Energy industry fears over Brexit: freeze on decision-making; financial risk

Energy companies fear a black hole for decision-making if the Brexit referendum on 23 June results in a vote to leave the EU.

That was one finding of a poll conducted by New Power Report and its research partner Accent into energy companies’ view of Brexit, due for publication in New Power later this week.

Only a quarter of respondents thought that they (and perhaps their trading partners) could take business decisions with the referendum looming. Half considered they had to wait until the terms of any exit become clear and a quarter thought they would have to wait much longer – either after the exit was complete or still further in the future. But asked what their first action would be many said they would re-examining their financing structures.  [What's your view? Tell us here]

Overall, there is little upside to an exit from the EU for the UK’s energy industry, the survey revealed, and significant downside risks.

That concern existed even though respondents felt that the UK’s place within a European energy market would be unlikely to change. Existing trading arrangements would remain in place and plans for increased interconnection would mean day to day operations would continue to be closely linked. But that position came with risk: several respondents pointed out that the UK would have to comply with EU market rules but would lose its ability to influence them.

The biggest risk was seen as the ability to access international finance, both because of uncertainty during the referendum and exit process and in the long term for a UK outside the EU. That uncertainty extended to the likely actions of European-headquartered utilities like RWE and E.On after a vote to leave.

Some respondents did see weak upside in an exit, because it would allow the UK to rethink its energy policy. But views here were mixed: Brexit offered an opportunity to escape Brussels’ influence, but while some thought that was an opportunity for more flexibility others saw it as increased political risk.

Those looking for upside also saw some potential short term gains for exporters, because they expected to see the value of Sterling falling sharply in the event of a vote to leave. But others said the downside risk for importers and commodity traders was more important.

Overall, a third of respondents thought their company performance would be worse after an exit and just 8% thought it would be better.

The water industry view

Leaders and opinion formers in and around the water industry have a similar outlook on Brexit as their energy counterparts: few see much upside potential for their sector, but plenty see downside risk.

That was the key finding of a poll conducted by The Water Report and Accent, mirroring the New Power research. In overall terms, two-thirds said Brexit would be negative for UK water. A further 19% considered it would have no effect, and just 14% thought it would be positive.

Chief among the issues driving negative sentiment was the expected impact on investment. Not a single respondent thought Brexit would be positive for securing investment, while 57% said it would be negative. There were repeated mentions of access to European Investment Bank (EIB) funds in particular. Among respondents’ comments were:

  • “[Brexit] is likely to cause uncertainty and increase interest rates. In addition it will discourage some foreign investors who have big stakes in the UK water industry.”
  • “It would lead to economic uncertainty and might spook some of the EU based lenders. I think we can expect bank rates to rise in UK and for there to be a risk premium added to EU based and USD based loans.”
  • “Loss of the EIB as an investor would be detrimental.”

Others with negative views cited concern for the possible impact on quality standards:

  • “The UK water industry has been strongly focussed on delivering European standards compliance for many years. While these or similar standards would be likely to remain under Brexit, there may well be a change in appetite for, and speed of, work to deliver and maintain compliance.”
  • “EU policies and rules have driven up improvements in all areas of the water environment.”

The Water Report also asked: in the event of a vote for Brexit on 23 June, how long do you think it will take for your organisation to be able to confidently make business decisions for the future? Only a fifth were confident they would be able to act immediately. The rest anticipated a hiatus of some kind.

What’s your view?

Let us know when you think your company could confidently take decisions and what your initial reaction would be. Answer two questions here

Subscribers: look out for the May edition of New Power Report with full survey results, published on 28 April.

Not a subscriber? Email subscriptions@newpower.info to see whether you qualify to join our free trial. Keep in touch with New Power by signing up for our free e-newsletter here.

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