Policy paper

Trading electricity with the EU

Updated 3 February 2021

This was published under the 2019 to 2022 Johnson Conservative government

The UK government has concluded a Trade and Cooperation Agreement (TCA) with the EU. This agreement provides a framework for future electricity trading across interconnectors between the UK and the EU. The electricity trading arrangements need to be designed and implemented in 2021 and will come into effect in 2022. Previously developed alternative arrangements will endure until the agreed trading model can be put in place.

In Northern Ireland, the Ireland/Northern Ireland Protocol to the Withdrawal Agreement provides the basis for the continued operation of the Single Electricity Market after 1 January 2021. The UK government is supporting the Department for the Economy in Northern Ireland to implement the Single Electricity Market provisions at Article 9 and Annex 4 of the Protocol, which apply key elements of European energy law in Northern Ireland, which are largely devolved, to enable the effective operation of the Single Electricity Market across the island of Ireland.

From 1 January 2021 cross-border flows across electricity interconnectors will no longer be governed by EU legislation which provides for efficient trade and cross-border cooperation in operating the electricity system. In accordance with the agreed UK-EU TCA, a new model of efficient electricity trading across interconnectors will be developed, including for trade between Great Britain and the Single Electricity Market. These arrangements will not be in place for 1 January 2021. Market participants should therefore be aware that alternative arrangements for electricity trading between Great Britain and the Single Electricity Market will be in place from 1 January 2021.

The EU’s Regulation on Energy Market Integrity and Transparency (REMIT) prohibits insider trading and energy market manipulation and makes provision for the monitoring of the market by regulators.

For Northern Ireland, the REMIT regulation continues to apply as outlined in the Ireland/Northern Ireland Protocol to the Withdrawal Agreement.

In Great Britain, the majority of the existing REMIT regime is maintained domestically with minimal changes. Existing REMIT prohibitions and obligations are maintained and Ofgem have the powers to monitor and enforce them. Ofgem published a letter on 13 October 2020 confirming the REMIT arrangements that apply in Great Britain from 1 January 2021.

Market participants in Great Britain, who want to trade in EU wholesale energy markets, undertake cross-border trade, or trade within the Single Electricity Market, will need to register with an EU regulatory authority. The process of re-registration in the EU is managed by the EU’s Agency for the Cooperation of Energy Regulators (ACER). ACER published guidance on re-registration on 8 January 2019.

Market participants in Northern Ireland will need to be registered with the National Regulatory Authority in the member state in which they are established, resident or active. Under the Ireland/Northern Ireland Protocol, Northern Ireland competent authorities may be treated as member state competent authorities. The Utility Regulator (UR) should therefore be considered a National Regulatory Authority for the purposes of REMIT. This means market participants in Northern Ireland can stay registered with UR. The European Commission has set out its consideration that all Northern Ireland market participants should be registered with the Commission for Regulation of Utilities (CRU) by 1 January. The UK government is seeking to resolve this issue with them.

Changes will be made as necessary to domestic industry codes (the technical rules of the electricity system) and licences in Great Britain.

Ofgem published guidance on 6 December 2018 outlining the approach to licence and industry code modifications in Great Britain. Ofgem is currently consulting on licence modifications to ensure licences are fit for purpose after the transition period ends. This follows on from its January 2019 statutory consultation on licence modifications. It expects to publish its final modification direction in January 2021.

There will be a period between the end of the transition period and when Ofgem issues its modification direction. During that period, licensees are expected to conduct their operations and business in a lawful manner and in accordance with national legislation. Licence conditions arising from requirements under retained EU law will continue to have effect.

For the Single Electricity Market, modification to industry codes and licences continue under existing mechanisms, led by the Northern Ireland Utility Regulator, as part of the implementation of the Ireland/Northern Ireland Protocol to the Withdrawal Agreement.

In both Great Britain and Northern Ireland, respective governments will continue to work as normal with regulators and Transmissions System Operators to ensure existing measures are in place to deliver continuity of supply in all scenarios. Consumers need to take no action, and the impact should be minimal.

BEIS wrote to transmission system operators on 22 January 2021 and supported these letters with further guidance on electricity trading (PDF, 294KB). This is intended to support the development and implementation of the new electricity trading arrangements.

Actions for businesses and other stakeholders

Interconnectors, code administrators and market participants will need to implement the alternative trading arrangements that they have developed for 1 January 2021, which will endure until the arrangements in the Trade and Cooperation Agreement can be put in place. Although it is a matter for individual businesses to work out what steps they need to take, the government anticipates these may include:

• interconnector owners/operators will need to continue to work with their stakeholders and regulators to implement alternative trading arrangements and updated rules. They will need to provide each connected market with the necessary information to ensure trading under the alternative arrangements can be carried out.
• interconnector owners/operators will need to continue to engage with the relevant EU national regulators to understand their processes for the potential reassessment of their Transmission System Operator certifications. Ofgem, and where appropriate, the Northern Ireland Utility Regulator will seek to support the interconnectors in this process. Domestically, government will retain existing Transmission System Operator certifications and will ensure that leaving the EU will not create any new domestic administrative requirements. The government will also make any small changes or clarifications necessary to the Transmission System Operator certification process to make sure it continues to function efficiently from 1 January 2021
• in Great Britain, the administrators of the various domestic industry codes (the technical rules of the domestic electricity system) will need to work with relevant industry parties to ensure that the codes are updated
• market participants in Great Britain who want to trade in EU wholesale energy markets, undertake cross border trade, or trade within the Single Electricity Market, should follow the steps set out in ACER’s January 2019 letter in order to re-register with an EU regulatory authority.
• the Ireland/Northern Ireland Protocol provides the basis for the continued operation of the Single Electricity Market and trade of wholesale electricity across the island of Ireland
• in Northern Ireland, electricity market participants should continue using the Single Electricity Market processes and arrangements after 1 January 2021. However, market participants should be aware there will be alternative trading arrangements between Great Britain and the Single Electricity Market
• market participants in Northern Ireland will need to be registered with the National Regulatory Authority in the member state in which they are established, resident or active
• under the Ireland/Northern Ireland Protocol, Northern Ireland competent authorities may be treated as member state competent authorities. The Utility Regulator (UR) should therefore be considered a National Regulatory Authority for the purposes of REMIT. This means market participants in Northern Ireland can stay registered with UR
• the European Commission has set out its consideration that all Northern Ireland market participants should be registered with the Commission for Regulation of Utilities (CRU) by 1 January. The UK government is seeking to resolve this issue with them
• market participants should engage with their Regulatory Authority where their preparations identify significant concerns. Market participants should also check the status of contracts, and licences held in EU member states
• Ofgem published guidance on 6 December 2018 outlining the approach to licence and industry code modifications in Great Britain. Ofgem is currently consulting on licence modifications to ensure licences are fit for purpose after the transition period ends. This follows on from its January 2019 statutory consultation on licence modifications. It expects to publish its final modification direction in January 2021
• There will be a period between the end of the transition period and when Ofgem issues its modification direction. During that period, licensees are expected to conduct their operations and business in a lawful manner and in accordance with national legislation. Licence conditions arising from requirements under retained EU law will continue to have effect.

More information

Government and regulatory authorities will continue to work closely with businesses, trade associations and stakeholders and communicate information and updates online.

Ofgem has issued information to industry on licence and industry code modifications: Preparing for EU exit: licence and industry code modifications.