Status of the UK-EU Negotiations - July 2020
The EU Commission and the UK Government continue to negotiate the terms of a free trade deal. There will be no extension to the transition period beyond 31st December this year as the deadline to agree such an extension passed on 30th June.
There remain two potential scenarios for what may happen from 1st January 2021:
- A free trade deal on the future relationship is reached
- No agreement is reached, and trade takes place on WTO terms (the “No Free Trade Deal” option)
The UK has published its proposals for an energy agreement[1]. This proposes that efficient cross border trade in electricity sit at the heart of the agreement. It aims to preserve certain cross-border trading mechanisms for example Day Ahead Market Coupling in the new arrangements and would largely see continuity in the current trading arrangements.
The EU has issued two documents with their vision for energy trading after 1st January 2021. In February they produced their initial proposals for an energy agreement[2] and had proposed that the UK continue to follow a proportion of the EU’s legislative framework for cross-border trade, but that there is a further period of cooperative working between Transmission System Operators to determine future cross-border trading arrangements.
On 9th July, the EU Commission published a further document, it’s thinking on “changes to apply regardless of the outcome of the Trade Negotiations”[3] including a section on Energy. This stated that from 1st January 2021, the United Kingdom will no longer participate in the Union’s dedicated platforms.
National Grid Interconnectors believes that maximising the efficiency of cross-border energy trading delivers significant benefits for both EU and UK consumers. Whilst negotiations continue between the EU and UK, we continue to prepare for whatever may happen from 1st January 2021.
Current Negotiation Timeline
In June, the EU Commission and the UK Government agreed to intensify free trade agreement negotiations over the summer, the timeline below shows the dates of these negotiations over this period. The aim of this is to make progress on the most substantive areas and that includes negotiations on energy trading agreements
No Free Trade Deal Preparations
Our “no deal” preparations made ahead of previous deadlines prior to 31st January 2020 have been reviewed, and we have determined those same preparations would still be effective if a no free trade deal is agreed and comes into effect from 1st January 2021. As a recap our contingency arrangements are set out below:
- We have not identified any issues that would prevent an interconnector from operating and trading from 1st January 2021 under a WTO rules “No Free Trade Deal” scenario. We have tested our assumptions with key EU and UK stakeholders, legal teams and analysts in reaching this conclusion.
- Through collaboration with our partners, UK Government and Ofgem we have provisionally amended our Access Rules to detail how our commercial processes will operate in a no free trade deal scenario.
- To promote the continuity of trade in a no free trade deal scenario we will revert to explicit Day Ahead auctions via the JAO Platform. This would replace the current implicit Day Ahead Market Coupling process.
- The existing “Use it or Sell It” process would still apply but with any non-nominated Long-Term Capacity resold through the explicit Day Ahead auction rather than through implicit day ahead market cooping arrangements.
1https://www.gov.uk/government/publications/our-approach-to-the-future-relationship-with-the-eu
2https://ec.europa.eu/commission/presscorner/detail/en/IP_20_447