March 24, 2016

Vivid Economics published a note on the impact of the UK leaving the EU, the so-called Brexit, on the UK’s energy sector.

The note builds on the company’s work for National Grid from November 2015, when it was asked to assess the impact of the Brexit on the UK’s energy sector, finding that the overall impacts are likely to be negative. However, the report for National Grid focused on the impact of potentially leaving the Internal Energy Market (IEM). Vivid’s note now includes a deeper discussion of potential impacts beyond departure from the IEM.

This broader assessment found that the increase in the cost of investment due to the uncertainty arising from Brexit negotiations could also be a significant cost, given that the UK is undertaking a historic level of investment in energy infrastructure.

“Following Brexit, heightened concerns about poor outcomes are likely to reduce capital inflows and weaken the Pound,” Vivid Economics said. “The devaluation of the Pound would increase the cost of imported equipment and services needed for much of the planned infrastructure investment. For example, companies located outside of the UK are responsible for more than 50% of expenditure associated with planning, building and running offshore wind projects.”

Any potential benefits of Brexit are likely to be limited, given that the UK is committed to decarbonisation and air quality targets equal to or greater than EU requirements, according to the economics consultancy.

The UK’s commitment to renewables extends beyond that required by the EU, having already allocated funding for the first 4GW of offshore wind in the 2020s.