29/06/2016

By Pure Leapfrog

Following the landmark Brexit result last week, Pure Leapfrog has started to consider what the result might mean for community energy, specifically from a legal and financial perspective. There could be some benefit from a reduction of EU legislation that affects community energy but community energy is inextricably linked to the performance of the UK economy, legal and political systems. As such the direction of travel for community energy in the short term could be driven by the overall appetite for investment in energy infrastructure at a national level. The little we’ve heard in the short space of time since the result is that commercial organisations are likely to play a watch and wait approach. Long term implications will be dependent on a variety of factors including whether there is a change in priorities for energy and climate change policy under new Conservative leadership, what Scotland chooses to do, and how much EU regulation is retained as UK law.

A UK-EU relationship

It is unclear at this early stage what form of relationship the UK can expect with the EU in the future. There are several possibilities, the first is that the UK enters into the European Economic Area (EEA – Iceland, Lichtenstein and Norway) or European Free Trade Association (EFTA – the EEA plus Switzerland). There are differences between these two models but essentially both require compliance with the vast majority of EU legislation, including EU energy and competition legislation that concerns community energy.

Thus, if this is the option that the UK ultimately goes for, little will change for community energy other than the UK will not have a say in making that EU legislation and therefore will be unable to campaign for the UK community energy sector. However, this is not a huge change from the current position as the current administration has yet to campaign for specific community energy support within the EU.

Going it alone

The other option would be that the UK fully removes itself from the EU single market. This would mean the UK could decide whether or what EU legislation to keep. Whilst there are risks that any new government could water down existing legislation, there could be some potential benefits for community energy. Admittedly these benefits might take years to come to fruition. Firstly, State aid legislation (rules about how much government can subsidise a particular sector) would not apply which may reduce the cost of some capital. Secondly associated EU rules, such as those surrounding public body tenders would disappear, simplifying matters. Finally, and potentially most importantly for community energy, the UK could prioritise getting favourable trade deals for the renewable sector e.g. the current import tariffs on solar panels from China could be reduced or even disappear thereby reducing the capital costs of a project. However, this would require intense trade negotiations.

The vast majority of the UK’s environmental legislation is derived from European legislation. This is mainly a function of timing, the UK joined the EU in 1973 and it was in the 80s and 90s that environmental legislation proliferated across the Western world. It is probable that the UK would have enacted its own environmental legislation during this time if it had not been an EU member. However, that does not make it clear what will happen to the EU environmental rules in the future.

The UK has generally taken a pro-environmental stance in EU legislative negotiations during its overall membership of the EU and there are even some environmental areas where the UK has enacted legislation even more environmentally favourable than the EU equivalent. Certainly until the UK’s formal exit from the EU is triggered, there won’t be a bonfire of environmental legislation. But future UK governments could no longer be restricted by EU rules, enabling an easier dismantling of environmental protections at will. Further it is important to note that though the UK may no longer have to comply with State aid legislation, the UK government could have done a lot more to date to minimise the effect of State aid rules on community energy but declined to do so. Therefore whether a UK government unconstrained by EU rules would produce legislation that is better for the community energy sector than that which currently exists is by no means clear. This current government certainly has been no champion of the sector and initial assessment of the climate change views of senior ‘leave’ Conservative politicians indicates the future environmental legislation may favour renewables even less so. This will require the sector to lobby government to ensure the prominence of local and community energy at a political and civil servant level.

The uncertainty paradox

The immediate prospects for community energy following the vote are difficult to predict. As might be expected from such a big political decision, the UK economy has seen some economic turmoil in the immediate wake of the result and the more immediate effect will be how much investment in community energy will take political risk into account. Further any projects which had EU funding sitting behind them are now in question.

As the details of the new UK-EU relationship become apparent, the community energy sector may be able to make some gains depending on how much EU regulation the UK retains in the future. Also, if there is underinvestment in energy in the UK due to political uncertainty (what will happen to the Chinese and French backed Hinkley Point C nuclear plant for example?), with community energy’s ability to innovate and access alternative forms of finance, there may be opportunities that aren’t afforded in the traditional energy market. A probable outcome with this uncertainty for example is that any rise of inflation and delay in capital spend on infrastructure could push up energy prices. These increases would hurt the fuel poor but conversely push up the price of power purchase agreements making renewables and energy efficiency projects more economically attractive.

Certainly the case for community energy and the ability to deliver tangible social benefits remains steadfast and any swing further to the right politically which might happen will likely only make the case for the work more compelling as the state recedes further. In the political and economic commotion, there may well be an opportunity for community energy to capitalise on the uncertainty and confusion and make headway where others are holding back or waiting to see what happens next. What’s left of the Feed-In-Tariff for example is still enshrined in UK law and whilst it provides slim pickings it is an example of one of the many pieces of legislation which are not yet affected by the vote last week. An early test of how the UK will proceed will be whether the UK will press ahead with enacting the 5th carbon budget this week which must be written into law by parliament, with the Committee on Climate Change recommending that the budget be set to require a 57% reduction in emissions from 1990 levels by 2030.

Meanwhile Pure Leapfrog will continue to support community energy in what is a very challenging time. Our best advice for community groups is to move as quickly as possible on any viable projects. Please get in touch with Pure Leapfrog if you think our templates, funding or consulting services can assist you in getting projects over the line. We will do all we can to ensure the effects of Brexit are minimised for the sector.

The Pure Leapfrog Team