Energy: legal implications of Brexit for your business

Much of the UK’s energy law is based on EU directives. Depending on its nature and form, the UK’s exit from the EU may have significant repercussions in at least four areas:

• While the UK government may have little appetite or incentive to reverse much harmonised regulation across the EU energy markets, it may look to deregulate certain aspects of EU rules that it considers are unduly burdensome on UK energy businesses (for instance, some of the detail around REMIT, the EU regulation on energy market integrity and transparency).
• EU energy-related targets (and the subsidy regimes which support their achievement) may need to be reviewed, modified and possibly even repealed, which could present a further challenge for a sector that is already having to cope with substantial subsidy reductions.
• Many of the instruments that the UK has used to encourage renewable energy (e.g. the Renewables Obligation, Feed-in Tariffs, Renewable Heat Incentive and Contracts for Difference) have needed State aid approval. On the UK’s exit from the EU, the UK government (together with public authorities and other publicly funded bodies) may have greater scope to provide grants, loans and other forms of support to the energy sector. Conversely, the UK government may lose its right to rely on EU State aid rules to challenge questionable aid provided to businesses in other EU Member States.
• Energy contracts, and especially their change in law provisions, will need to be reviewed carefully to ensure contracts continue to be effective in the light of any Brexit-related change.

These issues, and the wider consequences of Brexit for the Energy sector, are considered in more detail below.

EU energy market harmonisation

• One of the aims of EU energy regulation has been to create consistency in regulation and harmonisation across all EU energy markets. 
• Following Brexit, while the UK government may have little appetite or incentive to reverse this trend, it may look to deregulate certain aspects of EU rules that it considers are unduly burdensome on UK energy businesses (for instance, some of the detail around REMIT). 
• Fossil fuel power generators in the UK are currently bound by the EU Emissions Trading Scheme, which may be another candidate for review, as might be certain requirements of the Industrial Emissions Directive if the government wished to facilitate lifetime extensions for older fossil fuel power generation plant.

EU energy targets

• The UK is currently bound by a variety of challenging EU energy-related targets, including the reduction of greenhouse gas emissions and the production of energy from renewable sources. 
• These targets (and the subsidy regimes which support their achievement) have encouraged the strong development of the UK’s renewable energy sector.
• These targets may need to be reviewed, modified and possibly even repealed, which could present a further challenge for a sector that is already having to cope with substantial subsidy reductions.

State aid

• The EU State aid rules target protectionism at a Member State level by limiting the circumstances in which public funds can be applied selectively to support national businesses.
• Many of the instruments that the UK has used to encourage renewable energy (for instance, the Renewables Obligation, Feed-in Tariffs, Renewable Heat Incentive and Contracts for Difference) have needed State aid approval (both on introduction and modification).
• Following Brexit, the UK government (together with public authorities and other publicly funded bodies) may have greater scope to provide grants, loans and other forms of support to the energy sector.
• The EU is looking for the UK to continue to follow the EU State aid regime, as part of the 'level playing field' commitments it is seeking to include in a trade deal.
• Conversely, the UK government may lose its right to rely on EU State aid rules to challenge questionable aid provided to businesses in other EU Member States.

Statutory and contractual amendments

• UK energy legislation and associated Ofgem guidance will require a host of amendments.
• Energy contracts, and especially their change in law provisions, should be reviewed carefully to ensure contracts continued to be effective in the light of any Brexit-related change.
• Depending on the contractual change mechanisms agreed between the parties, certain contracts may require significant amendment to reflect, for instance, any removal of EU-derived benefits (such as Renewable Energy Guarantees of Origin), and reflect any modifications or replacements to any incentive and risk apportionment mechanisms associated with EU targets.