The Power of Partnership: UK-EU energy cooperation for a clean, secure future

Executive Summary

The new Government has made clear its desire to reset the United Kingdom’s (UK’s) relationship with the European Union (EU). Despite years of acrimony, the UK and the EU remain deeply interconnected. Nowhere is this more true than when it comes to energy and climate change; from the pipes and wires that run under the North Sea, to shared values about the importance of tackling climate change both at home and internationally.    

The promise of greater cooperation has remained largely unfulfilled over recent years, but the shifting political landscape presents new opportunities for the UK-EU relationship. The benefits are substantial. From collaboration on clean energy projects that bolster energy security across Northern Europe to working more closely on the shared challenge of carbon leakage, cooperation will enable both sides to reach Net Zero more quickly and at a lower cost.  

After an unprecedented energy crisis, the scale of which we haven’t faced since the 1970s, the value of cooperation is clearer than ever. At the height of the crisis, the UK was acting as an energy bridge to Europe, helping to maintain security of supply. More than a quarter of Europe’s lost Russian energy was replaced by exports from the UK,[1] bolstered by the UK’s Liquid Natural Gas (LNG) regasification terminals which were able to import record volumes to keep European industry afloat. And when much of the French nuclear fleet was offline due to maintenance and industrial action, the UK responded with record-high electricity exports to France. It was electricity from British power stations that made up a significant proportion of the shortfall and kept the lights on in Paris and across France.      

The value of working with our closest neighbours will continue beyond the energy crisis. As both sides move toward the goal of climate neutrality, the day-to-day operation of a Net Zero energy system is set to create even more reliance on cooperation. For example, harnessing the wind as it moves from West to East; from Ireland to the UK and on to Denmark, balancing the grid and creating clean energy across Northern Europe. Capitalising on an energy system driven by renewables means enabling efficient electricity trading, which could open up the potential of the North Sea to support a complex web of interconnected clean energy projects. Energy UK analysis shows that greater UK-EU cooperation could reduce the cost of meeting the 300GW offshore wind target in the Ostend Declaration by €13bn.[2]  

Working together on climate change policies will provide an opportunity to build our shared energy security, and protect industry across the UK and the EU from unfair competition. Linking Emissions Trading Systems (ETS) will incentivise investment in clean technologies by creating a larger more efficient market with enhanced abatement opportunities; allowing for decarbonisation at lower cost. Market linkage could also avoid the need for the EU to import an additional €2bn of gas per year; the result of increased fossil fuel generation offsetting decreased renewables imports from the UK, an unintended consequence of the Carbon Border Adjustment Mechanism (CBAM) design.   

Initiatives such as the European Policy Community Summit are welcome opportunities to develop a trusted, constructive dialogue between the two regions. This is crucial to tackle the global challenges that we share: increasing our energy security, fighting climate change, and ensuring a sustainable supply chain of key clean technologies. Working with the EU is the easiest way for the Government to strengthen efforts to reduce emissions, and build the low-carbon infrastructure required to truly protect the UK from future energy crises.  

[1] Energy UK analysis of DESNZ (2023) Digest of UK Energy Statistics (DUKES): Natural Gas and Digest of UK Energy Statistics (DUKES): Electricity.

[2] Energy UK analysis of European Commission (2019) Hybrid projects: How to reduce costs and space of offshore developments and ENTSO-E (2024) Offshore Network Development Plans European offshore network transmission infrastructure needs.

Trading Electricity and Gas across borders  

The UK and the EU are global leaders in climate and energy policy, both aiming for a Net Zero economy by 2050. They share ambitions to tackle climate change on a global scale, such as addressing carbon leakage, aiding other countries in developing carbon pricing regimes, and demonstrating international climate leadership through the Conference of Parties (COP) process. 

Great Britain (GB) shares waters and energy projects with the EU, and they remain key trading partners. Nearly 10GW (9.8GW) of electricity interconnectors, and three gas interconnectors, physically link the UK’s energy system with the EU and Norway. These connections ensure there is security of supply for power and gas across the North Sea Basin, provide essential grid balancing services, and reduce prices for customers across Britain and Europe.  

Considering the existing interdependencies between the UK and the EU in energy, both sides will benefit from working together to maintain a resilient, efficient energy system. Such cooperation is key to achieving rapid decarbonisation at the lowest cost to consumers. 

Figure 1: Existing and planned electricity interconnection between the UK and EU27 + Norway. 

Interconnectors are one part of a resilient, flexible grid across Europe 

• Reaching the UK and the EU’s Net Zero targets will require a rapid expansion of low-carbon power generation. Electricity grids powered by high volumes of renewable energy will bring down energy bills and bolster energy security. Nevertheless, it is important to acknowledge the challenges that this will create for system operation, given renewables are intermittent sources of electricity generation. 
• Interconnectors contribute significantly to ensuring there is a resilient grid across continental Europe, given they allow countries to export excess renewables during periods of high generation and import clean energy when needed.   
• The UK Government aims to achieve 18GW of interconnection capacity by 2030,[3] which will almost entirely be to countries in the EU Internal Energy Market (IEM).  According to GB’s Electricity System Operator (ESO), GB interconnector capacity is set to almost double by 2050, even in the most conservative scenarios where the 18GW target is not met.[4] Cooperation is vital to guaranteeing security of supply and the effective operation of this new infrastructure. 

Figure 2: Projected GB electricity interconnector capacity over time. Based on NG ESO FES23 scenario modelling.[5] 

• The UK will be pivotal in developing offshore hybrid infrastructure in the North Sea, such as multipurpose interconnectors (MPIs) and clean energy islands, which connect grids and offshore wind farms. This infrastructure is crucial for a resilient, Net Zero grid. There are already two such projects underway connecting GB to Belgium (Nautilus) and the Netherlands (Lion Link), with the 2023 Ostend Declaration committing Ireland and Germany to explore similar opportunities to connect to GB. However, delays in finalising electricity trading arrangements between the UK and EU create uncertainty for investors and diminish the potential consumer benefits to both sides.  
• Energy UK has estimated that, given the potential for MPIs to reduce the cost of offshore development, unlocking MPIs through greater UK-EU cooperation could take €13bn off the cost of meeting the Ostend Declaration target of 300GW of offshore wind capacity installed by 2050.[6]

[3] BEIS (2020) Powering Our Net Zero Future.

[4] National Grid ESO (2023) Future Energy Scenarios 2023.

[5] National Grid ESO (2023) Future Energy Scenarios 2023.

[6] Energy UK analysis of European Commission (2019) Hybrid projects: How to reduce costs and space of offshore developments and ENTSO-E (2024) Offshore Network Development Plans European offshore network transmission infrastructure needs.

Tackling Seasonal Variability 

• Interconnectors help British and European grids manage variations in supply and demand on a real-time, daily and seasonal basis. This allows them to deal with factors like weather, system shocks and seasonal patterns in a cost-effective way and secure way. 
• For example, in Britain, ESO’s annual Winter Outlook report illustrates how GB relies on imports to meet increased electricity demand over winter, with interconnectors expected to meet over 8% of peak demand.[7] 

Cooperation in a crisis: UK-EU electricity and gas trading in 2022 

• International electricity and gas trading supports resilience against shocks, and strengthening UK-EU cooperation on energy would help to ensure Europe’s security of supply.  
• The UK has Europe’s second-largest regasification facilities[8] for liquefied natural gas (LNG) from countries like the US or Qatar. This gas fuels power plants, heating, and industry, and is transported via interconnectors to Belgium, the Netherlands and Ireland. 
• Following the Russian invasion of Ukraine in 2022, the EU lost a significant source of natural gas with total energy imports from Russia dropping by 730TWh[9] between 2020 and 2022 – more than Italy’s annual demand.[10]  
• Energy UK analysis in Figure 3 shows that UK gas exports to the EU were over five times higher in summer 2022 than summer 2021, and electricity exports were more than seven times higher. Assuming the additional electricity was generated from gas, the growth in UK electricity and gas exports in summer 2022 replaced the equivalent of 27% (202TWh[11]) of the lost Russian energy (roughly 30% of the capacity of Nord Stream 1).[12] This ensured Europe’s energy security and stability. 

Figure 3: Indexed value of UK exports to the EU in gas and electricity in 2022.[13] 

• Increased UK exports supported the security of supply in several countries. In summer 2022, much of the French nuclear fleet was offline due to maintenance and industrial action.[14] Great Britain responded to this with record-high electricity exports to France. In July 2022, the French nuclear fleet was 12GW-24GW short of the typical summer range.[15] In this period, Great Britain exported over 1.6TWh of electricity to France,[16] making up a significant proportion of the shortfall.  

Figure 4: Volume of trade in electricity between GB and France, 2021-2023.[17] 

[7] Energy UK analysis of National Grid ESO (2023) 2023-24 Winter Outlook.

[8] DESNZ (2023) Digest of UK Energy Statistics 2023: Natural Gas.

[9] Eurostat (2024) Imports of Natural Gas by Partner Country.

[10] Eurostat (2024) Supply, transformation and consumption of gas

[11] Energy UK analysis of DESNZ (2023) Digest of UK Energy Statistics (DUKES): Natural Gas and Digest of UK Energy Statistics (DUKES): Electricity.

[12] Nord Stream (2021, 2022) 2020, 2021.

[13] Energy UK analysis of DESN (2024) Energy Trends: UK Electricity.

[14] World Nuclear Association (2024) Nuclear Power in France.

[15] Energy UK analysis of RTE (2024) Electricity Analysis and Data.

[16] Energy UK analysis of ENTSOE data (2024) Physical Energy & Power Flows

[17] Energy UK analysis of ENTSOE data (2024) Physical Energy & Power Flows

Recommendations 

1. Finalise permanent electricity trading arrangements 

• The Energy Title of the Trade and Cooperation Agreement (TCA) mandates new trading arrangements based on multi-region loose volume coupling (MRLVC), with an April 2022 deadline that has passed without significant progress.[18]  
• Ongoing uncertainty about future arrangements is hindering investment in the North Sea region for the UK and EU. Without certainty, it is challenging for businesses to develop complex infrastructure, with a knock-on effect of making the deployment of renewable energy in the North Sea more expensive. 
• The lack of efficient electricity trading over interconnectors has raised wholesale costs by between £130m and £370m in 2022, feeding through to consumer bills across the UK and Northern Europe.[19]

Actions: 

• Prioritise finalising UK-EU electricity trading arrangement discussions by the end of 2025 to reduce costs for consumers in both regions ahead of the expiry of the Energy Title of the TCA in 2026.  
• Future arrangements may be based on MRLVC, although alternative arrangements should also be considered to address industry concerns about the feasibility of this model. 
• Enhance trading efficiency across interconnectors to facilitate the expansion of offshore hybrid infrastructure, including MPIs and energy islands. 

2. Maintain competitiveness through carbon pricing 

• Both the UK and the EU are aiming to develop domestic supply chains and maintain competitiveness in a Net Zero economy. Each has established its own Emissions Trading Schemes (ETS) and is implementing its own Carbon Border Adjustment Mechanisms (CBAMs).  
• Both the EU and UK would benefit from a larger carbon market, as this will increase the efficiency of price discovery within both the UK and EU ETS, reduce allowance price volatility, and incentivise investment in decarbonisation technologies by industry.  
• While the TCA commits to potential linkage between the UK and EU ETS, progress has been limited.  
• Despite there being a price differential between the UK and EU ETS, both schemes remain broadly the same and have similar decarbonisation goals. Any technical divergences can be resolved through negotiation.  

Actions: 

• Link the UK and EU ETS to create a larger, unified carbon market, enhancing price discovery, efficiency and liquidity and creating a greater incentive for decarbonisation across both jurisdictions.  
• Linkage is critical for UK and EU industries and is supported by British and European industry and civil society alike. This should be a priority for the new UK Government to address. 

[18] UK Government and European Union (2020) Trade and Cooperation Agreement.

[19] Energy UK (2023) UK-EU Energy and Climate Cooperation: Why heightened engagement is imperative for Net Zero.

3. Tackling carbon leakage risk through Carbon Border Adjustments 

• The EU’s forthcoming CBAM is set to take effect in January 2026 to minimise the risk of carbon leakage from Europe.  
• However, this policy mechanism is expected to generate unintended consequences for EU-UK electricity trading, which is highly interconnected. Under current plans, the CBAM methodology could disadvantage clean energy generation, as the proposed default value methodology fails to account for the recent progress in decarbonising the UK grid.  
• The EU CBAM will potentially lead to CO₂ emissions rising by up to 12m tonnes annually (the equivalent emissions of Slovenia)[20] and raising EU electricity wholesale costs by up to €4.6bn, impacting countries like France, Germany and Belgium.[21] This is because CBAM costs may lead to fossil fuel power plants being turned on whilst UK renewables are curtailed, potentially requiring the EU to import an additional €2bn of gas per year to replace the wasted renewable generation.[22]  
• The CBAM methodology could disadvantage clean energy generation and hinder investment in GB-EU interconnection and offshore infrastructure. It will also affect trade in other sectors like steel, potentially creating tariff and non-tariff barriers for UK businesses needing CBAM certificates to export to Europe. 
• To implement the EU CBAM in Northern Ireland, the EU and the UK would need to add the CBAM Regulation to Annex II of the Windsor Framework.[23] The implementation of CBAMs in Northern Ireland must be managed carefully to avoid potential trade issues between GB and Northern Ireland.  

Actions: 

• To avoid potentially complex scenarios for business and industry, the most efficient solution is to link the UK and EU ETS, ensuring carbon price equivalence, eliminating additional charges on electricity imports and eliminating potential tariff barriers for CBAM goods, including electricity, traded between GB and the EU, and between GB and the Single Energy Market on the island of Ireland.  
• The EU and UK should consider agreeing on a mutual CBAM exemption before the EU CBAM start date of 1 January 2026 to avoid adverse consequences on the respective markets while concluding carbon market alignment negotiations.  
• Negotiations to finalise electricity trade arrangements or link the ETS systems are under significant time constraints so these can be completed in early 2026 ahead of the TCA renegotiation. 

4. Maximise the potential of the North Seas 

• The North Seas have the potential to be ‘Europe’s Green Power Plant’ for renewables and clean energy production.[24] The UK signed a Memorandum of Understanding (MoU) in 2022 to officially re-enter the North Seas Energy Cooperation (NSEC) as an observer.[25]
• The 2023 Ostend Declaration commits NSEC members and the UK to develop 120GW of offshore wind capacity by 2030 and aim for 300GW by 2050, almost half of which will most likely be located off the coast of GB and Norway.[26]  
• To achieve this scale of offshore wind generation most efficiently and cost-effectively, the EU and UK need to align their respective system planning and operation, such as by aligning ENTSO-E’s Ten Year Network Development Plan (TYNDP) and the UK’s Centralised Strategic Network Plan (CSNP) and Strategic Spatial Energy Plan (SSEP). 

Figure 5: Projected Offshore Wind development in North Sea countries for 2030, 2040 and 2050 (cumulative). Note: ENTSO-E only models 15GW of Norwegian offshore wind; there is an overall target of 30GW by 2040.[27]

• The UK has signed multiple MoUs with EU member states including Ireland,[28] Denmark[29] and Belgium[30] to enhance cooperation in areas such as hydrogen and Carbon Capture and Storage, offshore wind, spatial planning, and offshore infrastructure. Closer cooperation will help maximise the benefits of MoUs between the UK and specific EU member states. 
• The UK has significant CO₂ storage capacity, essential for achieving Net Zero. This can be used to help meet the EU’s target to store 50m tonnes of CO₂ in the EU by 2030.[31] The UK and EU should also collaborate on technical standards for safe CO₂ storage.  

Actions: 

• Closer engagement is needed between the UK and NSEC, including enhanced strategic dialogue on hydrogen, integrated infrastructure planning, and maritime spatial planning (which should be tackled at a basin level rather than at a national level). 
• Strengthening cooperation on key clean technology supply chain, including through bilateral agreements with the EU. Both the EU and UK are planning ambitious investments in Net Zero technology and, as like-minded partners, closer collaboration would prevent further availability bottlenecks and support a thriving value chain across Europe. 

[27] ENTSO-E (2024) Sea-Basin ONDP Report – TEN-E Offshore Priority Corridor: Northern Seas Offshore Grid.

[28] UK Government and Irish Government (2023) Energy transition: UK – Ireland memorandum of understanding.

[29] UK Government and Danish Government (2023) Cooperation in the energy transition: UK – Denmark memorandum of understanding.

[30] UK Government and Belgian Government (2022) UK and Belgium sign memorandum of understanding on energy cooperation.

[31] European Commission (2024) Towards an ambitious Industrial Carbon Management for the EU.