REthink Energy: The Ripple Effect: The Impacts of Brexit and COVID-19 on the Energy Sector

IIEA6th November 20205min
This explainer looks back at Sir Philip Lowe’s recent presentation, part of the ESB/IIEA Series: REthink Energy, which examined the impacts of Brexit and the COVID-19 pandemic on the energy sector.

Author: Luke O’Callaghan-White

5 Key Takeaways from Sir Philip Lowe’s Address

  1. On 31 December 2020, Ireland will become an ‘energy island’, cut off from the rest of energy networks in the European Union. The Protocol on Ireland and Northern Ireland allows for the maintenance of a single all-Ireland electricity market at wholesale level.
  2. Projects such as the ‘Celtic Interconnector’, which will link the electricity markets of Ireland and France, are increasingly important for Irish energy security. There will also be an increasing focus on renewables in Ireland to increase self-sufficiency and security of supply. For the moment, however, Ireland remains dependent on imports from the UK to meet electricity and gas demand.
  3. The UK has specifically ruled out continued membership of the EU Emission Trading System. The Withdrawal Agreement makes it clear that the UK will no longer participate in any EU institution or agency. UK and EU have an interest in retaining and expanding cooperation in the energy sector; this will require trust, confidence and pragmatism.
  4. The energy sector has been severely affected by the COVID-19 pandemic. There has been an average decline in global energy demand of 25%. Investment in energy is set to fall by 20% in 2020, but overall, energy systems have been resilient during this crisis.
  5. Globally, low-carbon sources of energy are overtaking coal as the primary source of energy for power generation. They have priority access to grids and low operating costs. Investors are favouring investment in renewables, but oil and gas prices are historically low and still a viable option in the short term, if regulations permit.

Summary of the Presentation

Introduction

The fourth lecture in the 2020 ESB/IIEA Series: REthink Energy, examined the impacts of Brexit and the COVID-19 pandemic on the energy sector in Ireland and across Europe.

Pat Fenlon, Executive Director, Group Finance and Commercial of ESB delivered the opening remarks in which he referred to the substantial investment that ESB has made as part of its ‘Brighter Future Strategy’ to ensure secure, affordable and sustainable electricity supply for customers into the future. Mr Fenlon noted that despite the challenges that surround a potential ‘no-deal’ Brexit, ESB has been involved in the UK energy market for over 25 years and that it will continue to work with its British counterparts regardless of how the UK-EU negotiations progress. He highlighted that, while COVID-19 has had a considerable impact on the Irish energy sector, ESB had already developed a pandemic response plan in 2006, following the SARS outbreak and conducted a pandemic management exercise six months before the outbreak of coronavirus. Mr Fenlon said that this preparedness helped ESB’s resilience and its ability to maintain the supply of electricity in Ireland.

Brexit

Sir Philip Lowe began his address by noting that subsequent to the Transition period on 31 December 2020, the UK will withdraw from all EU institutions and agencies. This includes the UK withdrawal from the EU Emissions Trading Scheme, the European Network of Transmission System Operators for Electricity, and the Agency for the Cooperation of Energy Regulators.

Sir Philip argued that, unless there is a ‘no-deal Brexit’ the immediate impacts on the energy sector will be limited. He highlighted that UK and EU energy and climate policies are broadly aligned and that the UK has transposed the bulk of existing EU energy directives and regulation into national law. If there is ‘a no-deal’ outcome, he argued, there will likely be confusion until technical agreements on energy trading are put in place, but widespread disruption to the energy sector remains unlikely. Nonetheless, he recognised that the absence of shared market rules, network codes, and cooperation between regulators, owing to Brexit, will lead to less efficient market functioning, less liquidity and less competition.

Sir Philip acknowledged the unique challenges which Brexit poses for the Irish energy sector, and remarked that on 31 December 2020, Ireland will become an ‘energy island’, cut off from the rest of energy networks in the European Union. He remarked that the ‘Celtic Interconnector’, which will link the electricity markets of Ireland and France will be important for Irish energy security, but won’t come on-stream until at least 2025. While there will also be an increasing focus on developing renewables in Ireland to increase self-sufficiency and security of supply, he argued that for the moment Ireland remains dependent on imports from the UK for electricity and gas.

COVID-19

Regarding the impact of the COVID-19 pandemic on the energy sector, Sir Philip noted that in 2020 there will be a 25% decline in global energy demand and that investment in energy is set to fall by 20%. Notwithstanding this major shock to the energy sector, he emphasised that overall energy systems have been resilient during the crisis.

Globally, Sir Philip said, during the COVID-19 pandemic, low-carbon sources of energy are overtaking coal as the primary source of energy for power generation and investors have begun to favour investment in renewables. However, he cautioned that the prices of oil and gas are historically low and using existing fossil fuel-based power plants will continue to be a viable option in the short term if regulations permit.

Conclusion

In conclusion, Sir Philip remarked that the energy sector faces serious challenges posed by Brexit and the COVID-19 pandemic. He urged the restoration of trust, confidence and increased pragmatism between the EU and UK to develop frameworks for energy cooperation once the Transition period ends on 31 December 2020. remarked that the crisis of COVID-19 has stimulated a trend towards home-working and that this will have implications for energy demand patterns and distribution networks.

 

The Next Lecture in the REthink Energy Series

The next lecture in the REthink Energy series will take place on Friday 20 November at 2.00pm via the zoom platform. On this occasion, Alla Weinstein, CEO of Trident Winds, will discuss the future of offshore wind energy and the role it can play in a low-carbon energy future.