Energy Made Simple

With yet more ongoing uncertainty surrounding exactly how – and when – the UK will exit the European Union, many of our customers are keen to understand how the situation is likely to impact their future energy costs.

Following news of a likely short delay, the energy markets have stayed fairly calm – but the pound is trading down, so that makes energy imports cost more.

Longer term, with no current agreement to keep the UK in the EU’s internal energy market – which is designed to ensure a frictionless and tariff-free energy supply between member states – we could see upward pressure on wholesale prices.

The UK currently imports about 46% of our energy in the form of gas, power and oil from around 20 countries, many of which are in Europe. But around 47% of our gas comes from Norway, and there’s some good news on that front…

New deal with Norway

The UK government has just signed a temporary trade agreement with Norway to continue importing natural gas at zero tariffs. Considering the volume we import, this at least provides some security for the short term – whatever the outcome of Brexit.

But our future infrastructure is set to become more dependent on Europe, with the introduction of the new NEMO interconnector with Belgium and the North Sea link between the UK and Norway scheduled for completion by 2021.

So unless a smooth trading arrangement is reached with all parties in Europe and beyond, we could see increased price volatility ahead.

Prices linked to value of pound

As a net importer of energy, the value of the pound will also have a bearing. It’s already been devalued around 15% since the Brexit vote back in 2016. Any further slide will push imported energy commodity costs up.

On the upside, if the UK leaves the EU Emissions Trading System (ETS) in 2020, which the government has indicated may happen, this could reduce energy costs.

Currently, the EU ETS adds around €21 per tonne of CO2 (approx £18.25) – although this figure moves up and down with market forces. But the UK government has signalled it could replace it with a fixed scheme, which is set to cost £16 per tonne of carbon.

Protection with robust strategy

In terms of how this is all likely to impact your energy expenditure, the best way to protect your budget and have a clear understanding of future costs is to ensure you have a robust and informed purchasing strategy in place.

We offer a range of tools to help you formulate this, and our team of experts on the Optimisation Desk can even manage your energy purchasing for you. So do speak to your Client Lead (if any existing customer) to find out more. Or email the team via energyHQ@npower.com.

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