Will business energy prices go up after Brexit?

The UK has been out of the EU for some time now and it's becoming increasingly difficult to see what benefits we've gained. There have been events that many predicted but were largely ignored - notably the supply chain disruption, the lack of fresh food pickers, and rising energy costs.

Although the UK left the EU with a Brexit trade deal in place, it's still not clear what the extent of the economic impact of Brexit will be. There's even an argument to suggest the pandemic might have slowed down the effects, which is why everything suddenly seems to be hitting us at once now.

Even though the EU-UK Trade and Cooperation Agreement offers some guarantees, there's still an unsettling amount of uncertainty surrounding the implications for businesses and households across the country.

Regardless of whether you voted Leave or Remain, as a business owner, it's only natural to feel trepidation about the impact leaving the EU will have on your livelihood.

But why exactly is the cost of gas and electricity set to soar? Are we at risk of supply issues following the split? And is there anything you can do to protect your business from the price hikes?

Why your business will pay more for energy after Brexit

A House of Lords committee has warned that the UK faces energy shortages and increased gas and electricity bills after Brexit, if the transition is not managed well - one of the main stumbling blocks being that almost half of the UK’s gas supply is imported from the continent.

Here's a closer look at the impact of Brexit on energy, along with the reasons why post Brexit energy prices look set to soar.

Leaving the Internal Energy Market

Around 40% of the gas used in the UK comes from Norwegian and other European pipelines, while around 6% of electricity is generated in France, Holland and Ireland.

If the UK leaves the EU single market and begins trading outside of the EU’s Internal Energy Market, the frictionless trade we currently enjoy with these European partners will be put at risk, meaning consumers could be forced to pay more.

Furthermore, the UK will still be subject to the EU’s internal energy market, but will no longer be in a position to contribute to the decision-making process, which could subsequently lead to a loss of investment, and could also see us paying a higher premium on our energy due to increased transportation costs.

Increased energy transportation costs

There are currently four subsea pipelines connecting the UK to Europe, with a further 11 currently planned or under construction, at least eight of which are expected to be completed by 2022.

This means the UK is about to become even more dependent upon imported energy at the exact moment it leaves the EU - a big problem where costs are concerned as the free flow of energy across these interconnectors is vital to maintain a level playing field in the energy market and keep prices down.

Environmental impact

Leaving the EU without an adequate energy deal also means energy supplies may be at risk during extreme weather or when power infrastructure suffers technical problems - the subsea cables help balance energy supplies and guarantee supply when wind and solar power is unavailable.

Not only could this disruption in supply lead to power outages and increased costs, it might even have a knock-on effect on the EU climate change policy and hinder the efforts to fight global warming.

Uncertainty in the energy market

As things stand, the UK is part of the EU Emission Trading System (EU ETS), an EU-wide cap and trade system which puts a price on carbon through trading of emission permits. If the UK leaves the EU ETS, it’s unclear what carbon pricing mechanism will replace it and the exposure to carbon costs for that period is undefined. 

This will make it difficult to price any thermal generation and causes deep uncertainty across the market.

To protect against market volatility and wholesale price rises, suppliers buy their energy up to years in advance, and October will see the UK’s four biggest electricity producers — EDF, RWE, Scottish Power and SSE — set the price for their winter 2020/2021 contracts to supply smaller UK providers.

Ofgem is reviewing this month’s deadline, but Lawrence Slade, chief executive of Energy UK, the industry’s trade association, already fears the worst for consumers. 

He said: “The lack of certainty around the future carbon-pricing mechanism as well as the rules underpinning the cross-border trade of electricity and gas create risk, and risk has a price. This situation is likely to create cost pressure that will feed through to customer bills.”

Will there be energy supply problems following Brexit?

The UK's reliance on imported gas supplies could not only help to push prices up, it might also lead to shortages, particularly during any Europe-wide cold snaps.

Marco Alvera, head of European industry body GasNaturally, has explained that the UK’s reliance on gas imports could cause problems post-Brexit, as EU countries could restrict supply during colder periods to cater for their own citizens.

He said: "In the week when we had the 'Beast from the East' very cold spell coming, the system was already under a lot of strain, and the UK was taking a lot of gas from Europe that was stored in Europe." 

That said, we hopefully shouldn't need to brace ourselves for Brexit power cuts, as the countries that currently supply us should still be able to do so with no issues. But, as we've seen, they'll probably charge us more.

Switch now to avoid soaring post-Brexit energy bills

Whatever your thoughts on the UK’s departure from the EU, there’s mounting evidence to suggest that your business will end up paying more for its energy.

There is one simple way to avoid the price hikes though, switch business energy supplier and tie yourself into the best fixed-rate deal available.

Making the switch with Bionic means we’ll find the best energy rates for your business in a matter of minutes, and could knock hundreds of pounds off the cost of your annual bills.  We can even arrange a long-term energy deal to lock your rates in for longer and avoid future price hikes.

Paul Galligan, CEO at Bionic, said: “Brexit is of course a hot topic for any business in the UK, and means uncertainty around all business costs. Business energy is no different. Energy UK’s report highlights some of the causes of these likely rises and only goes to strengthen the case for switching soon for longer fixed term tariffs, securing rates for your business before they become too volatile.”