How a Hard Brexit Could Cause Chaos in the British Power Market

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(Bloomberg) -- If the U.K. crashes out of the European Union without a deal, one unintended consequence could be chaos in the nation’s power market.

Without an approved agreement, the two foreign exchanges that jointly settle a daily national reference power price will stop co-operating because there is no plan for how to work together outside the European Union’s energy laws. That would have wide reaching consequences because the auction serves as a reference for everything from flows on international cables cables to what power plants are operating and the hedging of supplies for millions of customers.

While EU and U.K. negotiators on Thursday struck a deal, there are still doubts whether it will be approved in the British parliament. Prime Minister Boris Johnson’s Northern Irish allies warned they would not support it. Opposition leader Jeremy Corbyn said the deal was worse than the one Theresa May negotiated and was rejected by lawmakers three times.

“There are a lot of questions marks about what will happen without a transitional deal,” said Jerome Le Page, a director at the European Federation of Energy Traders. “So far there has been no reaction nor intention from the U.K. government or the regulator to put it on the priority list before Brexit.”

How a Hard Brexit Could Cause Chaos in the British Power Market

The EU has been pushing for increased competition between day-ahead power exchanges in Europe with regulation supporting shared-order books to enable several rival trading platforms but still just one national price. Britain has operated with two separate exchanges for five years with Nord Pool AS in Oslo and Epex Spot SE in Paris sharing the job.

EFET, whose members include traders from RWE AG to Centrica Plc and Morgan Stanley, urged the two exchanges to reach an agreement to continue the practice even if there is no regulation in place. So far, the companies have not been able to find a solution.

“Some parties are proving slow to respond at a time when we feel speedy action is needed if we are to retain the integrity of the market,” said Richard Sarti, Nord Pool’s director for U.K. and Ireland. “We want to maintain a single reference price.”

Epex Spot also wants to find a solution, but that would require “technical setup as well as a regulatory framework” that are not available at the moment, said spokeswoman Maria Schubotz.

There could also be concern about working too closely together without legal guidelines, as previous co-operations in the European Energy market have been stricken down by EU antitrust authorities.

©2019 Bloomberg L.P.

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