Written evidence submitted by the EDF Energy (EUE0033)

 

 

 

Executive Summary

 

  1. EDF Energy is one of the UK’s largest energy companies with activities throughout the energy chain. We provide 50% of the UK’s low carbon generation. Our interests include nuclear, coal and gas-fired electricity generation, renewables, and energy supply to end users. We have over five million electricity and gas customer accounts in the UK, including both residential and business users.
  2. The energy sector is a key part of the UK economy, providing critical infrastructure and making a major contribution to the economy at national and local level.  EDF Energy wishes to be part of a prosperous, balanced and outward looking economy, with an attractive fiscal and regulatory framework, which supports the very substantial investment required in capital-intensive energy infrastructure.
  3. The Government should continue to be guided by its key objectives of providing secure, reliable and affordable power supplies for customers and decarbonising the power sector and wider economy.  It should seek continued cooperation with the EU and its Member States to safeguard the UK’s interests and should seek a smooth transition from EU membership to its future relationship with the EU, providing as much clarity as possible on how it will manage the transition period.  Recognising that a stable legal and regulatory framework is important to support investment, the Government should have an orderly process for reviewing this framework in the light of the referendum result.

 

  1. Innovation is critical to the future energy system.  The Government should continue to support research and development, including support for UK universities and for international collaboration.

 

  1. We welcome the strong statements made by the Government about its continuing commitment to action on climate change. The UK should seek to remain within the EU Emissions Trading Scheme (ETS) after EU exit and to retain significant influence over its development.  It is vital that the UK can continue seeking to strengthen the EU ETS to provide a stronger carbon price signal across Europe to support investment in new and existing low carbon generation.  The Carbon Price Floor (CPF) remains an essential part of the UK market framework whether the UK is in or out of the ETS.
  2. Continued trade in electricity and gas across borders and through interconnectors is important for providing secure and affordable power for UK customers, and in the mutual interests of the UK and its European counterparts.  We urge the UK to ensure robust arrangements remain in place to facilitate cross-border trading, including access to the Internal Energy Market.  Government should also give careful attention to ensuring clarity about state aid or equivalent rules, including institutional arrangements and the effect on further investment in energy infrastructure.
  3. Government should ensure that UK businesses continue to have access to the skills they need from the EU, and consider if there are ways of improving immigration processes for skilled workers from outside the EU.  Government should avoid tariffs on critical goods and services for the energy sector, including those needed in the nuclear supply chain.
  4. The UK should maintain its influence in European institutions and globally as a strong advocate of nuclear power as a means of providing secure supplies of low carbon electricity.

To what extent have the Government’s energy policies been driven by the EU? Are any policy areas currently at risk?

 

  1. In many respects, the UK’s energy policies have been in aligned with those of the EU.  There are two main reasons for this.  Firstly, the three key drivers of the UK’s energy policies have been energy security, affordability and decarbonisation; these concerns are shared by other EU countries.  Secondly, the UK has had a strong influence on EU energy policy and has led the way on key issues such as the introduction of competition, the example set by the Climate Change Act 2008 on the path to decarbonisation and the Electricity Market Reform (EMR) measures in the Energy Act 2013.

 

  1. However, there have been differences of emphasis between EU countries.  To some extent these derive from the influences on energy policy of the natural differences between countries resulting from geography, climate, access to natural resources and historical development.  The UK, along with some other EU countries, notably France, has recognised the important role which nuclear can play in providing reliable low carbon baseload power; however, other EU countries have taken very different views.

 

  1. After the UK leaves the EU, it is possible that UK and EU energy policy will diverge.  For example, the lack of direct UK influence could result in changes to EU energy policy which the UK would have opposed. Continued engagement with the EU and its Member States will be important to safeguard the UK’s interests.

 

 

What should be the Government’s priorities on energy when negotiating the UK’s exit from the EU? What would a successful negotiation outcome look like?

 

Guiding objectives

  1. The Government’s key objectives of providing secure, reliable and affordable power supplies for customers and decarbonising the power sector and wider economy should continue to guide UK energy policy and its approach to negotiations with the EU on energy matters. 

Stability and constructive engagement

  1. EDF Energy recommends continued co-operation and engagement with EU institutions, EU regulators and stakeholders and EU Member States on energy policy issues, to safeguard the UK's interests up to, during and following the renegotiation period.  In particular, we urge the Government to continue to be a strong voice in Europe and internationally, promoting policies that support the operation and development of nuclear power. 
  2. A stable legal and regulatory environment is important to support investment.  Government should have an orderly process for reviewing the legal and regulatory framework in the light of the referendum result – including the UK’s membership of EU ETS, environmental regulation, energy trading arrangements, nuclear policy and retail regulation.  
  3. The Government should seek a smooth transition from EU membership to its future relationship with the EU, and should provide as much clarity as possible on how it will manage the transition period, to avoid a hiatus in investment.

 

  1. The UK should continue to play an active role in EU policy making while it is, or may be, subject to EU rules.  It should seek ways of building relationships with Member States and organisations, as well as EU institutions, recognising the importance of collaboration on energy issues.

Innovation

  1. Innovation is critical to the future energy system.  The Government should continue to support research and development, including support for UK universities and for international collaboration.

Commitment to action on climate change

  1. We welcome the strong statements made by the Government about its continuing commitment to action on climate change, including the decision to approve the fifth carbon budget in line with the advice from the Committee on Climate Change.  The UK played an leading role in the Paris conference as part of the EU team and should continue to make the case for global action to address climate change, including ratification of the Paris Agreement at the earliest opportunity.
  2. The UK should seek to remain within the EU Emissions Trading Scheme (ETS) after EU exit and to retain significant influence over its development.  It is vital that the UK can continue seeking to strengthen the EU ETS to provide a stronger carbon price signal across Europe to support investment in new and existing low carbon generation.  The Carbon Price Floor (CPF) remains an essential part of the UK market framework whether the UK is in or out of the ETS.

Access to the Internal Energy Market to support continued trade in gas and electricity

  1. Continued trade in electricity and gas across borders and through interconnectors is important for providing secure and affordable power for UK customers, and in the mutual interests of the UK and its European counterparts.  We urge the UK to ensure robust arrangements remain in place to facilitate cross-border trading. 
  2. Great Britain has 3GW of electricity interconnection capacity with continental Europe, 1GW of interconnection with Ireland and over 7GW of further interconnection is proposed.  The UK has been a net importer of power through these interconnectors in recent years and the potential contribution that it can make to security of supply is recognised through its participation in the GB capacity market.
  3. Further investment in interconnectors may depend on whether investors have confidence that market arrangements will continue to facilitate the efficient trading of electricity through interconnectors.  Consumers should not be expected to take additional risk or bear additional costs of support for interconnection because of uncertainties over future market arrangements.  UK Government decisions regarding future interconnector investment should be driven by assessment of the benefits to UK consumers rather than by arbitrary EU targets for interconnection capacity.
  4. The decline in gas production from the UK continental shelf means that the UK now imports a significant proportion of its gas needs.  Most of these imports come from outside the EU, by pipeline from Norway or from imports of liquefied natural gas (LNG).  However, the UK can also import gas through interconnection with Belgium and the Netherlands.  Although the UK often exports gas to Belgium, it is possible that, in some circumstances, the UK could import up to a quarter of its peak day gas requirements from Belgium and the Netherlands.
  5. The UK is part of the Internal Energy Market (IEM), which supports efficient cross-border trading, although further work is needed to make it fully effective.  The UK has played a leading role in the development of the IEM; many of the detailed rules embodied in the Network Codes currently being developed and implemented are modelled on the UK framework.  The UK should continue to contribute fully to the development of the IEM while it remains an EU member.
  6. At the point of EU exit, we would expect the UK to remain within the IEM framework and it is important that the UK should continue to have access to the IEM in the longer term.  However, the UK should not be bound by all future developments of the IEM rules without the opportunity to influence them.  It is important to develop the right governance arrangements through which the UK can work with the EU to ensure that the UK has control over the development of the market frameworks for its gas and electricity markets while still ensuring efficient cross-border trading.
  7. The Government should also consider the impacts on Ireland, including the Irish Single Electricity Market, which serves both the Republic of Ireland and Northern Ireland.  Ireland is connected to continental European gas and electricity networks through Great Britain.

State aid

  1. We expect that any future trading arrangements with the EU will incorporate some equivalent of rules on state aid, whether in the current form under the Single Market, through similar rules under the World Trade Organisation (WTO) regime or in some other form.  It will be important that investors in the energy sector understand what rules may apply and how decisions would be taken.  Government should give careful attention to ensuring clarity about state aid or equivalent rules, including institutional arrangements and the effect on further investment in energy infrastructure.

 

Access to skilled workers, goods and services

  1. The energy sector needs to draw on skilled workers from the EU and globally. We urge the Government to ensure that UK businesses, including energy companies, continue to have access to the skills they need from the EU, and also to consider if there are ways of improving immigration processes for skilled workers from outside the EU. 
  2. The supply of goods and services is critical to the efficient operation of the energy sector, and to future investment. We urge the Government to avoid tariffs on critical goods and services for the energy sector, including those needed in the nuclear supply chain. 

Engagement and influence on nuclear power

  1. The Government should ensure that UK maintains its influence in European institutions and globally as a strong advocate of nuclear power as a means of providing secure supplies of low carbon electricity.  The Euratom Treaty is one of the founding treaties of the European Union, which provides a framework for compliance with the international safeguards regime, which controls the use of fissile materials (uranium and plutonium).  Ideally, the UK would remain within Euratom.  However, we recognise that this may not be possible; in this event, it will be essential that the UK establishes equivalent safeguards arrangements to monitor and report on compliance with International Atomic Energy Agency standards for control of fissile materials.

 

What aspects of existing EU energy policies and directives are beneficial to the UK?

 

  1. The UK benefits from being able to trade gas and electricity across borders and from cooperation with European neighbours who face similar challenges in ensuring the provision of secure, reliable and affordable power supplies for customers and decarbonising the power sector and wider economy.

 

What should be the Government’s priorities in deciding which EU-led energy policies and legislation to retain?

 

  1. Government’s priority should be to ensure that the UK’s energy sector is able to attract investment and operate efficiently to support the key objectives of providing secure, reliable and affordable power supplies for customers and decarbonising the power sector and wider economy.

 

 

 

September 2016