Following the end of the transition period on 31 December 2020 and the signing of the Trade and Cooperation Agreement, aspects of the relationship between UK and the EU in respect of the arrangements for energy trading and cooperation have changed. We set out answers to some Frequently Asked Questions (FAQs) on the key changes.
Can we access the Internal Energy Market?
As of 1 January 2021, the UK is no longer part of the Internal Energy Market. This means that the UK’s energy market is de-coupled from the EU’s. The Trade and Cooperation Agreement (TCA) sets out the potential to develop new market coupling and capacity allocation arrangements, with Transmission System Operators required to develop technical procedures for day-ahead capacity allocation based on “multi-region loose volume coupling”. These arrangements will take time to develop but the following timeframes are suggested:
- Within three months – cost benefit analysis and outline of proposals for technical procedures.
- Within 10 months – proposal for technical procedures.
- Within 15 months – entry into operation of technical procedures.
Can we participate in cross-EU frequency response mechanisms?
Under the EU Electricity Balancing Guidelines, Transmission System Operators are required to develop platforms that would enable cross-border markets in specified reserve products.
Participation in TERRE (Trans European Replacement Reserves Exchange) had been under development, but the final Brexit TCA has cast this into doubt. The ESO is currently planning to pause all work on TERRE until BEIS provides clarity on whether a GB-only implementation will be pursued.
Similarly, there is nothing in the UK/EU TCA that allows for GB’s participation in the Manually Activated Frequency Reserves Initiative (MARI) process. As a result, unless a new agreement is reached between the UK and the EU, participation in MARI will not be possible. Code modifications that sought to implement MARI have now been withdrawn.
Are we still part of EU bodies such as ENTSOG, ENTSO-E and ACER?
National Grid will cooperate with ENTSO-E and ENTSOG but will not have membership of these bodies. Ofgem is to cooperate with EU regulators through ACER, but there will be no UK membership. This will mean continued co-operation on ensuring no network charges on individual interconnector transactions (as is already the case) but the UK cannot participate in EU procedures for capacity allocation and congestion management.
Great Britain remains a member of the CEER group of European energy regulators.
Who do I have to register with under REMIT?
The transparency requirements for GB are relatively unchanged following Brexit, as the REMIT provisions were transposed under the European Union (Withdrawal Act) 2018 and subsequent Statutory Instrument. The requirements for reporting to Ofgem are the same, but there is no longer a need to report to ACER.
In terms of registration, market participants that are registered with Ofgem but want to trade products for delivery in the EU will need to register with an EU National Regulatory Authority, and will also need to report to ACER. A participant registered with an EU or the Northern Irish regulator does not need to re-register with Ofgem for trades in GB.
Ofgem has issued an updated REMIT Registration User Guide.
What is replacing the EU Emissions Trading Scheme (ETS)?
A UK ETS will replace the EU ETS. Guidance issued by the government confirms several measures outlined in the ‘Future of UK Carbon Pricing’ consultation from June 2020. The UK ETS will have a transitional Auction Reserve Price (ARP) of £22, which establishes a minimum price for which allowances can be sold at auctions. UK ETS auctions are due to commence “as soon as is feasible and no later than Q2 2021”. The UK ETS will apply to energy intensive industries, the power generation sector and aviation. The scheme covers activities involving combustion of fuels in installations with a total rated thermal input exceeding 20MW.
Do we still have access to EU funding?
The European Investment Bank (EIB) has historically offered a rich source of finance for energy infrastructure projects, with almost €30bn provided to UK energy projects since 1973. Under the TCA UK projects are no longer eligible to use the facility. Although access to the EIB is on hold for the foreseeable future, a new UK Infrastructure Bank is set to be launched in Spring as part of new National Infrastructure Strategy plans, which were outlined in the Chancellor’s budget announcement on 3 March.
The UK has also previously made use of the Projects of Common Interest (PCIs) scheme, which offers a range of benefits to interconnector projects including access to Connecting Europe Facility funding and an expedited planning process. The TCA allows for a future relationship to be agreed on access to EU funding, this is yet to materialise. However, there are UK projects included in the latest PCI candidate list, issued for consultation in January.
What can we expect from interconnector trading?
The TCA commits the UK and the EU to develop and implement new, efficient interconnector trading arrangements by April 2022. It sets out a framework and a number of principles for interconnector trading, which largely focused on electricity. Gas trading is less likely to be impacted as it is intended that the existing PRISMA platform will continue to be used.
In the meantime, there are alternative trading arrangements in place for interconnectors. This includes work with stakeholders to implement updated rules and engaging with EU regulators to understand their processes for the potential reassessment of their Transmission System Operator certifications.
Can I still use Guarantee of Origins for FMD and scheme cost exemption purposes?
Following the end of the transition period, Ofgem and BEIS have confirmed that Guarantee of Origins (GoOs) will continue to be accepted in GB for use in Fuel Mix Disclosure (FMD) reporting and for gaining exemptions from renewables scheme costs. While GB will continue to recognise EU GoOs, the EU has said it will no longer accept UK Renewable Energy Guarantee of Origins (REGOs). As a consequence, the UK government has indicated its intention to review this in 2021 so that, longer term, domestic recognition of GoOs issued in EU countries will take place only on a reciprocal basis.
What are the rules of origin for battery electric vehicles?
The TCA contains rules of origin on vehicles assembled in the UK that determine whether the vehicle is sufficiently linked to the country and therefore eligible for preferential tariffs agreed under the deal. EU-UK trade rules stipulate that 60% of the components used to assemble the vehicle must be “locally” sourced (meaning either from UK or EU) to be eligible for free trade status, with this decreasing to 55% by 2024. In other words, the value of vehicle components sourced from outside the UK and EU is limited to 40-45% of the electric vehicles.
Failure to comply will result in a 10% tariff surcharge on trading the vehicle within the bloc. These rules of origin have been designed to reduce the UK’s dependency on (cheaper) batteries imported from countries such as China, Japan and South Korea as the UK seeks to become an international assembly hub for electric vehicles.
If you want further information on e-mobility trends across Europe, you may be interested in our upcoming E-mobility and Digital Energy webinars.
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