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The Impact of Brexit on Energy Costs

Energy AccreditedWith Brexit scheduled to take place on 31st October, it is looking more and more likely that we will leave the European Union without an agreement in place and therefore be paying more for our energy.

If we leave the EU without a deal, the pound will devalue and trading will become far more complex, pushing up the prices for energy contracts.

But why?

Supply issues

  • Almost half of the UK’s gas supply is imported from the continent.  40% of gas and 87% of natural gas is being imported from Norway alone
  • The UK is set to become more dependent on imports as Britain’s gas production falls (see Chart 1 below)

Shortages

  • Reliance on gas imports could cause problems, where EU countries could restrict supply to cater for their own citizens, or push prices up for the UK.
  • Previously, during colder conditions, the UK has been heavily reliant on importing gas from Europe.

Trading Issues

  • If the UK leaves the EU single market and trading outside of the Internal Energy Market, trading will become much more volatile, potentially increasing the price.

VAT post Hard Brexit

  • Once we leave the EU, we will require a new legal basis for VAT, which may not be determined until negotiations with the EU and discussions with the UK over the next months and years become clearer.
  • This will increase the level of uncertainty, increase risk and could well end up with suppliers factoring in the extra risks in the form of higher costs.

Subsea Pipelines

  • Currently, there are 4 subsea pipelines connecting the UK to Europe, with another 11 planned/under construction.  The free-flow of energy across these interconnectors is vital to maintain a level playing field in the energy market and keep prices low.

Gas Burned to Generate Electricity

  • Gas is burned to produce electricity and is in fact currently the largest source of electricity, so with the increased uncertainty surrounding Brexit, electricity will also suffer (see Chart 2 below)

Confederation of Business Industry senior energy policy adviser Tanisha Beebee has said: “We’re assuming the cost of electricity will rise, but we don’t know by how much or when.”

The deadline is fast approaching.  So now is the time to sign a new contract with Welcome to lock in the current low pre-Brexit energy prices.  What’s more, even if you are still in contract for another 2 years or more, we can hold these current low prices for you until you are ready to renew.

Click here to register your interest!

UK Gas ProductionUK Sources of Electricity

 

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