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Energy UK highlights potential trading savings

Analysis published today by Energy UK reveals that heightened cooperation between the UK and the European Union (EU), over issues like energy trading and carbon pricing, could cut wholesale energy costs by hundreds of millions of pounds a year.

The report highlights the benefits that more efficient trading arrangements and greater coordination with the continent could bring in future, noting the potential to cut energy costs by up to £1.1bn per year – resulting in lower bills for customers, in addition to bolstering energy security and accelerating progress toward climate change targets.

Exiting the EU resulted in the UK also leaving the Internal Energy Market (IEM). This has led to the current patchwork of different arrangements for trading electricity and the return to a less efficient trading regime between GB and mainland European member states with the GB power exchanges – EPEX Spot and Nord Pool – also operating in a less efficient, more complex and costly fashion.

Energy UK’s analysis also points to the costs and other challenges that could arise from the EU’s introduction of a Carbon Border Adjustment Mechanism (CBAM) given the absence of a link between the UK’s Emissions Trading System and the EU’s equivalent.

While the UK-EU Trade and Cooperation Agreement, which followed the UK’s exit, envisaged continuing cooperation across the energy market, new trading arrangements have yet to be put in place – the deadline for doing so having passed over a year ago.

More efficient trading arrangements will be also crucial to supporting the aims of the recent Ostend declaration, signed by the UK and its European neighbours, where they committed to tackle climate change and bolster energy security by working together to expand sources of renewable power in the North Seas and remove their common dependence on imported gas – given particular impetus by Russia’s invasion of Ukraine.

Interconnectors can support these efforts to maximise the potential of renewables, offering the flexibility to meet energy consumer demand on both sides of the Channel and allowing excess clean power to be exported to where it’s needed, rather than curtailed.  

With the UK likely to become a net exporter of electricity in the future, the importance and benefit of more efficient trading arrangements and greater co-ordination with Europe will only increase. With the recent Windsor Framework seen as a positive step on future relations, Energy UK is urging the Government to build on this to expand and accelerate its collaboration and engagement with EU on energy trading and carbon pricing, to their mutual benefit. 

Energy UK’s Deputy Director, Adam Berman said:

“Our analysis shows that increased energy and climate cooperation with the EU has the potential to deliver very substantial savings for households and businesses across the UK struggling with high energy bills.   

“Cooperation on energy and climate change issues is the low hanging fruit of the UK-EU trading relationship – there is no other area in which both sides have such closely aligned ambitions.  Working together more closely on shared goals like climate change mitigation and energy resilience means achieving Net Zero faster, and at lower cost.

“The new relationship between the UK and EU was intended to maintain close cooperation over energy and the sooner we can bring in new trading arrangements – instead of temporary and imperfect alternatives – the sooner both sides can maximise the benefits.     

“We urge the UK and EU to press ahead with closer cooperation and engagement on issues such as energy trading and carbon pricing that have the potential to lower bills, reduce emissions, and bolster our energy security.”