British energy prices increased by as much as £1.1 billion ($1.4 billion) last year as a direct result of the country’s decision to leave the European Union, and the complexities of the post-Brexit system may also impede the country’s development of new renewable energy.
Higher energy prices are just one more unintended consequence of the 2016 vote to leave the European Union, which voters may not have fully understood.
Interconnectors, submarine cables that bring power to the UK from Norway and France, are contentious. The UK’s National Grid uses five interconnectors as of 2023, with a sixth under construction to connect the UK and Denmark. The EU’s internal energy market once regulated electricity sales to the UK via these interconnectors, calculating pricing across the bloc.
The UK is no longer able to access that market due to Brexit. According to a report released today (May 15) by Energy UK, an industry organization, the prices it pays for interconnector power are now set on a daily basis by a “patchwork” of separate arrangements. According to the analysis, the United Kingdom will lose between £130 million and £370 million in 2022 due to the resulting inefficiencies.
Energy UK expects the UK to export power as it builds more wind farms to reach net zero emissions by 2050. However, interconnector issues make energy trading harder and will only become worse. Energy UK worried that inefficient interconnectors will cause “greater uncertainty and a reduced investment drive” in energy infrastructure projects like the creation of additional interconnectors between the UK, its European neighbors, and Norway. The report suggests this may affect renewable energy capacity investments.
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The carbon market in the UK is in trouble
Energy UK also brought up carbon pricing, which several nations have implemented to charge and discourage the use of fossil fuels. Carbon-intensive British exports to the EU include iron, aluminum, and power. As a result of the disconnection between the UK’s carbon market and the EU’s, the UK must now pay higher fees whenever it ships such products to the EU. Energy UK estimates that by 2022, these expenditures will have reached about £700 million.
The analysis found that “post-Brexit trade arrangements relating to UK electricity created over £800m in additional costs in 2022,” with a worst-case scenario of about £1.1bn in increased costs for consumers and electricity producers.
In 2022, already high petrol costs were made much worse by Brexit.
The new data from Energy UK sheds light on why the year 2022 felt so disastrous for Brits when it came to their energy bills. Russia’s all-out invasion of Ukraine at the beginning of the year drove up petrol costs, exacerbating a number of market woes and sending European prices soaring to new heights.
To protect their residents from the higher energy prices through the winter, the governments of the UK and other European countries spent as much as $800 billion.
While those subsidies were helpful, the United Kingdom nonetheless saw double-digit inflation this spring due in part to rising energy prices. The fact that market inefficiencies due to Brexit are adding to the anguish of those already bearing these costs is likely to irritate them further at a time when they could really need some solace.