This article first appeared in Energy Now on 1 May 2016.
Renewables has not featured in the debate on EU membership as yet, but this is not to say Brexit would not have a big impact on renewables in the UK. In fact, the potential impact could be very significant – much of energy and renewables policy is underpinned by EU law, in particular competition and state aid law. Competition law because transmission and distribution businesses are natural monopolies and state aid law because, as Amber Rudd herself acknowledged in her policy reset speech in November 2015, no new generation capacity is built “without government intervention”.
In EU law, this manifests itself through three Energy Directives and the Energy and Environmental State Aid Guidelines (EEAG) adopted in 2014. The EU has taken a gradualist approach to integrating the energy markets in the EU, and each of the Directives has sought to move the EU closer to a single market in energy. This affects much of the regulatory regime in the UK. The EEAG (and its predecessor) are the foundation of the various support schemes in place for low carbon deployment – contracts for difference (CfD), the renewables obligation (RO), the feed in tariff (FIT), the renewable heat incentive (RHI) and, indeed, the capacity market, which is intended to ensure security of supply in the GB market.
If Brexit were to happen, the UK would have full control over its regulatory regime and the support schemes it puts in place. In other words, it could, if it decides, completely re-design them. This could, of course, be a terrific opportunity or a dire threat depending on your point of view. One thing we can probably conclude, however, is that energy policy in a post-Brexit UK would be less certain (at least for a while) since there appears to be a greater divergence of view on energy and environmental policy among the main political parties in the UK than there is across the EU.
Such a lack of stability would be adverse for the industry since most large scale projects take more than a single parliament to develop, and therefore developers need confidence that, if they spend time and money on developing a project for five years or more, that at the end of that process, their development will have value. Since that value will depend, crucially, on the regulatory regime and the support mechanisms in place at that time, developers look for policy stability and visibility of the direction of policy travel.
All in all, after the policy shocks in the last 12 months, the industry will be watching the outcome of the Brexit vote with a degree of nervousness. The industry, though, has proved itself resilient. In looking to the future, it does not just think about government policy, whether than emanates from Westminster or Brussels. It thinks about the need to decarbonise energy supply, and looks around at the current options for decarbonisation, and concludes that it has a future. There may not be a well sign-posted three lane highway to the future but a path will be found. Brexit would have an impact, but not so much on the destination or direction of travel more on how that path to the future is constructed. Whether that would be smooth or bumpy is really anyone’s guess.