UK could follow Nordic energy model after Brexit

20 April 2017. By Laurel Henning.

The UK will seek to remain in the EU's internal energy market after Brexit, Business Secretary Greg Clark has said. But should that prove impossible, the country has another option for protecting its grid investments and power industry.

Britain could learn from the Nordic energy market that links Norway, Denmark, Sweden and Finland, allowing power to flow across borders. That arrangement is based on informal agreements, rather than binding laws.

Leigh Hancher, a professor of EU law at Tilburg University in the Netherlands, told a conference* in Brussels yesterday that creating a regional market based on informal deals could safeguard electricity-grid projects linking the UK and Ireland with Norway and EU countries.

"The more interesting" energy-market option for the UK to pursue "is the Nordic model," Hancher said. "It is all based on informal agreements, and it has worked."

"There are many interconnectors coming to the UK with Norway that will also interact with the Norwegian market, where they haven't implemented the third energy package, nor will they," she added.

The EU's third energy package laws, which date back to 2009, govern the bloc's internal energy market and are designed to increase competition and cross-border power and natural gas flows.

The European Commission proposed updates to those market laws in November, with a new design for the bloc's electricity market aimed at helping national power systems handle increasing amounts of renewable energy on a grid designed for fossil fuels and atomic power.

"When it gets to system operation, a lot can happen on the basis of informal agreements without institutional apparatus around it," Hancher said.

The UK exchanges electricity with France, Ireland and the Netherlands through four subsea cables known as interconnectors. Seven more are planned between now and 2021, introducing new links to Belgium, Denmark and Norway.

Links with France, Ireland and Norway alone are seen as EU "projects of common interest." These have a collective value of more than 83 million euros ($89 million), according to EU figures.

Pursuing a regional-market model based on informal agreements would be better than bilateral deals if the UK can't participate in the bloc's internal energy market. Picking and choosing markets to be part of — when a Conservative government has opposed being part of the EU's single market because of requirements for free movement of people — is likely to face criticism from other governments.

"Bilateral negotiations make it more complex for interconnection projects to get under way," Scott Flavell, a partner on energy and utilities for consultancy group SIA Partners, told the conference. In addition, "the complexity of bilateral talks could spook investors."

If investors shy away from electricity-connection projects, Flavell said the UK could end up with "a lot more gas-fired power" to make up for the gaps in power imports.

* "Brexiting the Energy Union: What Options for EU-UK Energy and Climate Relations?" European Policy Centre, Brussels, April 19, 2017