
• Businesses that partake in interconnector trade will need to re-register under the EU’s Regulation on Energy Market Integrity and Transparency (REMIT) with an EU regulatory body.
• Businesses will need to have arrangements in place to complete customs declarations (either the fixed transport installation operator or the trader as appropriate).
• Based on the Ireland/Northern Ireland Protocol, the Single Energy Market (SEM) and the wholesale electricity trade will continue across the island of Ireland. Therefore, electricity market participants in Northern Ireland should continue using the SEM processes and arrangements after 1 January 2021.
  
  

To discuss specific support with your Brexit preparations based on this latest development contact: Deloitte Brexit Insights.