As the United Kingdom figures out how to extract itself from the European Union over the next two years, energy security in the electric power sector will likely be a top consideration for U.K. policymakers.

“Most concerning is the security of energy supply,” said Liz Parminter, a U.K. energy expert with PA Consulting Group. “If the U.K. does not get the investment needed for generation and transmission interconnection, we could be in a bit of a pickle.” 

In a March speech, U.K. Energy Secretary Amber Rudd warned of the problem: “Being in the EU helps us attract billions and billions of pounds of investment in our energy system and supply chain. Taken together, this investment helps support 660,000 jobs in the U.K.’s energy sector. Does anybody really think all of that investment would continue if we left the EU, and with no extra cost?”

Such predictions might come to pass. For instance, Brexit could jeopardize the controversial £18 billion addition of a 3,200-megawatt reactor to the Hinkley Point nuclear power station in Somerset, U.K. owned by the French utility giant EDF. The U.K. government has secured a contract for difference for the output of this project. However, The Guardian recently reported that the Brexit vote has deepened fractures on EDF’s board over the Hinkley Point C investment, despite public claims of continued commitment. A final decision on whether EDF will back this project is expected in September.

Hinkley Point C is crucial to meeting U.K. requirements for reserve and response capacity, as well as for meeting stringent U.K. decarbonization goals.

“If this plant comes online, it will be the largest generation asset in Great Britain,” said Olaf Remmler, energy expert with PA Consulting. “The GB system operator is already taking this capacity into account for its long-term resource planning as compensating for its loss would be extremely challenging.”

Meanwhile, according to energy regulator Ofgem, the U.K. currently has over 7.3 gigawatts of future transmission interconnection projects planned in France, Belgium, Denmark, Norway, and Ireland -- nearly doubling the U.K.’s existing interconnection capacity. Some of these might be at risk if the U.K. withdraws from the centralized European energy market. 

A single, centralized energy market has long been a cornerstone of the overall EU strategy to knit the nations of Europe closer together. The EU has been fast-tracking and funding U.K. interconnection projects to reduce a historic investment deficit. If planned major interconnection and generation projects for the U.K. market are scaled back or canceled, energy costs and energy security risks could rise for the U.K. In turn, this would have ripple effects throughout the U.K. economy and infrastructure -- and it could distort wholesale energy prices throughout Europe.

“In the absence of planned interconnection, security of supply gets challenging,” said Remmler. “Perhaps more gas-fired power plants would be built, since the U.K. has good access to natural-gas resources. Or there might be an accelerated shift toward renewables. Either way, there would be substantial impacts to grid infrastructure.”

Adapting grids to accommodate shifting energy supply is costly, which means that U.K. utilities will probably need much more capital, fast. “Traditionally, utility stocks are attractive to investors seeking shelter from market volatility,” said Parminter. “But the worry is that, thanks to Brexit, some people may choose to invest more in utilities elsewhere, not in the U.K.”

Others may view the uncertainties stemming from Brexit as a potential investment opportunity.   

“The entry point for investment in U.K. infrastructure has been lowered by a significantly weaker pound versus the dollar and euro following the Brexit result,” said Samuel Ebohon, an energy advisor with PA Consulting. “The U.K. government has reiterated its commitment to continuing to strive to meet its legally binding climate goals. This will require significant investment -- even greater levels of investment -- if the U.K. is unable to increase the level of interconnection with Europe.”

Ultimately, investing in U.K. electricity infrastructure, which is aligned with climate goals and ensuring security of supply, may now result in greater levels of return, Ebohon said. The U.K. government might even find itself in a position where it has to rework policy in order to allow greater levels of return to encourage the inward investment that is required in order to achieve its strategic objectives.

Then there are potential impacts to U.K. utility customers. In March, a study commissioned by National Grid predicted that leaving the EU energy market could cost U.K. utilities up to half a billion pounds per year -- likely to yield sharp electric bill hikes for consumers.

In her March address, Secretary Rudd reiterated these concerns: “If we left the European internal market, we’d get a massive electric shock because U.K. energy costs are likely to rocket by at least half a billion pounds a year -- the equivalent of British bills going up by around £1.5 million each and every day.”

Large industrial customers in the U.K. would probably see lower price impacts due to Brexit, since they’re often not exposed to the full cost of energy. However, some of these companies may shift operations to other countries because of how Brexit might put U.K. energy security at risk, potentially causing significant job losses.

Brexit seems unlikely to hinder the U.K.’s strong commitment toward its ambitious clean energy goals, which exist independent of EU mandates. But there may be bumps along the road to renewables. For instance, in the wake of Brexit, Siemens announced it is putting new U.K. wind power investments on hold until the new U.K/EU relationship is clarified. This decision won’t halt operations at Siemens’ existing wind turbine and blade factory in Hull, but it has stalled the company’s plans to export that equipment. Brexit may also hinder investment in wind farms -- the top source of renewable energy in the U.K.

Many of the utility industry impacts of Brexit could be mitigated if the U.K. decides to remain in the EU energy market. However, this would require the U.K. to agree to the “four freedoms” of the EU: freedom of movement for people, capital, goods and services. Norway has taken this approach, but it might be politically untenable in the U.K.

Objections to the free movement of people galvanized many Brexit supporters who are concerned about the impacts of immigration on the U.K. job market. However, limiting the movement of workers could have a profound effect on a utility’s ability to innovate.

“In engineering, the U.K. simply is not leading the way,” said Remmler. “Not signing on to the freedom of movement of people means that it might become more difficult for U.K. utilities to hire the most skilled engineers. This might also affect recruitment for senior management and upper administrative roles.”

This could impact every part of a utility's operations.

“Given infrastructure that U.K. utilities need to build, they’ll need large numbers of skilled construction workers to deliver these assets. That’s not something that you can just teach somebody quickly; the welders, pipefitters, and other tradespeople need to already have experience and specialized skills,” said Ebohon. “U.K. utilities have not been as active in infrastructure deployment, so they probably don’t currently have the internal capability to deliver on construction."

Brexit will influence Europe’s utility industry in many other ways. For instance, most of the U.K.’s “big six” utilities are owned by energy giants headquartered elsewhere in Europe. Any problems in Britain will undoubtedly sway their overall operations and performance.

And then there’s Ireland and Northern Ireland -- which operate as a single energy market that is remaining in the EU.

“They rely on interconnection through Great Britain for most of their energy supply, and now they may not be able to couple with the EU market through the U.K.,” said Parminter. “So, how can they remain in a market that they have no way to access? It’s an interesting and difficult dilemma.”