How will Brexit affect energy prices?

How will Britain leaving the EU affect your energy bills?

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With Brexit on the horizon it’s worth considering how things at home might be affected by upcoming changes. Here’s what leaving the EU could mean for your energy bills.

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Many people in Britain are concerned Brexit will have an impact on their energy bills.

Energy UK, the trade association for the British energy industry, has suggested that an increasing number of Brexit-related energy issues could lead to higher household bills.

There are three main ways in which leaving the EU could potentially push up energy bills in the UK:

  • A reduction in EU investment and increased transportation costs
  • Leaving the EU Emission Trading System (EU ETS)
  • Not having a replacement body for European Atomic Energy Community (Euratom)

A reduction in EU investment and increased transportation costs

About 12% of the UK’s gas and 5% of its electricity comes from the EU. Interconnectors are pipes or wires that carry electricity or gas between countries. The UK has interconnectors with France, Belgium, The Netherlands and Ireland, while Northern Ireland has interconnectors with the Republic of Ireland and Scotland. Interconnectors linking the UK with Norway and Denmark are currently being built.

If the UK leaves the EU Internal Energy Market, trade by these interconnectors could be less efficient and more expensive. For the UK to continue to benefit from this set-up we’d need new trading agreements to govern cross-border electricity flows.

Leaving the EU Emission Trading System (EU ETS)

The UK is currently part of the EU Emission Trading System (EU ETS). This is an EU-wide system that puts a price on carbon through trading of emission permits. So far we don’t know what carbon pricing mechanism the UK will be in post-Brexit and this make it difficult to price any thermal generation, causing uncertainty across the market.

Not having a replacement body for Euratom

Euratom is the EU’s nuclear cooperation treaty, and if the UK doesn’t put a replacement body in place, things could get difficult. This could have major consequences for the UK’s nuclear industry.

VAT rates

Leaving the EU could also result in a change to the VAT rate applied to the UK’s gas and electricity.

Under EU rules, the standard VAT rate cannot be lower than 15%, but countries are permitted to apply one or two reduced rates - no lower than 5% - to certain specified goods.

This 5% VAT rate is currently applied to the UK’s household gas and electricity. However, after Brexit – particularly a no-deal Brexit – these rules might not apply and it’s possible the rate could be reduced. However, whether a post-Brexit government would actually cut this rate is unclear and it wouldn’t automatically mean energy bills would come down.

Households can go some way to protecting themselves from increased energy bills by switching to a fixed tariff as soon as possible. This will give you protection for the length of the fix, which is normally one or two years.

It’s always advisable to shop around and switch energy suppliers on a regular basis – staying on your supplier’s standard variable rate will usually mean paying over the odds for your energy. Switching energy tariffs through MoneySuperMarket could save you at least £302*.

Switching supplier is easy to do and won’t require any rewiring or work outside your property. It usually takes up to 21 days for a full switch, which includes a two-week “cooling off” period, during which you can choose to cancel the switch free of charge if you change your mind.

*10% of customers that applied to switch via MoneySuperMarket could save at least £302.05, November 2018.

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