Rising U.K. Energy Imports Need Brexit Care, Centrica SaysBy
Policy influence in EU seen required to curb British costs
Renegotiating all industry laws not best strategy, Conn says
Centrica Plc, Britain’s biggest supplier of power and natural gas, wants the nation to retain influence on European Union energy policy after Brexit because the country’s prices will be set by neighboring markets.
“Our imports are growing and prices are set by the European market,” said Iain Conn, chief executive officer of the Windsor, England-based utility that last week raised its power tariffs. “We need to retain influence on the efficiency of the U.K. energy market to protect U.K. consumers.”
Britain’s government said on Sunday it wanted the lowest energy costs in Europe, announcing it would survey its policies through October. The U.K. has plans for at least 12 power cables to trade electricity, mainly with EU nations, even as it negotiates to leave the bloc.
The U.K.’s dependency on foreign gas is set to rise to about two thirds of consumption by 2025 from about half as North Sea production declines, while power imports are forecast to more than triple, according to a scenario by National Grid Plc where the nation meets the emission limits set out in the Paris climate deal. Britain may incur trade tariffs on pipelines and cables with its EU neighbors if it leaves the bloc’s single energy market.
“From an energy perspective, it’s not clear there is really any win-lose negotiation, if we are sensible,” Conn said in an emailed reply to questions. Continuity of energy policies would “ensure stability and foreign investment into our energy system.”
The utility last week boosted its U.K. electricity tariffs by 12.5 percent, saying it’s been selling power at a loss. That prompted a debate with the government about who was to blame for the increase, with Centrica citing costs associated with state policies to encourage the shift away from fossil fuels.
The company’s profit margins “will trend down to the low end of its 4 percent to 6 percent post-tax guidance,” John Musk, an analyst at RBC Europe Ltd., said Monday in an emailed research note. “Competition is more intense than ever and, in our view, there’s little prospect of Centrica arresting recent customer losses.”
Across all industries, Britain should expect to bear some expense in leaving the EU if it means getting a payback over the following three decades, Conn said.
“Rather than the complexity of trying to renegotiate everything, I would advocate setting realistic red lines and then trying to achieve maximum continuity and be willing to pay something for it,” Conn said.
Prime Minister Theresa May’s office dismissed as speculation a report that the U.K. is prepared to pay a 40 billion-euro ($47 billion) bill to leave the EU. Leading Brexit supporters have pushed back against paying anything at all.
“Essentially the U.K. is making a 30-year investment in Brexit,” Conn said. “We need to think about it long term and realize it will cost us quite a lot up front, will take a lot longer than two years, and getting a payback will require material changes to our productivity and the economy.”