Has Brexit caused higher gas prices?

We’ve seen a number of claims on Facebook that high gas prices in the UK are in large part down to Brexit, and namely the fact that the UK has left the EU’s Internal Energy Market.

One says that in its coverage the BBC “forget to mention that prices increased as a result of brexit, and the UK is no longer in the EU’s internal energy market, which has kept prices in the EU low as prices in the UK soar”, while another claims it’s because “the EU have an internal energy market which subsidies wholesale energy rises, keeping prices low.  Something we are no longer a part of because of Brexit”.

There is no evidence that leaving the EU is a major reason behind price increases felt in the UK. 

What is the Internal Energy Market?

The Internal Energy Market (IEM) allows free movement of gas and electricity without restrictions or tariffs across borders between EU member states, often through physical cables, or interconnectors. The IEM is essentially a subset of the EU single market.

The UK was a member of the IEM until the end of the Brexit transition period, which stopped on 31 December 2020. Northern Ireland continues to be part of the Single Electricity Market with the Republic of Ireland, meaning all electricity on the island is bought via a single pool and some EU regulations still apply.

Leaving the IEM

Tom Edwards, a senior modeller at the energy market consultancy Cornwall Insight, told Full Fact: “Leaving the EU/Internal Energy Market is unlikely to be a significant factor in the high wholesale gas and power prices we are experiencing at the moment.” 

A key feature of the IEM is something called implicit allocation, which is where both energy and interconnector cable capacity are bought at the same time, so are sold together in a single process. Having left the IEM, we now do explicit allocation, which is where the capacity of the interconnector cable and the energy itself are bought separately, which can lead to less efficient trade and increased prices. 

Mr Edwards added: “Moving from implicit allocation to explicit allocation has caused some price divergence in both directions,” meaning the difference between prices here and in Europe fluctuates.

“Great Britain is constrained in how much it can import from the EU. So, more fundamental factors such as proximity to continental gas markets, storage levels, wind speeds, and interconnector availability (which would have been the same with or without the UK leaving the EU) are the most significant drivers of difference between prices.

“As well as this, gas prices in European markets are similarly high. The high prices are generally driven by international (and some regional) factors.”

On the reason for the UK price rises, Oil & Gas UK states: “The causes are global – European gas stocks are down, supplies from Russia have declined and there is strong demand for liquefied natural gas from Asia.”

The UK has reportedly suffered reduced wind, and several nuclear units are offline. Governments in other European countries are reportedly considering measures to help consumers cope with increased costs of gas and electricity.

Kwasi Kwarteng MP, Secretary of State for Business, Energy and Industrial Strategy, told parliament in a speech on 20 September that high demand in Asia for a particular type of liquified natural gas meant less was reaching Europe and weather in the US had affected exports to Europe. Bloomberg reports this was because freezing temperatures in winter meant this type of gas went to Asia where sellers could get the best rates.