Apocalypse now?: The impact on energy is draining
Continued cooperation with Britain is vital, writes John Mullins
All markets and all sectors are reeling from the apparently unexpected result of Brexit. I predicted that complacency had replaced the reality that there is a large cadre of English people north of Watford who feel disenfranchised and have not felt the love of Europe. The same people are in uproar about energy price hikes blamed on some scientific theory of climate change expounded by people who do not live among them.
The one thing we know about Brexit is uncertainty. This is not only uncertainty of political leadership, interest rates, stocks or freedom of movement but uncertainty around the impact of this ill-thought-out decision on energy matters in this part of the world. This will impact on energy in Ireland.
First, the value of ESB and Ervia assets north of the border is less on a consolidated euro basis.
Continued sterling interest rate reductions will put further pressure on price controls for grids and potentially reduce income on a sterling basis for these assets owned by the Irish people. In saying that, these assets are more valuable in times of uncertainty as they provide income certainty.
Gas prices are pegged in the main to oil prices. Brexit will not increase oil prices; rather, it should put a halt to recent rises. Gas is traded in Ireland on a sterling pence per therm basis. Any devaluation of sterling is good for the Irish consumer in the medium term but not good for North Sea traders. Even Corrib gas trades on a sterling basis.
We were to have an integrated market for energy in this part of the world. This may still happen, but the pace may slow significantly. The implications for the Single Electricity Market in Ireland, between an EU and non-EU territory, are unknown. Cooperation on energy matters north and south has been very successful since the Good Friday Agreement, and I would hope the Irish Government will rely on that agreement to continue the good work by departments and regulators rather than relying on the likely retaliatory and unnecessary response being communicated from Brussels.
Euro assets will be more attractive and investment in Ireland in energy will be impacted positively by Brexit. Investment is, in the main, in renewables, and this is good news for the Irish Government as it makes its attempts to meet the very challenging 2020 renewable targets through technologies such as wind, solar and biomass.
Security of energy on these islands is a priority. We are not blessed with enormous gas storage, nor, on this island, with significant oil storage. The case for continuing operations at Whitegate must be strengthened by Brexit as we as an EU nation may not be allowed to store our oil reserves in a non-EU nation. Will Brussels decide for us or will we insist in Dublin that we must maintain a special relationship with our British cousins?
The UK may turn away from significant offshore wind while struggling to get the Hinkley Point nuclear station in motion. They may decide as they are outside of the EU to continue burning coal so that the Brexit voter can have cheaper energy at a significant cost to the planet.
Uncertainty is never good, and energy costs, trading and security will be impacted by this momentous event. Our Government must box clever to maximise the benefits of our ever-closer energy relationship with our neighbour.
John Mullins is CEO of Amarenco Solar
Sunday Indo Business