National Grid Warns of Costs if Britain Exits EU Energy Market

Prime Minister Theresa May signalled a so-called hard Brexit on Tuesday, which would involve leaving Europe's single market when Britain quits the European Union (EU).

May gave no indication of what this would mean for energy markets in her speech.

But any change could have implications for the development of Britain's electricity supplies, around 9 percent of which come from European imports.

Several more power links are planned over the next decade, which are intended to give Britain access to cheaper electricity abroad as the country faces a supply crunch by the early 2020s as old nuclear power plants and coal-fired power stations close.

National Grid said that each 1 gigawatt (GW) of new electricity interconnector capacity could reduce Britain's wholesale power prices by 1-2 percent, with 4-5 GW of capacity equating to a 1 billion pounds ($1.23 billion) saving.

"However, for interconnectors to be economically viable... they must be able to sell their capacity to traders and therefore require efficient and robust trading arrangements between the two countries," National Grid said in an evidence submission to the Business, Energy and Industrial Strategy (BEIS) Committee, which was published on Friday.

Britain currently has access to tariff-free electricity trading with Europe due to its participation in the so-called internal energy market (IEM), but National Grid said leaving this market would make cross-border trade more difficult.

"While alternative arrangements can be put in place that would allow trade to continue these are unlikely to be as effective or efficient," it said.

National Grid also warned the cost of delivering new projects could rise due to Britain leaving the European Union.

"Restrictions on trade and movement of labour could impact adversely on the cost of delivering new interconnector projects," it said.

National Grid was among a group of firms submitting evidence ahead of a BEIS Committee hearing on Brexit negotiation priorities for energy and climate policy, to be held on Jan. 25.

British utility Centrica (CPYYY) also stressed the importance of Britain's access to Europe's energy markets.

"The IEM has improved the efficiency in trading power and gas across Europe, supported infrastructure investment and helped deliver security of supply for the UK," Centrica said.