Brexit, ‘regulatory alignment’ & energy

Gordon DowniePosted by

This week’s revelation that the UK and EU have been contemplating a deal on the EU withdrawal that involves continuing ‘regulatory alignment’ on the island of Ireland raises an interesting and important question as regards the position of the UK electricity sector post-Brexit: is Irish/NI ‘regulatory alignment’ possible without broader UK/EU alignment?

Regulatory alignment, as far as we know, appears to involve the regulatory regime in Northern Ireland remaining aligned with the EU regulatory regime applied in Ireland, thus allowing Northern Ireland to remain part of the EU internal market, at least as regards the economic sector(s) concerned. This appears to be very much an ‘EU centric’ proposition, in the sense that Northern Ireland will be expected to align itself with the EU regime in Ireland, rather than vice versa.

Key economic sectors

One of the key economic sectors within which regulatory alignment is to operate on the island of Ireland after Brexit is the energy sector and, specifically, the electricity market. At the moment, a single electricity wholesale market (known as the Single Electricity Market or SEM) operates across the island of Ireland under an EU-compliant regulatory framework. That EU framework requires this market to be ‘coupled’ with those in other EU Member States, allowing seamless cross-border trading of wholesale power. Given that all electricity currently enters and leaves the island of Ireland via interconnectors with Great Britain, the question arises how to preserve ‘coupling’ of the SEM with the rest of the EU after Brexit.

On one view if the GB wholesale market drops out of the EU internal electricity market then there may be nothing for the SEM to ‘couple’ with. That could mean that the EU regulatory framework would need to be revised to reflect that fact and allow the SEM to ‘de-couple’ itself and Ireland (to that extent) to withdraw from the EU internal electricity market. Would such an outcome be consistent with the proposal for regulatory alignment? It might not be thought so, given that it would involve the ‘shrinking’ of the EU internal electricity market, rather than allowing Northern Ireland to continue participating in it.

So what might the alternative be? One obvious solution would be for the GB electricity wholesale market to remain ‘coupled’ with the EU and, to that extent, remain an integral part of the EU internal market. In that scenario, Ireland (and Northern Ireland) could remain a fully ‘coupled’ member of the internal electricity market. However, it is not hard to see that such an outcome could prove problematic from a broader UK perspective, e.g., in terms of continuing EU oversight of the GB power sector that might accompany continuing ‘coupling’ of the GB wholesale market.Brexit

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