Brexit has added up to £370m a year to the price of power supplies from Europe, according to industry representatives who calculate that the total energy costs of leaving the EU could amount to £10bn by the end of the decade.
Energy UK, the sector’s trade body, has called on Keir Starmer to negotiate a closer trading relationship with the bloc as part of the “reset” he is seeking with Brussels.
Before Brexit, the UK procured power through the EU’s internal electricity market, which brought together bids and offers in a system known as “single day-ahead coupling”, using an algorithm to optimise pricing and flows.
The UK imports and exports electricity through interconnectors – huge undersea cables – to Norway, Ireland, France, Belgium, Denmark and the Netherlands.
After the post-Brexit trade deal came into force in January 2021, the British market was no longer part of the algorithmic system, reducing the efficiency of trading and pushing up costs.
“One of the unfortunate consequences of Brexit is that we have been left with these very inefficient trading arrangements, and there is a cost to that,” said Energy UK’s deputy director, Kisha Couchman.
“There’s been upwards of somewhere between £100m and £370m and that has ultimately been borne by the consumer,” she told a British Irish Chamber of Commerce conference in Dublin.
The price increase is another consequence of leaving the single market under the “hard Brexit” sought and sealed by Boris Johnson’s government in late 2020.
Energy UK said relinking the UK to a unified trading operation would not only reduce the cost of electricity, but also create a “greater incentive for decarbonisation across both jurisdictions”.
It said a return to a more efficient import and export arrangement would benefit both the UK and the EU as they strive to achieve net zero by 2050.
“Linkage is critical for the UK and EU industries and is supported by British and European industry and civil society alike. This should be a priority for the new UK government to address,” it said in a recent report.
In a briefing issued this week, Energy UK said
: “Unless the UK moves toward closer cooperation with the EU on energy and climate it may lead to additional costs of up to £10bn this parliament through higher energy bills and lower Treasury revenues,” it said.
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It calculated that energy trading outside the bloc was costing the UK £120m to £370m a year. It also estimates a further £800m in carbon tax charges the EU plans to introduce on imports from 2026.
According to its analysis, the Treasury will lose between £900m and £2.4bn in revenue a year as a result of a reduction in demand for UK energy that new emissions trading rules are expected to trigger as the EU implements its carbon border adjustment mechanism in 2026.
It notes the UK is likely to become a net exporter of electricity by 2030, but that the new carbon tax barriers “will make it harder for the UK to fulfil its potential”.
Previous research found that the change to trading arrangements over the interconnectors can add between 0.25% and 0.7% to wholesale costs, with £90m to £250m added in 2021.
A joint statement by Starmer and the European Commission president, Ursula von der Leyen, after their first meeting in Brussels earlier this month suggested that energy could be part of the “reset”.
“The leaders agreed the UK and EU would also continue to work closely to address wider global challenges including economic headwinds, geopolitical competition, irregular migration, climate change and energy prices, which pose fundamental challenges to the shared values of the UK and the EU and provide the strategic driver for stronger cooperation,” the statement said.