EU referendum could cost UK £500 million extra in energy bills after Brexit

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A report commissioned by the National Grid has claimed that the UK could face up to £500 million in extra energy bills if it votes to leave in the June EU Referendum.

A group of consultants was asked to prepare the report in November, and has now published their findings.

The report claimed that the EU referendum is widely debated, with a Brexit causing economic uncertainty across major markets – especially energy.

Part of the reason for higher energy costs, the research claims, is that investment in energy infrastructure will be seen as riskier – and therefore more expensive – and drive potential investors away.

Offering two Brexit models, the report gave possible scenarios in the energy sector after a vote to leave. In the “Norway” scenario, increased costs of investment meant higher prices for consumers, whilst in the “Swiss” scenario, gas, energy storage, and decreased energy trade across borders suggested the same.

UK Secretary of State for Energy and Climate Change Amber Rudd supported the findings.

The report did however note that the duration of higher energy costs was unclear, and was based on the 2-year negotiation period that is assumed when a country leaves the EU.

EU referendum could bring energy insecurity

The European Union operates an Internal Energy Market (IEM) that allows for increased competition, especially in cross-border markets. The report warns that a leave vote in the EU referendum could lead to “diminished cross-border balancing and capacity market integration”, which could be risky for the UK.

Natural gas, the report pointed out, faces less of a short-term price shock than electricity. But in the long run supply security could be in jeopardy, as the UK would lose access to “solidarity principle” where neighbours supply gas to each other in the event of a shortage or emergency.

The research suggested that a leave outcome in the EU referendum would lead to higher investment costs, and that over the next decade the UK’s electricity sector will need more investment than the previous two decades as the UK switches from coal-fired power plants and old nuclear facilities that are nearing the end of their working lives.

On the other hand, the report noted the UK could possibly benefit from different technology in energy production if it was not bound by EU directives, such as replacing ageing power plants with more efficient coal-fired ones. However, it concluded that the UK is already moving away from coal in line with – but independently from – EU directives.

Image: David Rickard/Flickr