UK’s post-Brexit path to Net Zero: Navigating challenges and opportunities

9th August 2021

It is well known that the impacts of Brexit will be far reaching, but what does Brexit really mean for the UK Infrastructure and Energy (I&E) sector?

In some areas Brexit will result in little regulatory change; in others substantial deviation from the status quo has occurred, or is imminent. However, consistent themes with which those in the I&E sector will be familiar are that, not withstanding Brexit, the UK remains committed to existing Net Zero commitments and economic recovery is a central goal of the UK’s National Infrastructure Strategy. (This is, of course, particularly crucial for government as we emerge from the coronavirus pandemic.)

In this article, Walker Morris’ Infrastructure and Energy specialists Ben Sheppard and Jake Smith consider what businesses need to know to help capitalise on I&E opportunities following one of the most turbulent economic times in living memory?

Prior to the UK’s departure from the EU on 31 January 2020, the I&E sector was subject to extensive EU regulation. With over 18 months having passed since the UK’s departure, how has regulation of the I&E sector changed compared to the pre-Brexit regime and how can businesses capitalise on I&E opportunities in the coming years?

From an I&E perspective, many aspects of the framework governing the UK’s post-Brexit relationship with the EU will be familiar:

• The framework seeks to ensure that neither the UK nor the EU reduce climate change commitments that were in place at the end of the implementation period;
• Rules must be maintained (and continue to be enforced by independent regulatory authorities) to enable the efficient operation of gas and electricity systems, which will include (a) ensuring sufficient energy storage, dispatch and demand-side response solutions (which will be important to ensure efficient integration of renewables infrastructure with existing networks); (b) continued regulation of the production, generation, transmission, distribution or supply of electricity or natural gas; and (c) ensuring that wholesale pricing of electricity and natural gas continues to be reflective of supply and demand; and
• Competition rules to address anti-competitive arrangements and market abuse remain largely unchanged. Post-Brexit rules relating to the grant of government subsidies will also remain similar to the pre-Brexit regime. However, the UK government has introduced some new concepts which will be relevant for those who operate within the scope of the UK subsidy regime [1].

Despite the above familiarities, the post-Brexit I&E landscape is not entirely certain, with the UK’s withdrawal framework confirming that both the UK and EU have the right to adopt, maintain and enforce measures necessary to pursue public policy objectives. Notable changes in the I&E regulatory landscape include:

• A Specialised Committee on Energy (a joint forum between the UK and EU) is now tasked with monitoring the implementation of energy matters agreed as part of the UK’s withdrawal. The Committee will aim to ensure the stability of co-operation between existing agencies post-Brexit. The establishment of this forum may be seen as a positive step in ensuring momentum is not lost in implementing legal measures aimed at combatting climate change and facilitating innovation in the I&E sector.
• The UK is required to have an effective system of carbon pricing, covering greenhouse gas emissions from electricity generation, heat generation, industry and aviation. An example of change in this area is that the UK is no longer a member of the EU Emissions Trading Scheme. From 1 May 2021, UK entities who wish to continue trading in the Scheme must open a trading account in another EU member state. Alternatively, the UK implemented a domestic Emissions Trading Scheme on 1 January 2021. Energy intensive users should familiarise themselves whether recent changes in this area impact their business and whether action is required to remain compliant with applicable regulations.
• Renewable Energy Guarantees of Origin (REGOs), which are used to validate an energy supplier’s renewable/non-renewable fuel mix, will no longer be recognised in the EU if they are issued in the UK. The UK will continue to recognise REGOs originating in the EU. REGOs may potentially become an increasingly important hallmark for funders moving forward.
• The availability of funding for projects in the I&E sector is a rapidly changing area, warranting consideration of both the availability of public sector funding as well as institutional investors becoming ever-more ‘climate conscious’. Watch out for our further publications in respect of financing I&E projects.

So, to what extent is it ‘business as usual’ for the I&E sector post-Brexit? Whilst aspects of the post-Brexit I&E landscape are comparable to pre-Brexit regimes, some present reasons for business to be both optimistic about opportunities in the I&E sectors, whilst also remaining mindful of changing regulatory obligations and challenges.

How we can help

In this article we have touched on only a selection of themes relevant to the UK’s post-Brexit path to Net Zero.  However our I&E team would be very happy to speak to businesses who are keen to explore new opportunities in the I&E sector, and to ensure their operations remain compliant with current and fast-changing legislation.  Please do not hesitate to get in touch.

[1] See our related article for more information on this subject.