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Brexit Denial Leaves U.K. Energy Industry Pleading for No Change

Brexit Denial Leaves U.K. Energy Industry Pleading for No Change

(Bloomberg) -- Across Britain, energy companies are hoping that Brexit just might just go away.

Energy has only been a sideshow in the discussions about the U.K. leaving the European Union even though it’s a key part of the trade bloc’s single market. Power and natural gas companies say Britain’s existing relationship with the bloc on energy matters should remain in place even after the divorce due to be complete in a year.

It’s not hard to see why. The U.K. is Europe’s third-biggest energy user. Its gas imports are valued at more than 10 billions euros ($12 billion) a year. It’s also a transit country, linking Norway, which is the region’s biggest gas producer, to continental markets and Ireland. Britain’s electricity network also is intertwined with the EU, and the development of seven new cross-border cables is won’t be certain until there’s clarity on post-Brexit trading rules.

“There is a real consensus across the energy industry that it will benefit both the U.K. -- and our European colleagues -- to maintain the extensive links and cooperation that have been built up over many years,” Lawrence Slade, chief executive officer of Energy U.K., the lobby group that counts Centrica Plc, SSE Plc and EDF Energy among its members.

Up to now, energy hasn’t featured in Brexit discussions. Prime Minister Theresa May highlighted it in a key speech last week, calling it an area in which the U.K. wants to be “closely linked” with Europe.

EU negotiators have rejected May’s effort to keep Britain close to the bloc on selected issues while diverging on others, saying the British government can’t “cherry pick” parts of the single market it wants to keep.

Even so, much work remains to be done even if nothing changes in the energy relationship simply because Brexit will rip up the existing rulebook. Negotiators need to include a chapter on energy to outline where the U.K. will stick with EU rules and where it will diverge, said Alex Harrison, energy partner at law firm Hogan Lovells International LLP in London.

“We can’t do nothing and wake up and its fine,” Harrison said. “We need to agree some basic principals.”

Outside Britain, there’s more reluctance to fiddle with a system that’s working at the moment.

“I haven’t met a single person in Europe who wants us to be separate,” Nicola Pitts, National Grid Plc’s head of market change for gas. “They think we’re a bit bonkers.”

An “immense number” of details will need to be resolved in a short period of time, according to a study commissioned by the EU Parliament’s industry committee. A U.K. departure will lead to higher wholesale prices, more volatile markets and reduced competition and liquidity, the report found.

The energy industry wants to stay as close as possible to what’s already in place, said Sara Vaughan, political and regulatory affairs director at utility EON SE.

“It’s like the cat holding on to the wall,” Vaughan said. “We have been a large part of shaping the framework that currently exists in the EU. We need to push together in that direction to loudly maintain regulatory alignment at the very least.”

--With assistance from Ewa Krukowska and Jeremy Hodges

To contact the reporter on this story: Rachel Morison in London at rmorison@bloomberg.net.

To contact the editors responsible for this story: Reed Landberg at landberg@bloomberg.net, Andrew Reierson

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