The effect of an UK withdrawal from the European Union on Atlantic Superconnection Corporation.
The decision by the people to vote to leave the European Union on the 23rd June 2016 has created great political uncertainty in the United Kingdom and the remaining member states of the European Union. This in turn has created short-term economic uncertainty as companies adjust to the changing political climate and question what might happen to the regulatory environment.
Our view is that despite the short-term uncertainties, the development of the Iceland-UK inter-connector is now more important than ever. The UK needs to develop new generation to replace ageing coal and nuclear plants; this will not change with an exit from the EU. If anything, the demand for diversified generation may increase; with approximately 4 GW of generation already coming from Europe an alternative power source can only been seen as a good thing.
The UK’s commitment to low carbon generation is unlikely to change. The requirement for a significant portion of this power to be low carbon is set not only by the UK’s policy but also by a number of international agreements including the Paris Agreement. Indeed the UK’s government’s commitment to the energy trilemma is unlikely to change. The other two legs of the trilemma – security of supply and reducing energy costs - are key objectives of many governments both in and outside Europe. The Iceland-UK inter-connector can help the UK meet these objectives by 2025. With further questions already being raised about the possibility of Hinkley Point C being built by 2025, the UK needs projects such as the Iceland-UK inter-connector to meet its objectives.
Iceland’s desire to expand its economy by exporting power is unaffected by UK/EU political changes.
There are several changes that could have an impact on Atlantic Superconnection Corporation. The largest challenge of the UK’s decision will be the potential difficulty of acquiring EU development funding. The inter-connector is currently a project of current interest and whilst we hope this will continue to be the case (thanks to Iceland’s membership of the EEA) this cannot be guaranteed.
Where the UK will end up in relation to EU regulations and directives that will apply to projects going forward, only time will tell. However there are potentially several advantages that could come out of the changes to current regulations. EU utility procurement regulations that may otherwise apply would be expensive in both time and capital to comply; these may no longer apply. Whether the UK will maintain the obligations set out in the Third Energy Package will need to be determined. Further the current rules that govern State Aid within the EU are unlikely to be maintained by the UK outside the EU; these could have been a significant hurdle to a bilaterally negotiated CFD.
We also see a positive effect on UK-Icelandic relations: whether as a member of EFTA or the EEA, Britain will be joining Iceland in the sphere of non-EU European nations, a message that has already been iterated by the Icelandic president.
Overall we see Brexit bringing support to the Iceland-UK inter-connection project. Any consequential reductions in the regulatory burden on the project will clearly benefit our project and in turn the UK’s ability in meeting its policy objectives.