The impact of Brexit on offshore wind


March 6, 2017

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Brexit is the bright light on the UK’s horizon, but what that light represents depends on your perspective. Either it symbolises a golden future for the country outside the European Union, or the bright flash of a nuclear explosion that then destroys everything.

Those are the two extreme views, anyway.

And us? Well, I would call us ‘patriotic sceptics’. We are patriotic enough to want the UK to thrive after Brexit, as long as we can keep strong relations with our neighbours and friends in Europe. Some firms will profit. But we are also sceptical, and realise the ensuing uncertainty will also damage some parts of the economy.

And, as yet, we cannot say for sure what Brexit means for wind, though we have a few ideas. In this Wind Watch we will focus on the offshore sector, where prospects look good post-Brexit.

In January, the government announced a wide-ranging industrial plan in which it committed to keep supporting the construction of offshore wind farms. The UK needs new electricity capacity, and will continue to do so after Brexit completes in 2019.

The need for new capacity may even be more acute after Brexit. The government backed the Hinkley Point C nuclear project last summer, but existing UK nuclear capacity looks less secure. Last week, one senior nuclear lawyer raised the prospect that nuclear plants in the UK could be forced to close if the UK exits the European Atomic Energy Committee treaty as planned in 2019.

The treaty ensures that nuclear power stations in Europe meet global standards, and the UK would be in breach of these standards if it left Euratom. If the UK government does not act pragmatically then it could harm nuclear – and leave it up to sources like offshore wind to fill the gap. Highly speculative, of course, but it would still be good for the sector.

Another result of the referendum is that the depreciation of the pound has made it costlier for developers in the UK looking to sign deals with firms that operate in euros. That includes with contractors, manufacturers and other specialists.

This could open up opportunities for British firms who can provide similar services as European rivals, and put more pressure on those European firms that want to retain access to the UK market. They will want to win work on large UK developments.

But let’s not overstate this. Yes, the UK is now the world’s largest offshore market, but that does not mean it will retain that status. We would expect those European firms to also target growth in offshore wind in Belgium, Denmark, Estonia, France and the Netherlands, as well as Asia and North America. The UK will remain a big market, but it may not be one of the most dominant.

Developers in UK waters might also get a boost if the UK can do away with some of the more onerous rules for developers. For example, developers today must carry out environmental impact assessments for new schemes in line with EU standards. After Brexit, developers might be freed from these obligations.

That’s the theory, anyway – but we don’t see it happening. The UK will still want to do business with European companies that are subject to EU law, and it makes no sense to get rid of sensible regulations on environmental protection.

Upheaval is coming. It’s impossible to have Brexit without it. But, in the offshore sector, we would expect changes in the UK over the next few years to be focused on the finer details of legislation, pricing and deal terms.

We do not expect government to make a major move away from supporting the sector as it seeks to fill the gaps in the UK power system, while protecting an industry in which the UK is a leader.

But new markets are opening all the time. The UK is a pioneer and leader now, and businesses will have to fight to keep it so.

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