Leadsom claims on Brexit bemuse energy industry

Energy minister Andrea Leadsom’s speech calling for a vote to exit from the EU got short shrift from members of the UK energy industry. It was described as ‘amazingly light on content’ by one industry member and there was surprise over the minister’s comments on energy issues. She took aim at measures that have been broadly supported up to now by the government.

The minister claimed that under a forthcoming ‘winter package’ of new legislation from Brussels, “we will be required in future to ask the Commission for approval before negotiating new gas deals with international partners, leaving us possibly reliant on a group of unelected Eurocrats, further diminishing our freedom to act in our own best interests, and certainly delaying our ability to respond in an emergency.”

This refers to the draft Decision on Intergovernmental Agreements. An industry member explained: “This is a piece of legislation currently under negotiation (by Leadsom herself) which means you have to notify the Commission if you make an agreement with a large gas-supply nation.” The legislation is “clearly aimed at Russia/Gazprom and the UK government position has been to support it”. The EU has concerns over whether Member States have over-reliance on Russia for gas supplies, but as Leadsom said in her speech, “Unlike some other EU Member States, we are not dependent on Russia for our gas.” The measure is thought unlikely to have any impact on the UK.

Leadsom also referred to the Gas Security of Supply Regulation, which is also under negotiation and generally supported by the government she serves. She said, “So the wording is clear. If we remain to become part of the ‘Energy Union’, and another Member State faces problems with their gas security – perhaps because of a political dispute with a supplier – we will be required to deprive our own small businesses of energy here at home.  Whilst we have a voluntary arrangement with Ireland on energy security, this EU proposal goes much further and takes control entirely out of our hands.”

An industry member told New Power that the planned Regulation does have a ‘solidarity’ provision that requires Member States to help neighbours if they have a gas shortage. But “The provision in question will probably be watered down since it is not much liked by the Member States. Of course, in any case, the provision could benefit the UK if we ever had a gas shortage.”

Leadsom also complained that it was “a huge thorn in my side every day” to get EU State Aid for measures like the Capacity Market and Contracts for Difference auctions. But industry members pointed out that all these elements of Electricity Market Reform had been cleared by the EU (and although some decisions are still under challenge, that challenge comes from UK companies). Leadsom lauded the European energy market, saying “Businesses do business with each other and the electricity flows through interconnectors in the most profitable direction, so everyone benefits. No one can reasonably claim that our electricity would somehow be switched off by a European politician trying to punish the UK for voting to leave”. But the industry’s response was that it would be hard to have a single market in energy “if national governments can intervene in the market whenever they like”. The UK would be bound by the rules of the European market, even if it were outside the EU.

Energy efficiency and VAT

Leadsom complained  that “the EU’s control over VAT levels has meant the Treasury having to hold a review of VAT” that could raise VAT on solar panels (and energy efficiency measures) to 20%. The government has fought that change, and although it currently appears likely to comply, it has forced a rethink in Brussels. “Given HMG’s axing of support to solar panels, this seems a curious point to make,” was the response.

More broadly, a large majority of the energy efficiency industry expect Brexit to be harmful to their businesses, according to  a regular industry report. Energy Efficiency Trends, published by EEVS and Bloomberg, found that UK companies feared higher energy prices, less investment and a shrinking of their market if the UK left the EU. Among the comments quoted in the report (read it here):

  • “Energy efficiency is an area likely to be ignored by any future government outside of the EU as it is an easy area of regulation to demonstrate ‘cutting red tape for businesses’.”
  •  “Access to a bigger pool of suppliers especially in energy, and beingpart of a bigger market makes it more affordable to take action, plus being subjectto EU legislation on energy savings drives forward.”
  •  “Legislative requirement or incentives would disappear under thisgovernment, removing the business case for many companies.”

On another VAT point, it is worth noting that, the UK has successfully maintained the freedom to charge VAT on energy bills at 5%, rather than falling into line with many other Member States that set VAT on energy bills at 20%.

Climate action ambitions?

One area where Leadsom’s comments appeared  fully in line with EU policy was climate change. She stressed, “we are world leaders in the development of new, low carbon technologies. Not only that, but our emissions reduction ambitions, set out in our own UK Climate Change Act of 2008, are world leading. So let me be very clear.  Absolutely none of this is threatened by the UK voting to leave the EU on June 23rd.”

That is a viewpoint that could put Leadsom at odds with some Conservative colleagues and with other ‘Vote Leave’ supporters such as UKIP.

Further reading:

See the results of an exclusive  New Power/Accent poll on Brexit and the energy industry

Read New Power consulting editor Dom Maclaine’s thoughts on Brexit uncertainty

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1 comment for “Leadsom claims on Brexit bemuse energy industry

  1. Sean Neely
    June 3, 2016 at 8:10 AM

    The EU has been a disaster for the Uk power sector, the EU LCPD directive forcing early closure of multi GWs of valuable UK infrastructure, loss of 1000s of jobs, whilst renewables directives have made the market unviable for new build CCGT, directly resulting in destruction of billions of value in utilities and an imminent power crisis ; only certain liberal press and subsidy vamps like it, we need to get out fast, well done Andrea.

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