European Affairs Committee

Tuesday 16th June 2026

(began 2 months, 1 week ago)

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11:07
None Portrait Speaker 1
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Good morning and welcome to this public evidence session of the House of Lords Select Committee on European Affairs. Looking into the issue of dynamic alignment. And today we are focusing on the issue of electricity trading. One of the prospective agreements, which the government has said it will, will. Negotiate, and we are delighted to welcome as our first witnesses this morning, Mr. Adam Berman, who is director of policy and advocacy at energy UK, Mr. Mark Copley, who is CEO of Energy Traders Europe, and Mr.

Jack Pardo, who is head of policy, Octopus Energy. It's a public session. It's being broadcast. There will be a transcript produced and you will be provided with a draft to check for any errors and omissions. You may find, and we hope to conclude the session by 12:00. So with that in mind, if the questions and answers could be as concise as is reasonable, and don't feel you all have to answer every question. If you've got nothing to add, just say.

But if you do have something to add, then of course, please do. Um, if we're content, I'll kick us off then with a, with a general question, which is just to sort of set the scene, as it were, for our evidence. And that is how does electricity trading between the UK and the EU take place at present. Um is work continuing two sides to try and implement the electricity trading arrangements foreseen in the TCA?Or has that really rather been superseded by the negotiations that are now underway.

Uh, who would like to start us off on that?Um, should we go from left to right?Yeah.
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None Portrait Speaker 4
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Okay.
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None Portrait Speaker 2
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I'm happy to start. Uh, yes, they do stand to gain. There are absolutely benefits that would accrue to the Northern European countries that we are interconnected. That being said, I think as a general principle, the EU is a pay to play club. The EEA is a pay to pay club, as is Switzerland, with its sector specific single market access. So I do think it's reasonable and consistent for the Commission to ask for some settlement, which is both, uh, payment towards actually participation within the institutions and for the institutions themselves and maybe something broader, but I don't think it has to be a vast sum of money.

And I think actually, it categorically shouldn't be a vast sum of money. And I am concerned that there is the possibility of heading toward another sort of safe style fiasco, where the commission, as a negotiation tactic, asks for something that's clearly ludicrous. And UK negotiators have to walk away. That doesn't have to happen. And both in Switzerland. And if you take cases like Norway, there's really good examples where, you know, these aren't vast sums of money. Just to take Norway as an example, they pay about €450 million a year to to the European Union as part of their their EA settlement.

Let's conclude that electricity generation or electricity is perhaps at absolute most 2% of European GDP. Um, and that's the entire internal electricity part of the market, but probably a bit more as well, sort of 2% of 450 million is, is not a vast sum of money. And I do think that is absolutely consistent with the scale of benefits that the UK could receive. Equally, if the commission comes out and says you have to pay €500 million for access, that is a price that is too high and that is not worth paying.
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None Portrait Speaker 3
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Let me give that a go, Your Lordship. So one of the things I think we should be proudest of from the negotiation in. Around the Trade and Cooperation agreement, is that Ireland, which has a single market. So one market for the entire island. That market continued to operate. So there were some very distinct rules worked out for that. And that was incredibly important. Now to your question about the distribution of benefits and the scale of the benefits, there have been various studies.

They tend to find the benefits are between about 300 and 700 million. The reason for that range is that it all depends how often you're exporting and how often you're importing, which changes all the time with weather and temperature and French nuclear plants being broken and all of the rest of it. And what those studies tend to find is that the benefits are in the region of 40, 60. So most of the studies say that the UK benefits slightly more in electricity. But that doesn't mean the EU doesn't benefit at all.

And those benefits come in terms of security supply, lower prices in the periods they're importing, greater ability to balance their systems. So when people say mutual benefit, which they do an awful lot in these negotiations, it's actually true in electricity. And there are lots of situations where the imports from Great Britain have had very positive effects. Where are those benefits most felt the closest countries. So in the short term it's France, it's the Netherlands. Uh, in the longer term, depending on how we build out future interconnection, it's likely to be northern Europe.

But I think Adam's key point is the right one here. There are benefits. They are relatively small over many hours of the day. And that accumulates. But we shouldn't be looking at a very vast figure to try and secure that access. A bit of pragmatism is needed, I think.
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None Portrait Speaker 1
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Joe, do you want.
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None Portrait Speaker 2
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Um, so I think there are some things in, in favour of these negotiations, which is actually that they are, they are essentially happening separate to any other negotiation that the UK is doing. So you have the entirety of the reset, which is sort of, you know, ETS, SBS, youth Mobility, etc., over here on one side with the hope to get a lot of that completed by the time of this summit. And then you have electricity trading as this kind of discrete extra bit that was added in, uh, basically the time of the last summit last summer.

And no one expects that to make radical progress. It will proceed. But, you know, it's not going to be done by the time of the summit. So I do think that having it as a separate issue and not being politicized by other items that they're doing will be really positive. I mean, otherwise, I read the same media that everyone else does about the lessons learned from Saif. Um, I think it is, it is clearly the case that the commission recognised that there is a price that the UK would not be willing to pay.

The question is whether the UK negotiators are able to, uh, get the structure of the negotiations such that actually the balance of the scope of dynamic alignment and the payment is the right one. And I think those are the kind of two competing parts of it. On the sort of negative side of the spectrum. Um, I have confidence that there is a deal that absolutely could be doable. I can't say categorically that the commission couldn't turn around and throw a silly number out.

I just hope that that's not the case.
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None Portrait Speaker 1
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Well, Brennan.
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None Portrait Speaker 2
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I am not, thankfully.
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None Portrait Speaker 6
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Therefore you.
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None Portrait Speaker 6
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Thank you.
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None Portrait Speaker 3
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Yeah.
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None Portrait Speaker 6
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Thank you, chairman, and thank you all for coming. Um, uh, I'll I'll try to sum up what what I've heard and you can you can knock me back if you think I've heard it wrong and, and then ask my question. So, so the first question said, we have this complicated way prone to human error system right now, and we're going to move back to one click and you're done. And computer mediated service and and so forth. Uh, so this is good, a good technical change.

Uh, and then, and then what I heard was that the sums involved are not huge. We will gain sums, but, but from the numbers you, you, you are throwing around is about the same as what was described as will be required to pay money, pay to play, uh, which is about the same amount. So the net financial gain will be about nothing for us. On the other hand, there was no mention of of the EU having to pay to play in our market, which seemed to me quite strange.

So they keep all the benefit that they keep, which is slightly less than ours, but they keep it and we just pay ours back. So nonetheless, it's just a technical change from what we've heard so far. Now, is that a correct description?It's just a technical change or will there going forward be a lot more complexity?What kind of volume of laws will we have to implement on an annual basis?Uh, both in quality. That is to say how hard they hit us and quantity and what kind of cost will there be to us.

I mean, I note that in our briefing, we're told that the outcomes document said, uh, joint agreement between UK and the EU. All of these measures should be designed in such a way that they do not. Three put the United Kingdom at a more advantageous position than a member state of the European Union. Is there anything that protects us from being put at a disadvantageous position, uh, relative to members of the European Union?So is it going to be much more than just a technical issue?
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None Portrait Speaker 3
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Add your question?Had an awful lot to it. So. So a couple of things. Your fundamental understanding is spot on. Now, when you say we pay back as much as we benefit from, I think that would be an appalling piece of negotiation. The the Swiss pay a fee that reflects their contribution to agencies and to algorithms, which seems fair enough. They then pay a fee, which kind of proxies the level of benefit of the market access provides under their draft electricity agreement.

So I think we would be wanting to sit down and look very carefully at how those benefits were distributed, and we'd be wanting to look at the net of those benefits, what the EU gains and what we gain. And I think the number we would be looking at would need to look at those. It would also need to keep one eye on the fact we have gas market integration too. And the UK has some extremely nice shiny LNG terminals, which are beneficial to a continent which is short of gas supply.

So I think, you know, you would need to be looking at that number. Absolutely in the round. Now you asked about benefits. I think it's very important to bear in mind that the benefits case will grow over time. If you choose to build more interconnection, more interconnection, more hybrid assets and build out the northern seas. Uh, I don't work for a grid company. I'm sure if I did, representatives of them might tell you that the business case for those future investments would be severely undermined were these arrangements not in place.

Uh, and to your final point, EU energy law is vast. I've spent about 25 years doing this, and I don't know it all yet, which might be my failing, but there is a lot of it. I there is some good news though, and I was talking to one of the probable negotiators earlier this week and he said, we based most of it on you. And there is some truth in that statement. That doesn't mean it's all perfect or it's all fine or you shouldn't worry.

But it is a it is a worthwhile starting point. GB the UK was the kind of forefather of the European integration of energy markets, and that does mean the way it's designed. Perhaps. Contains fewer pitfalls than might be the case from a country that didn't start from that position, but I won't bore you with the detail, but I went through the Commission's work programme and I went through the Swiss agreement and my notebooks fairly full with the things I've written down.
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None Portrait Speaker 3
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That's not my read.
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None Portrait Speaker 2
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No, I wouldn't say that's accurate. I would say the UK has very ambitious renewables targets, whether it's through the government's own renewables targets, whether it's through the carbon budgets, uh, that stem from the Climate Change Act. And even if you didn't, the TCA already binds you into having quite a lot of renewables anyway, uh, which you can take up with the TCA. But, uh, and I think that that unfortunately is the broader issue of dynamic alignment here is that there is absolutely a world in which the UK says, I don't want to do any of this.

I want a completely different pathway. I don't want any renewables, I don't want carbon pricing, etc.. Fine, but the TCA doesn't allow you to do that anyway, so you'd have to renegotiate that deal or end up in many years of, of, um, you know, dispute settlement around that, which you'd almost certainly lose based on the deal as it currently is. So for the time that we already have rules that are consistent with the TCA, we're already largely doing the same thing. There has been some divergence, but it's pretty marginal since Brexit.

It I don't particularly see any problems with UK law as it is today. You know, major issues, you know, stopping us from doing something we're currently doing today. There is an open question as to whether it reduces flexibility in the future. But as of today I don't think that is the case. And just to your point about costs, I'd certainly agree with with Mark that it would be a poor negotiation if we ended up not with with net benefits, that there are several sort of buckets of benefits.

Some of it is around wholesale prices themselves, where we know that that's sort of up to about £370 million, a year's worth of benefit to the UK from moving to these arrangements. We also know that in times of kind of system stress events, that actually this can reduce prices by up to about £100 per megawatt hour. That's in a report that we haven't yet published, but it will be published in the next three weeks or so. Just to put that in context, £100 per megawatt hour, it could be reduced by the current bill.

As it is today, electricity prices are about £90 per megawatt hour. So, you know, these these can be really substantial savings at peak times. It also means for the future of interconnectors as as Mark said, and whether it's the kind of interconnectors we have today between two countries or ones in future, these so-called hybrid interconnectors that then connect into a wind farm and into another country. Again, the economic case for that and lowering the cost of that project is incumbent on getting these arrangements away.

So I do think that there are there are absolutely benefits. Clearly, if the EU comes up with a silly number, that's going to be problematic, but I see no reason why the UK can't agree a reasonable financial settlement and accrue significant net benefits. On top of that.
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None Portrait Speaker 3
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Look. This is an agreement about the trading of wholesale electricity. And the EU's starting point will be what they've done with Switzerland. Now, I would make an argument that Switzerland, which has somewhere over 30 interconnections to the countries around it, is somewhat different to somewhere which is slightly arm's length connected. So I would be trying to keep this as focused on wholesale aspects as possible. It's not strictly clear to me that some of the the retail market aspects, it's not clear why you need to harmonise your smart metering policy to facilitate a more efficient flow over an interconnector.

So I think my starting point would be, let's actually look at what changes the difference in prices over that interconnection. I looked at the EU's negotiating mandate, they. I think they recognised some of the areas which I think would be problematic. There is, as we've mentioned, a review of the Renewable Energy Directive coming up. You know, we're fundamentally on similar trajectories towards net zero. I would be pretty concerned about any sort of target being imposed into a country with a system of carbon budgets, which I think is extremely effective.

I think that's started to be reflected. So I'd be I'd be looking around, looking at that. I'd also be trying to make sure we weren't being brought into wider pieces of legislation, perhaps around renewable fuels of non-biological origin, to use another horrible acronym, you know, so so I think I think you need to be wary of targets. The other thing you need to be wary of in the context of recent discussions about market design in this country, is changes to what are called bidding zones, which is the geographic area in which a price is set.

That's one of the most political issues in the in the EU. So the answer to your question is there are 1 or 2 things one needs to be particularly aware of and where they involve a target, they're probably most important to. To focus on. But from a general perspective, the more you. You, the more you take in electricity agreement and focus it on electricity. To state the blindingly obvious, um, the more kind of safe it is for everybody concerned.

Now, Adam will give you a better answer.
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None Portrait Speaker 2
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Look, I think, um, it all comes down to the scope of dynamic alignment, ultimately. And there are positive signs. So the, the document that the UK and EU released in December last year, which was almost like a sort of heads of terms of negotiation laid out. The the dilemma that on the one hand, the UK is solving a discrete problem through these negotiations, which is cross-border electricity trading. But the. In order to solve those problems, we have to gain access to the entire internal energy market with the rights and obligations that come with it.

And you can already see within that document a middle ground sketched out where the EU is already recognising the commission is recognising there are areas where clearly it's just not plausible to ask you to dynamically align. So, for example, the Renewable Energy directive, the big piece of European law which governs everything related to renewable energy, it has a big target up top. And then it has a set of different sectoral targets. So so the share of final energy usage and transport or from buildings that come from renewable energy.

The UK has already in that heads of terms secured an opt out essentially from the sectoral targets. They've already said clearly that is that is beyond the terms of this agreement. So I think the signs are positive. But to to Mark's point, you know, there absolutely is a world in which the commission pushes for a very expansive view of what dynamic alignment looks like. And probably there are some areas, particularly around state aid, where I would start to get more nervous if it was anything other than state aid, beyond simply the issue of the electricity market and headline investment for that, and not least because, well, firstly, the EU is already quietly watering down its state aid obligations, but also because the UK and EU are largely doing the same thing.

They have different policy structures, they call them different things. You know, there's an accelerator act and things like that. In the EU we have contracts for difference. We have the clean industry bonus, a kind of supply chain, industrial policy style mechanism for renewables. They're all pretty much doing the same thing. As long as it doesn't extend beyond energy, I don't I don't see anything deeply problematic.
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None Portrait Speaker 5
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I would add it. I guess you have to first ask, what are you doing this for?If you're doing it to cut bills, um, then a prioritise lots of other things first, because this is like a marginal benefit. Um, and if you are doing it to cut bills, but you're still going to do it anyway because it's part of a wider package, at which point the costs have to be outweighed the cost of dynamic alignment and the cost of rejoining fees. Everything else has to be weighed against that.

Rizer bill cut. Um, then you will still need to, um, get your own house in order first, else you might turn that what could be a net positive to begin with into a net negative for the British economy. Um over time. Um, so a lot of, a lot of the power is actually in our hands, um, but basically if I was a government and the priority was we're going to try and cut bills or cut energy costs for the economy, then, um, I would prioritise, um, fixing our own roof, but before, before joining or making it as part of a condition of rejoining that we do it and it is quite serious.

I mean, there was a there was a government in Norway brought down by the inefficiencies of basically the German market, which has a very similar market to our own and very similar, um, energy policies. Um, so that's the main thing is if it is strictly to do with the cost of electricity, it's marginal, prioritize other things. And if you are going to do it, make sure that it does remain a net saving for the British consumer over time as well as immediately there's if we've gone to this two step process and it's less and less efficient and more costly, but ultimately that kind of, um, that two step has a human in there kind of deciding the flows of interconnectors and can correct them rather than exacerbate our own market failures.

Then there might be a benefit to that. Um, so it's definitely do all we can to make our own electricity market work much better before we, um, hook into the, to, into the European market.
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None Portrait Speaker 5
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No.
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None Portrait Speaker 1
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Right. Lord Brennan.
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None Portrait Speaker 4
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Customer, am I right?
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None Portrait Speaker 6
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Thank you.
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None Portrait Speaker 8
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So.
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None Portrait Speaker 2
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Do you want to start?
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None Portrait Speaker 2
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Um, so just very quickly, I think, um, look, during negotiations, well, I would love the government to be more transparent about some of the key issues, not specifically a criticism of the current government, but the approach of this government. And the last government has largely been to kind of do it behind closed doors without much discussion, other than the kind of odd strategic leak to the media. And I'm just not convinced that's the most mature way to to get these negotiations done after the negotiations are done.

I mean, we need a standing body within Parliament. We need something like a European scrutiny committee again, to be able to to actually look at the dynamic alignment that is coming out. The other thing that I'm afraid is not Parliament, but is really important, is that I would imagine as part of this deal, we will regain access to a set of European institutions, so particularly Acer, the kind of energy regulator. And so we, the network body, um, you know, we will not be will not have essentially a vote, but you will be a rule, a rule maker.

And within that, the UK is going to need to provide a lot of resource to essentially ramp up again on, on engagement and to be able to do that at a professional level. And I think we've probably slightly lost the ability to do that over the last few years. That's not parliamentary, but it is really important in our ability not just to to adjudicate on whether the dynamic alignment is good or bad at a parliamentary level, but also to impact the the EU laws to begin with, that then end up in a dynamic alignment discussion.
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None Portrait Speaker 3
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Uh.
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None Portrait Speaker 4
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Mr. Copley.
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None Portrait Speaker 8
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Right.
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None Portrait Speaker 1
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On that note, we have. Run out of time, but you've you've done a great job in taking us through a very complex issue and helping our understanding and contributing to this inquiry. So I'm most grateful to you for that and for coming and spending so much of your time. Thank you very much. And with that, I suspend the public meeting. Well, good afternoon and welcome back to this public evidence session of the House of Lords Select Committee on European Affairs, where we're looking into the issue of dynamic alignment.

And we're delighted to welcome to the second half of the session, Doctor Silke Goldberg, who's partner and global head of environmental, social and governance, sustainability, Herbert Smith Freehills Kramer and professor of energy law in the North Sea Faculty of Law, the University of Groningen. Um. We are hoping also to be joined by Catherine Porter, who's an energy consultant of Wyatt Logic. Um, she is participating remotely, but we're having a few technical difficulties at the moment, so hopefully she will join us. Um, in as we proceed through the session.

It's a public session. It's being broadcast. There will be a transcript provided. You will see a draft to check for errors and omissions. Um, and we will finish by 1:00 because I know that's when you have to go. Thank you very much for being with us. And without more ado, let's crack on. And I'll ask you a general question, if I may, which is, is UK participation in the EU's internal electricity market the only way of overcoming the difficulties that we have experienced in trying to implement the TCA arrangements for electricity trading, or are there alternatives?
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None Portrait Speaker 8
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This way.
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None Portrait Speaker 10
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Sorry.
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None Portrait Speaker 11
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Thank you.
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None Portrait Speaker 14
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Okay.
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None Portrait Speaker 12
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Um.
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None Portrait Speaker 14
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Sorry. Frozen.
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None Portrait Speaker 13
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We can hear you.
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None Portrait Speaker 12
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So I think actually the most difficult elements will be one. And the most difficult elements are likely to be ones that don't even surface, potentially in the negotiation. Um, what we have, um, is across. Europe, we're having various instabilities in the power grid that um the EU regulators are living with at the moment. We saw this with the Spanish blackout. If you look at the report into that, they mentioned these oscillations, um, that were becoming normal in the power grid and this had been tolerated.

Now we have a similar situation in Scotland. Those types of situations can be fine for a period of time and then can quite rapidly degenerate into not being fine and retaining flexibility to address those types of situations is quite important. Now, typically the EU allows people and allows system operators and and market participants to respond to emergency situations with temporary measures. But some of these situations will require something not temporary. They will require a longer term solutions potentially outside of normal market frameworks.

And Scotland is a very good example of this. We have only two conventional power stations left in Scotland and the National Electricity System operator is essentially experimenting with untested solutions to how that grid can operate. When those two power stations close, which is likely to happen in a 5 to 7 year horizon. The solutions that they may end up having to adopt if these experimental technologies don't work would have to be implemented rapidly, would potentially have to be sustained over a long period of time.

Um, because we have big bottlenecks in supply chains for getting generating equipment. Um, and they're likely to require an extra market actions, which the EU might find difficult to sanction. And so we really need to make sure that we retain the flexibility to manage our grid security, not just in short term emergency situations, but where I, where these issues can persist. And it could be the case that we encounter those challenges in advance of other parts of the EU. Um, and in which case the normal regulatory frameworks just won't catch up.

So I think the key I'm negotiating point should be to make sure that we have sufficient flexibility to maintain our stability under scenarios that potentially are not considered mainstream at the moment.
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None Portrait Speaker 13
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Goldberg.
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None Portrait Speaker 9
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I think looking at the potential issues for of contention or friction, I think, um, where the TCA, the Trade and cooperation agreement has effectively invited divergence or manages divergence there. I can see some issues. Um, divergence since the, the, the TCA coming into force has happened in particular in relation to state aid, um, where the rules are different. Um so they would need to be reviewed. Um where um grid plan. I think is something that could take part in place as part of the ten year network development plan of which GB would need to become a member again, sort of in the fullest sense.

Um, and um, but I think it's sort of like scrutinising the areas and perhaps a bit of work would need to be done in relation to where that divergence has actually crystallised. Because let's face it, ultimately the British market design was actually adopted by the European Union sort of prior to Brexit. So it is actually I don't foresee any particular deal breakers because, um, Britain was such an influence in the European Union when it came to liberalisation of the markets, to design of the markets that um bar some technical areas which uh, Miss Porter has just pointed.

To perhaps sort of what I would call the regulatory sandbox where or where sort of GP has taken a particular, um, innovative approach outside the EU framework, sort of, but all of these things could be addressed. But ultimately we're coming to a, we would be coming to a market design that isn't foreign or strange. It is one that was invented here.
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None Portrait Speaker 8
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To.
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None Portrait Speaker 12
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Um so I think it's right to say that removing inefficiencies from interconnection trading will lower prices. Um however the extent to which that feeds through in the wholesale market, I should say the extent to which that feeds through into bills will be limited because of the mechanism by which the subsidies are paid. So under the contracts for difference, which is the dominant subsidy mechanism, there's an explicit independence from the market. So generators are given a fixed price and that fixed price is higher than the wholesale price.

It's always been higher than the wholesale price. So if you lower the wholesale price, uh, with the contracts for difference, you have a corresponding one for one increase in the subsidy top up they receive, which is added on to bills. To the wholesale price. So the wholesale component of the bill falls, but the subsidy element of the bill goes up one for one. Offsetting that reduction. Um, so there needs to be some caution into the assumption that lower wholesale price translates into a lower bill, a large part of the generation mix.

That's not the case. And the other difficulty we have around interconnectors is that, um Ofgem published a report in 2021 where it said If Britain becomes a net exporter, um because of increased interconnection, that an increased domestic generation, primarily renewables, that would actually create a dis benefit to consumers. So a financial disadvantage to consumers that would translate into higher bills. And this was in fact the main driver for Ofgem declining. Many of the projects that came through in window three of the cap and floor mechanism.

If we were to um, adopt dynamic alignment, that might restrict the ability of Ofgem to make these types of choices. We would also potentially face. Um, restrictions if we wanted to introduce different types of support for different customer groups. Um, so for example, we currently provide effectively subsidies for energy intensive users. And we also provide subsidies through the warm homes discount for consumers. There's been debates from time to time about introducing a social tariff. And these are things that would potentially come into conflict with increased alignment with the EU and particularly around state aid.

Um, and then that might restrict our flexibility to lower bills in that way. So I think we need some caution around the assumption that we would see lower bills.
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None Portrait Speaker 8
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You agree.
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None Portrait Speaker 9
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May I briefly react to that. There are a couple of things in there. I agree. The European Union in general is not looking to, uh, end consumer price subsidies kindly. So there's a general principle that that shouldn't happen. There have been IG judgments on the topic, however, in practice, a lot of jurisdictions have these. So for instance, France definitely has a social tariff. And these are then cleared through the state aid, uh, through state aid rules.

The same is true for CFDs or many European jurisdictions have subsidies for renewable energy, whether some are CFDs, some are feed in tariffs or in Germany, there is a direct market, uh, sort of premium so that many different models. So, um, that wouldn't be unique to the UK. So the difficulty of maintaining that or offsetting that against the power price would need to be looked at in the round. I just wanted, I want to come back to the, the point that Miss Porter made in relation to the interconnectors and the possibility of Ofgem to make certain policy choices.

Um, looking at Europe in the whole city, generally, Europe is under interconnected. So the European Union is reiterating a number of times that it wants more interconnectors. But the political level. Yet many um national regulatory authorities, for instance, the French National Regulatory Authority has regularly declined to build or to make. They have made choices in relation to which interconnectors to build. So I don't think that rejoining the internal energy market would make it more difficult for Ofgem to say, actually, I be supportive of this interconnector rather than that one, or this is how much interconnection we want.

That is something that, um, in fact, I think it would make it easier for those interconnectors that would be built because they would do so, they would be built on, on the foundation and in the framework of a holistic decision making. Basis.
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None Portrait Speaker 11
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Right.
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None Portrait Speaker 1
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Any system.
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None Portrait Speaker 1
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Could I turn now to the issue, which is, I think, of most importance to this committee, um since its inquiries into dynamic alignment. And that's the involvement of, of Parliament. Um the. Is planning to publish is planning to uh publish. And have a second reading quite soon on its UK, EU partnership bill, which will give ministers the power um to dynamically. Align sectors of the EU law with certain sectors, sectors, the UK law with certain sectors of the EU law.

And that will be a sort of power that applies to all agreements as they come down the road, not just the ones that they're currently. To finalize um what part?In your view, does Parliament have to play in scrutinizing the arrangements and decisions that are made in the decisions that are taken subsequently in subsequent agreements such as internal electricity market participation in terms of delineating which areas of EU law should be. Part of dynamic alignment. And in scrutinising the changes that the EU subsequently makes to those areas of EU law.

I mean, this is this is a very difficult question that we're trying to get our minds around because clearly, once Parliament decides that it will dynamically align, then it will dynamically align. But what are the boundaries of that dynamic alignment?How do you make sure that things don't creep into it that weren't foreseen in the first place?How do you make sure that there are not unintended consequences that flow from that dynamic alignment?So what part do you think that Parliament should play in scrutinising that?And as part of that, do you think that it is important for the UK to retain the power essentially to say, no, we are not going to align in this particular area and perhaps I will ask Miss Porter to have first stab at that.
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None Portrait Speaker 12
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Um, yes. So I absolutely think that Parliament does need to retain the ability to say no. I mean, for me this is a wider question about the sovereignty of the UK Parliament. Um if you're going to automatically align with regulations that are being created elsewhere and this, this proposed dynamic alignment would have um the UK would have no vote in, in those changes we may be able to influence certain things through negotiation, but we would have no power of veto and no ability to vote along with other EU member states.

Um, when those decisions are being made at the EU level. So it's important that we don't find ourselves having to passively just accept anything that's decided by the EU and then adopt that without any ability to say no. Um, so I think it's very important that Parliament retains a veto and that it scrutinises proposals at the earliest possible opportunity. Um, and maintains things like, um, an ongoing live alignment register so that um these decisions, um and the potential impact on the British market are being tracked, um, as early as possible to give Parliament the opportunity to have its say and to make sure that British consumers aren't being disadvantaged by changes that are being proposed within the EU.

And we have seen um, Norway, for example, being quite robust actually with the EU on certain proposals. Um they've neglected to implement some of the EU energy packages. They've pushed back very strongly around some of the interconnection. I am a cross-border arrangements. And in fact the Norwegians have twice amended their internal Electricity Act to give themselves powers to restrict export electricity exports to other countries, um, because of the perceived shortages and the risk of shortages that they face. There are some specifics in the Norwegian market that make them very vulnerable to that.

Um, now, the EU has always said that it doesn't like this and has tried to push back, but the Norwegian parliament has really insisted that it has the right to make these choices. And there's been quite explicit that the Norwegian Parliament will make choices for the benefit of Norwegian people and not take the wider EU context, and certainly not to subordinate Norwegian interests to the wider EU context.
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None Portrait Speaker 9
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Thank you very much. Um, so I would, if I may, direct you to article 26 of the Swiss Agreement. Uh, sort of here. I think it's first of all, it acknowledges that Parliament has an important role in scrutinising, but also in shaping decisions. And I think that shouldn't be forgotten. So article 26 of the EU Swiss agreement that sets out how, um, experts are. Consulted Parliament is consulted um how decisions of that uh of the committee and of the dynamic alignment committee is being influenced and shaped by those joint consultations.

And then it's a matter of politics really. So what UK representatives want to make sort of the comments they want to make in relation to decisions and um, um acts that are being brought forward, um, in the, in the joint committee between the EU and, and Switzerland. So I imagine perhaps that the UK could have a similar sort of joint committee between the UK representatives and Swiss and EU representatives. Um and then negotiate politically sort of where they should align and where they shouldn't align.

So, um, it is also a question, what form would the dynamically aligned legislation take if it's a statutory instrument, it would be laid before Parliament. So there's an in-built scrutiny if you wish. Ultimately, um Miss Porter referred to the Norwegian example. That's slightly different because Norway is not an associated member of the European Union. Norway is part of the EEA agreement. So within that sort of perhaps negotiation powers are slightly differently distributed. Um but absolutely right.

Norway does not implement everything from the European Union. Um but Norway I would say has also developed a certain muscle in relation to accompanying European Union policy. If I, if I may be permitted a 32nd anecdote I went many years ago, I went to an energy law conference in Norway. It was in the middle of the night. I had to have a long taxi ride to get to this place, and the taxi driver goes to me, okay. Why are you in Norway?So some conference.

I wanted to sleep. I didn't want to discuss it. Like, oh, what sort of thing?Energy conference. He looked at me. He goes like, haha. So there. Will you talk about interconnectors?Let me talk about interconnectors. This was a taxi driver randomly at Oslo airport. The third energy package made the page one on all the Europe. All the Norwegian newspapers. Diens Naringsliv, which is like the Financial Times of Norway if you wish.

Basically is running energy stories all the time. So if they have a much bigger policy debate around that, they have effectively a muscle when it comes to European policy issues, which goes all the way from the Norwegian parliament to the taxi drivers at Oslo airport. So and I think what we need to do collectively in Britain is to rediscover our muscle memory, perhaps because Britain influenced energy policy in the EU for so long. And I think if you remember how we did that collectively, then I think dynamic alignment might be not so bad.
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None Portrait Speaker 4
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Moot.
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None Portrait Speaker 9
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Um. I think it's fair to assume the principles might be similar in the sense that if you if there's a country, let's say Germany or France or a member state, and they implement a directive, the differentiating point is, of course, the directives first need to be transposed into national law. So here in Britain, everything would need to be transposed or dynamic international law. So there's a certain framework. I don't see that you could necessarily have a directive apply directly just in terms of the legal mechanics around that.

I sort of I imagine that there would be a certain degree of latitude as to how exactly you implement that into English law, into UK law, um, regulations, I imagine would be rather word for word, because that's the whole point of regulations. Um, so that they would in particular regulations tend to cover more technical things. So for instance, the powers of Acer, they might be in a regulation or how that works or in relation to more sort of subordinate legislation, EU network codes for stock trading or capacity allocations.

Um I would find it hard to see that there is leeway as to how they're being implemented, because that's the nature of them. They're very technical. And in fact the um again, the Swiss agreement, which is serving somewhat as the blue blueprint here for this comment, is there, there are there are principles which have been laid down on effective and harmonious application principles. So looking effectively, um, much like the European Commission looks to member states to apply directives correctly and in line with EU law, there might sort of the joint committee that I imagine might be established, might have a look as to how the UK is doing that.
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None Portrait Speaker 1
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Thank you.
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None Portrait Speaker 11
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Can I.
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None Portrait Speaker 11
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Thank you.
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None Portrait Speaker 13
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Mr. Porter.
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None Portrait Speaker 1
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Lord Jackson.
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None Portrait Speaker 9
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I would perhaps frame it differently. So if you sign up to dynamic alignment, you also signing. Yes, you're signing up to a package, but you're also signing up to a process of dynamic alignment works through mutual consultations to shaping of decisions. Whereas the veto would only ever be the very last resort where someone has actually, we can't do this for whatever political reason. Then you might perhaps be in a Norwegian situation where you do not adopt or you don't implement a particular act, and that's then a political decision where you don't follow on sort of, um, that is not really a veto.

That is sort of the choice not to implement something at a political level. And I'm sure that would lead to further sort of discussions at sort of between the two parties, um, in, in more detail, but fundamentally, I think the idea is that the UK and the European Union consult one another about um, the. The shaping of particular decisions. And for me, the veto is perhaps quite harsh, the way that this is formulated because hopefully the UK would have been involved in many sort of joint consultations and um um.

Decision shaping meetings prior to that. Um at the same time, I would point out that sort of to some extent, the TCA has ultimately foreseen some level of divergence management. And in the TCA, there are areas where if the UK wants to have a relationship with the European Union, de facto, the European Union sets certain rules. So a joint decision making or decision shaping under dynamic alignment from from a cooperation perspective, seems to be preferable.
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None Portrait Speaker 9
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First of all, I think trading would be more efficient. Also, from the European Union's perspective, because yes, it has been inefficient on our side, but it has also been efficient on the, um on the side of the European Union. On a more idealistic level, I think British um, ideas about how to run the energy market, how to, how to influence the energy market. I think that would be, uh, that is something that has been lost to the European Union and that would come back sort of into, into the EU.

Um, on a more practical level, from a supply security perspective, I think when we talk about the European Union, we also need to talk about our nearest neighbour, meaning Ireland. So Ireland would the, the supply security of the Republic of Ireland or the island of Ireland, um for electricity purposes. It's a single um island. Island market. The supply security of Ireland would improve because at the moment Ireland is entirely dependent on the UK for supply security. In terms of gas imports, the UK is the transit country islands of supply.

Security depends to. Well above 80% on the UK. Um and if the Kinsale gas fields go down to deplete over time, then um the. That would even go higher. So um, so first of all there is an Irish supply security issue. Um secondly, there's also uh. Another point. So, um in the European Union member states provide or lend each other solidarity in case of energy penalties. So if there is an incident, um the n minus one standard.

So if the biggest energy facility in a country goes down, um then um sort of the EU member states can call on one another to, to help with that energy sort of incident. Um, Ireland at the moment is kind of disconnected from that because the UK is kind of in the middle. Um and um, so Ireland would benefit from the UK being part of the internal energy market again, and therefore also being able to call on, on solidarity sort of in, in those circumstances. Likewise, of course, the UK could call on the same solidarity mechanism and given sort of where we are geopolitically sort of lots of uncertainty, um, sort of globally, we've seen the impact of the various wars, um, on the energy market.

Proximity does matter. So therefore being, having that mutual solidarity mechanism is helpful to both the EU.
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None Portrait Speaker 1
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And benefit.
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None Portrait Speaker 9
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Yes.
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None Portrait Speaker 1
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Miss border.
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None Portrait Speaker 12
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Yeah. I'm afraid I disagree with that. Um, I think that in practical terms very little would change from the EU side and the trading that the EU has with the UK is not material versus all of the cross-border trading within the EU. So while making it a little bit more efficient would have some benefit at the margin, it is at the margin from the EU perspective when it comes to Ireland. Yes, Ireland is completely dependent on GB. Um, but under the current arrangements, the island of Ireland is treated under our emergency rules in the electricity market as a region of GB.

So under the demand control rules, if we have an electricity shortage in Britain, that would lead to rotating blackouts. For example, Ireland is treated as a region of GB pari passu with all the other regions of GB. Under those plans. Um, so there's no reason that that would change. It is already at the highest level of support from GB that it could have. Um now there might be some political decision down the line to change that, but what we've seen since the Russian invasion of Ukraine is increasing energy nationalism from EU member states.

Um, I have been told by market participants, by system operators and regulators that system operators within Europe have communicated to their peers that, um, in the event of a domestic shortage in their country, they don't care what the rules are, they will protect their domestic market. I think it's highly unlikely in practice that any country would decide differently. Um, so in the case where shortages are shared across different countries simultaneously. Geopolitical factor or a weather related factor, bearing in mind that we share a very highly correlated weather patterns with all our connected countries, except for Norway and almost all of them, with the exception of Norway and France, are sharing a very wind heavy transition strategy.

We could all be experiencing low wind conditions simultaneously. And so the idea that countries will sacrifice their own domestic security for the benefit of their neighbour, I think, is deeply unlikely. Um, so in practical terms, I don't see that this alignment will make any of those improvements that were just mentioned in terms of, um, energy security and cooperation. I think that's quite idealistic and doesn't translate in practice. In practice, we're likely to continue to see what we've seen to date. Um, I think it's unlikely in fact that Britain would cut Ireland off.

So Ireland would retain its position um as having its security guaranteed by, by Britain. Um we would continue to see countries suspending electricity exports when they experience domestic shortages. And we will continue to see a situation where there is no mechanism to compel a neighbouring country to import. We have interconnectors within our capacity market, which is, uh, deeply risky approach because imports cannot be compelled. We can only restrict exports. Um, and this, this. So the situation would broadly continue as it is at the moment.

There might be some window dressing around it, but if push comes to shove and we're facing shortages, it will be each country acting in its own best interests.
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