Policy paper

Trading gas with the EU

Published 31 December 2020

This was published under the 2019 to 2022 Johnson Conservative government

The UK government has concluded a Free Trade Agreement with the EU to come into effect following the transition period, ending 31 December 2020.

From 1 January 2021, EU energy law no longer applies to the UK. However, UK domestic law relating to energy, as well as the licences and industry codes that are used to implement these laws, remain in place. Changes to the licences and industry codes will be required to ensure they remain operable.

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 and 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 EU law will continue to have effect unless specifically excluded by the EU Exit legislation.

The mechanisms of gas trade with the EU are not expected to fundamentally change. National Grid (Great Britain’s Transmission System Operator), Premier Transmission Limited (Northern Ireland’s Transmission System Operator) and the UK’s interconnector operators currently use the PRISMA gas capacity trading platform to allocate capacity at interconnection points; their intention is to continue using the PRISMA platform.

There will be some implications for the way gas is traded with the 27 EU member states. These are described below.

Interconnector operators’ access rules are approved by regulatory authorities both in the UK and in interconnected member states (i.e. Ireland, the Netherlands, and Belgium). The trading of gas across EU borders under these rules is governed in part by the EU Network Code on Capacity Allocation Mechanisms, which establishes the rules for capacity allocation on interconnector pipes, and how adjacent transmission system operators should cooperate in order to facilitate capacity sales.

The approval of regulatory authorities in interconnected EU member states is needed in order to continue using Capacity Allocation Mechanisms Code processes.

In the UK, there are no planned changes to either trading arrangements or the approval processes or requirements for access rules. Belgium and the Netherlands have passed legislation stating that they will continue to use the Capacity Allocation Mechanisms Code as the basis for their trading with the UK. Ireland has confirmed that no changes to trading arrangements are necessary. Interconnector operators should continue to engage with relevant EU national regulators (in Ireland, the Netherlands and Belgium) to understand any requirements for the reassessment of their access rules. Ofgem and the Northern Ireland Utility Regulator will seek to support the interconnectors in this process.

The operators of UK interconnectors should engage with the Irish, Dutch or Belgian national regulators to understand whether their existing Irish, Dutch or Belgian Transmission System Operator certification – i.e. their EU law approval – will need to be reassessed and, if so, the process for this reassessment. Ofgem will seek to support interconnectors in this process.

Great Britain and Northern Ireland will retain existing Transmission System Operator certifications domestically and will minimise additional administrative requirements in this respect. The government will make any changes or clarifications necessary to the Transmission System Operator certification process to make sure it continues to operate effectively.

Many of the EU’s gas network rules are already implemented in the UK in the form of the Great Britain Uniform Network Code and the Northern Ireland Network Gas Transmission Code and other industry documents. These are used by Ofgem (in Great Britain) and the Utility Regulator (in Northern Ireland) in their roles as gas market regulators. These rules will remain in place from 1 January 2021. The government will work with regulators and industry to make any necessary amendments to industry codes.

The EU’s Regulation on Energy Market Integrity and Transparency (REMIT) prohibits insider trading and energy market manipulation and makes provision for monitoring of the market by regulators. In Great Britain, the majority of the existing REMIT regime continues to apply with minimal changes. Ofgem continue to have the powers to monitor and enforce the REMIT provisions. Ofgem published a letter on 13 October 2020 confirming the REMIT arrangements that will apply in GB from 1 January 2021.

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 regarding this re-registration on 8 January. Northern Ireland market participants should take the actions regarding REMIT as outlined guidance published by the Northern Ireland Utility Regulator in its open letter of 11 October 2019 on REMIT.

The government will continue the process of laying statutory instruments to ensure the UK’s energy laws continue to work from 1 January 2021.

Actions for businesses and other stakeholders (gas market participants)

Interconnectors, code administrators and UK market participants will need to carry out contingency planning. Although it will be a matter for individual businesses to work out what steps they might need to take, the government anticipates these are likely to include:

• interconnector owners/operators will need to engage with the relevant EU national regulators to ensure approved access rules are in place
• interconnector owners/operators will need to engage with the relevant EU national regulatory authorities to understand their processes for the potential reassessment of their Transmission System Operator certifications. Ofgem, and where appropriate, the Utility Regulator, will seek to support the interconnectors in this process
• the administrators of the various industry codes will need to ensure that the codes are updated.
• 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 and 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 EU law will continue to have effect unless specifically excluded by the EU Exit legislation
• the Utility Regulator will lead the licence change process in Northern Ireland
• market participants will need to ensure they have valid REMIT registration as set out above. More detail can be found in ACER’s January 2019 letter and the Northern Ireland Utility Regulator’s open letter of 11 October 2019 on REMIT.
• 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 which may be impacted by the UK no longer being a member of the EU
• customs processes will need to be in place for interconnector pipeline and liquefied natural gas (LNG) imports from the EU and exports to the EU. From a UK perspective, stakeholders should work with HMRC to ensure that compliant arrangements are in place ahead of 1 January 2021; stakeholders should engage with the relevant EU authorities to ensure that they remain compliant with EU customs procedures