The UK-EU Trade and Cooperation Agreement

Energy Trade and Infrastructure & UK ETS Deep Dive

Tuesday, 26 January 2021
 Speakers

James Carter Natasha Luther-Jones Paul Hardy

Partner Global Co-Chair of Energy and Brexit Director
UK Head of Energy Natural Resources UK Head of Government Affairs
London International Co-Head London
Sustainability and ESG
Leeds

Andreas Gunst Steven Gray

Partner Of Counsel
Energy Regulation and Trading ESG and Climate Change
London London

Chris Whittaker Kenneth Wallace-Mueller

Senior Associate Senior Associate
Financial Services Energy Regulation and Trading
London London

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UK energy policy and investment drivers post Brexit

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2020 White Paper, UK Energy Policy & Regulatory Trends

UKCS Basin
Generation Infrastructure
Oil and Gas

Industrial Alternative
Supply
Emission Fuels

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Energy White Paper – powering net zero
Key Commitments
• Transform Energy – targeting 40GW of offshore wind, support for CCUS in four industrial clusters, the
UK ETS, one large scale nuclear project, consultation on the appropriateness of ending gas grid
connections to new homes from 2025, scale up the diffusion of electric heat pumps and building world-
leading energy system digital infrastructure.
• Green recovery from Covid-19 – increasing the ambition in Industrial Clusters Mission four-fold, invest
£1 billion up to 2025 to facilitate the deployment of CCUS and develop 5GW of low-carbon hydrogen
production capacity by 2030.
• Creating a fair deal for consumers – create the framework to introduce opt-in switching, considering
how the current auto-renewal and roll-over tariff arrangements could be reformed, assessing what
market framework changes may be required to facilitate the development and uptake of innovative tariffs
and products, ensuring the retail market regulatory framework adequately covers the wider market,
establishing the Future Homes Standard, requiring that all rented non-domestic buildings will be Energy
Performance Certificate (EPC) Band B by 2030 and Extending the Energy Company Obligation to 2026.

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The UK’s renewable and low carbon energy policy
• The United Kingdom (UK) will continue to be bound by national and international decarbonisation
obligations – including through the Climate Change Act 2008, UK ETS and the Paris Agreement. In 2021
climate leadership will allow the UK to position itself internationally.
• The UK is hosting the next round of climate negotiations COP26 in November and has announced a new
national target of at least 68% reduction in GHG emissions by 2030, compared with 1990 levels.
• The UK will also host the G7 in June where climate will be at top of the agenda.
• The UK net zero commitment:
• June 2019: parliament passed legislation requiring the government to reduce the UK’s net emissions of
greenhouse gases by 100% relative to 1990 levels by 2050.
• Current progress: UK emissions were 44% below 1990 levels in 2018. The 2020 progress report revealed
that the UK is off-track in most sectors.
• Government presented their energy white paper: "Powering our net zero future", which includes the
PM’s 10 point plan and sets out how the net zero target is to be reached.

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An introduction to the TCA and focus on energy and
climate change

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Initial reactions to the TCA
• On 24 December 2020, following eight months of negotiation, the European Union (EU) and the United
Kingdom (UK) have reached an agreement which is intended to apply provisionally immediately after the
Brexit transition period ends on 31 December 2020.
• From a British perspective, the TCA provides a measure of certainty and avoids the more extreme trade
shock that would have resulted had the UK and EU failed to reach an agreement.
• In the medium to long-term, we anticipate:
• UK economy will bounce back well from the post-pandemic and post-Brexit consequence.
• In terms of the post-Brexit Britain political landscape: greater focus by Government on more traditional
and moderate voters, Scottish independence, and the reconstruction of a fully coherent foreign policy.
• Within the EU, two distinct points of view – a more combative element that does not want Brexit to be seen
as a success; and others who hope that this process will have helped the EU to move forward, with the UK’s
Euroscepticism finally removed.
• The deal has yet to be ratified by the European Parliament (only considered to be a formality).

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Overview of the Trade and Cooperation Agreement (TCA)
• The TCA consists of three main pillars:
1) A free trade agreement.
2) A new framework for law enforcement and judicial cooperation in criminal and civil law matters.
3) A horizontal agreement on governance (provides clarity on how the agreement will be operated and
controlled).
• Summary of key points:
• Cross-border trade of goods: No protectionism at all: no tariffs or quotas on any goods crossing UK-EU
border that have an EU or UK origin. But full regulatory approvals still required for imported goods
(Technical Barriers to Trade).
• Cross-border trade of services: Deal is far thinner than on goods: significant new barriers to market
access for UK services in the EU.
• Personal data and digital rights: EU allows for personal data to be transferred to UK for 6-month
bridging period; gives time to adopt and avoids scenario of all movement of personal data from EU to UK
being unlawful unless protected by additional safeguards.
• State aid, competition and level playing field: Some changes but positive overall result.

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TCA sections relevant to energy
• In total, the TCA consists of seven parts, several annexes and two protocols.
• Part Two: Trade, transport, fisheries and other arrangements.
• Title VIII: Energy.
• Chapter 1: General Provisions (definitions, principles, etc.).
• Chapter 2: Electricity and gas.
• Section 1: Competition in electricity and gas markets (competition rules, regulation of wholesale markets,
unbundling, independent regulatory authority, etc.).
• Section 2: Trading over interconnectors.
• Section 3: Network development & security of supply (cooperation, risk preparedness, emergency
plans).
• Section 4: Technical cooperation.
• Chapter 3: Safe and sustainable energy (energy efficiency, support for renewables, cooperation of offshore
renewable energy, etc.).
• Chapter 4: Energy goods and raw materials.
• Chapter 5: Final provisions.
• Four energy related annexes provide further requirements and in certain cases reservations.
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What does the TCA mean for the energy industry?
The TCA facilitates continued flows of electricity and gas between the EU and the UK by:
1. Ensuring that UK-EU interconnectors continue to work effectively by:
• Stipulating rules for the efficient use of interconnectors.
• Providing for the development of a new electricity trading model which is to be implemented by April
2022.

2. Providing for cooperation in respect of security of supply, the integration of renewables and the
development of hybrid projects that integrate offshore windfarms.

3. Ensuring open and fair competition through established market principles:

• Competitive markets.
• Independent regulators.
• Market integrity (prohibition of market manipulation and insider trading on wholesale markets).
• Third party access.
• System operation and TSO unbundling.

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What does the TCA mean for the energy industry? (cont.)
• Cooperation between the EU and the UK will continue in the following areas:
• Cooperation on networks, which includes (i) technical cooperation on network development and (ii)
cooperation on security of supply.
• Cooperation between TSOs (must develop working arrangements and, where recommended by Specialised
Committee on Energy, also technical procedures).
• Cooperation between regulators (ACER and UK regulators).
• Cooperation in offshore renewable energy (particularly North Sea, but also more generally).
• Northern Ireland remains part of the single electricity market (SEM) & the internal energy market (IEM) by
virtue of the Ireland/Northern Ireland Protocol to the Withdrawal Agreement.
• If either the UK or the EU breach their commitments under the 2015 Paris climate deal, the TCA is
terminated. It is not entirely clear whether the whole TCA would be scuttled or simply the section providing
for a framework on renewable energy and climate.

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Phase 1 of the UK Emissions Trading Scheme

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Key elements of the UK's ETS Phase I
• GHG Emissions Trading Scheme Order 2020.
• Phase I of the UK ETS has started in January 2021 (and will last until 2025).
• Northern Ireland installations stay in the EU ETS as a consequence of Art. 9 and Annex 4 of the Ireland /
Northern Ireland Protocol, negotiations of technical matters.
• Scope – UK ETS will cover same greenhouse gases (GHG) and sectors as the EU ETS, including aviation.
• Cap – to be set 5% below the UK’s notional share of the EU ETS cap for Phase IV of the EU ETS (2021-
30). The cap will reduce annually by 4.2 million allowances.
• Cap adjustments – with a net zero trajectory implemented by 2023 and no later than January 2024.
• Allocation – mostly auctioned, with a small proportion allocated for free (some will be available via a New
Entrants' Reserve (NER)).
• Free allocation to operators that would have expected such under Phase IV of the EU ETS and based on
EU ETS Phase IV benchmarks.

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Key elements of the UK's ETS Phase I
• Free allocation review – possible changes for second allocation period on (e.g. benchmarks, risk
assessment of carbon leakage and NER).
• Introduction of a Supply Adjustment Mechanism (SAM) – based on the EU ETS market stability reserve.
SAM will require UK ETS data at the end of the previous year.
• Introduction of a transition Auction Reserve Price (ARP) of £15 for the first few years of the scheme.
• Cost Containment Mechanism (CCM) mirroring the EU ETS CCM, designed to address significant price
spikes by auctioning additional allowances from within the cap. For first two years of the UK ETS, the CCM
will have lower price and time triggers to prevent high price spikes. From the third year it will revert to the
EU ETS CCM design if linked.
• Small emitter opt-out and ultra-small emitters exception will remain largely aligned to the EU ETS,
including thresholds.
• UK ETS will not allow the use of international carbon credits and will review how to implement aviation
offsetting under the ICAO’s Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA)
along side the UK ETS.

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Next steps for installations?

• UK ETS timing with respect to the issuance of permits, launching of the registry and issuance of
the auction calendar relates, in part, to the fact that UK operators will be fulfilling their EU ETS
obligations until April 2021, and the UK will be initially using EU benchmarking data, which will
not be available until February 2021:

End of
Phase III EU ETS Phase I UK ETS
Transition Period Start of UK ETS

Compliance Compliance
Deadline Deadline
Verified by verifiers
established in
the EU

31/12/20 01/2021
31/03/21 03/2022
31/04/21 04/2022
Trading accounts or person Launch of ETS registry
holding accounts will not have and auction calendar.
access past this date. Operators of stationary
Investment firms + credit No further access to the Union Registry installations located in
institutions must ensure form this date unless one opens a UK: should make sure
establishment in EU if trading account in the Union Registry that they have been
continued participation in administered by an EU Member State issued permits
Reporting Reporting
auctions of allowances and moves assets to this account
Deadline Deadline

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 Key ETS legal relationships
• EU ETS-related contracts and relationships under law will need to be reviewed by UK-based operators,
as the ability of the parties to continue to fulfil their obligations will be impacted to varying degrees.
Right to emit and compliance requirements are
Will require renegotiation, new agreement or new annex/schedule. governed by law and not contract.
For contracts with delivery schedules beyond 30 April 2021 delivery Transfer of existing / issuance of new permits.
accounts need to be amended or terms. No compliance holiday is envisaged. Will mirror the
EUs yearly trimline. UK operators to provide their
Trader
reports by 03/22 + surrender allowances by 04/22.
Broker trading
Installation agreement e.g.
brokerage IETA,
operator will agreement EFET, ISDA emissions permit / emissions plan
likely be Exchange/clearing free allowances (if applicable) UK National
contacted member
Installation
Administrator/ EA/
ETS WAP system access
with a clearing member agreement / BEIS/ Devolved
owner
non-clearing member agreement Administrations
confirmation /exchange rulebook UK Part access
of changed (EA) T&Cs
terms. verification Union Depending on the structure of the new UK
agreement
Accredited Registry registry, existing registry agreements could
verifier
transfer over + apply to such new registry (or
alternatively new agreements required).
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Amendment of standard documentation
• Key EU ETS allowance trading documents include the IETA Master Agreement, the Allowance Appendix to
the EFET GA Power / Gas or the respective ETS part in the ISDA commodity definitions and the ISDA
Master Agreement.
• The mechanics of these agreements will allow for a relatively straightforward adaptation to the UK ETS,
however changes will be needed, including:
• EU-specific references changed to UK-specific references (e.g. consider approach taken under the
draft GHG Emissions Trading Scheme Order 2020, esp. Schedules 4 an 5).
• Definitions of UK laws governing the UK ETS.
• UK ETS allowance definitions.
• Transfer mechanism, registry requirements, disruption events.
• Amendment to loss or liquidated damage definitions to reflect UK system penalties.
• Force majeure, in respect to UK registry specific events.
• Change in law in respect of UK system specific events.
• References to time (CET to GMT).
• For early trades (before updated IETA/ISDA/EFET forms are available) consider using bespoke amending
long-form confirmations.
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New Guidance and TCA
• Unclear whether UK ETS will be standalone or linked to EU ETS. No linking agreement in place.
• TCA only has a few requirements for climate change related aspects, notably UK ETS.
• Article 7.3 on carbon pricing of the TCA (page 202-203) provides that both the UK and the EU must have
effective systems of carbon pricing as of 1 January 2021, that they are to cooperate, and that they should
give serious consideration to linking their respective systems.
• New guidance: as at 31 December 2020, the UK Government published new guidance on EU ETS
obligations and access to EU register systems in 2021.
• Confirmed that operators must still comply with their obligations under the EU ETS relating to the 2020
scheme year (ends 30 April 2021).
• Temporary suspension by European Commission on the process relating to the UK registry was already
lifted on 3 February 2020 and UK commenced process of issuing 2019 and 2020 free allocation, as well
as resuming auctions. UK stationary installation operators and aircraft operators also regained ability to
use their entitlement in the Union Registry to exchange international credits for EU ETS allowances.
• On 17 December 2020, the UK Government published new guidance on participating in the UK ETS;
complying with UK ETS as an aircraft operator; applications for an Emissions Monitoring Plan; and
applications for free allocation.
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Regulation of cross-border interconnectors, energy
trading and investment

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 Interconnectors & cross-border infrastructure
Electricity IC
Norway 1 – North Sea Link (NSL)
1 – NorthConnect
2 – Viking Link
3 – Neuconnect
4 – BritNed
5 – Nemo
5 – Nautilus
6 – IFA 1
6 – IFA 2
6 – Gridlink
10 6 – Eleclink
6 – Aquind
6 – France-Alderney-Britain (FAB)
Northern 7 – Eirgrid
Denmark 7 – Greenlink
Ireland 1
7 – East West Interconnector
8 8 – Moyle
9 – SEM cross-border transmission lines NI-ROI
9 2
Natural gas CP and IC

3 4 – Balgzand-Bacton Line (BBL)

7 Germany 5 – Interconnector (UK)
4 7 – IC1
7 – IC2
Republic of 8 – SNIP
5 10 – Vesterled
Ireland
6 Netherlands 10 – Langeled

Crude oil CP
Belgium
10 – Flags
10 – Sage
10 – Fuka
10 – Cats
France 10 – Norpipe

Electricity MPI
4 – Multipurpose interconnector NG-Tennet (MOU)
Graphic for illustrative purposes only

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Regulatory context for crossborder energy infrastructure
EU Internal Energy
Market and Third
Country Infrastructure
Key EU secondary law:
• Electricity Directive
• Gas Directive
• Renewable Energy Directive
• Electricity Regulation
• Gas Regulation
• TEN Regulation
• Gas SoS Regulation
• Electricity Network Codes and
Guidelines
• Gas Network Codes
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UK implementation, on-
shoring and changes
Key statues and statutory instruments:
• Gas Act
• Electricity Act
• Energy Act
• EU IEM Implementing SIs
• EU Exit SIs, e.g.
• 2018 E&G Powers to Make
Subordinate Legislation
Regulations
• 2019 E&G Amendment
Regulations
• 2019 Gas Sos & NC
Regulations
• 2019 Electricity NC and
Guidelines
• 2020 E&G Amendment
Regulations
International law
Key treaties:
• Withdrawal Agreement
• TCA
• Energy Charter Treaty
• GATT, GATS
• UNFCCC and supplementary
(e.g. Paris Accord)
• Bilateral Investment Treaties
• Status of UK‘ signature
under 2019 Declaration
following Achmea
• Project or area specific IGAs
• UKCS unitisation and
pipelines
• Gas SoS?
• Interconnector specific ?
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Regulation of interconnectors under the TCA
• Since 1 January 2021, cross-border flows between the UK and the EU across electricity interconnectors are
no longer governed by directly applicable EU law (e.g. NC CACM and FCA/HAR).
• Certain IEM operating principles, such as market coupling, do not apply to EU-third country borders.
• Brexit resulted in market-coupling and short-term allocation limitations (effect on TSOs and NEMOs).
• However, TCA provide that that interconnectors are to be used efficiently and reduce trade barriers.
• Capacity allocation / congestion management are to be market-based, transparent and non-discriminatory.
• Maximum capacity is to be made available, respecting secure system operation and efficient system use.
• Curtailment is to occur only in emergency situations, in a non-discriminatory manner.
• Capacity allocation and congestion management across interconnectors is to be coordinated between the
concerned UK and EU TSOs.
• UK TSOs will however not participate in EU capacity / congestion procedures.
• The UK and EU are to reach an agreement that extends inter-EU TSO compensation to UK TSOs, with
interim charging arrangement.

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TCA trading model for electricity interconnectors
• The EU and the UK have 15 months (until April 2022) to decide on the detailed procedures of the new trading
model.
• In the interim, the alternative arrangements previously developed will continue to allow trade and cooperation
for security of supply, which apply until the new trading model is put in place.
• The aim of the new trading model is to permit again implicit trading / market coupling.
• Rights of NEMOs and allocation platforms not clear compared to Transition Period position.
• This is to be achieved with the introduction of a multi-region “volume coupling” model:
• This calculates the net positions between the UK and EU bidding zones directly connected to the UK, i.e.
currently Irish SEM, France, Belgium, and the Netherlands. Additional arranged would need to be
considered for all planned facilities.
• The net-energy position will be again be calculated by applying an algorithm to certain data (including day-
ahead commercial bids and offers, network capacity data and system capabilities). This is separate from
the CACM algorithm which uses bids and offers from connected EU bidding zones.
• Flows over EU-UK interconnectors will no longer be simultaneously determined with EU flows, but instead
determined in an interactive process using sets of UK and EU market and network data.

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The new Specialised Committee on Energy
• The TCA establishes a Specialised Committee on Energy (SCE):
• Major role is determining governance of electricity interconnector capacity allocation and congestion
management.
• SCE to cause TSOs to develop technical procedures for day-ahead trading.
• Aim is multi-region volume coupling to provide reliable and repeatable results in time to use as inputs into
the EU’s and the UK’s day-ahead market.
• Timelines for the development of these procedures are set out in Annex ENRG-4 (Allocation of electricity
interconnector capacity at the day-ahead market timeframe):
• CBA and outline proposals within 3 months.
• Proposals for technical procedures within 10 months.
• Entry into operation within 15 months (April 2022).
• The procedures include a fall-back process.
• Unlike Energy Community Secretariat, no specific role in relation to PCI designation.
• Continuity for NGG, BBL and IUK participation and capacity allocation through PRISMA platform.

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Cross-border conventional and
renewable energy trading

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Energy trade and transmission related TCA reservations
• Investment limitations and seat and license requirements for TSO, DSO, energy supply or trading or BRP
activities are affected by specific reservations set out in the TCA.
• Reservation 17 concerns energy related activities. Reservations were made in the following two areas:
a) Mining, quarrying and exploration.
• Reservations by Netherlands, Belgium and Italy, Bulgaria, Cyprus, Slovak Republic, Finland, Ireland
and Slovenia.
b) Production, transmission and distribution on own account of electricity, gas, steam and hot water;
pipeline transportation of fuels; storage and warehouse of fuels transported through pipelines; and
services incidental to this including energy trading or BRP services.
• reservations were made by Denmark, Malta, the Netherlands, Austria, Czech Republic, Lithuania,
Poland and Slovenia.
• Details on these reservations available on pp. 646 and following of the TCA.

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Cross-border trading: licensing requirements
• For trades from EU to GB and for EU seated entities acting in the UK, the GB licensing regime and
requirements remains the same:
• No electricity or gas trading licence requirement, but gas shipper licence requirement.
• Gas and Electricity Supply license requirements and class exemptions.
• As EU and GB legislation may start to diverge, watch out for electricity / gas supply licence not being
triggered for certain corporate PPA and trading structures which may be viewed as a licensable activity.
• For trades from GB to EU or UK seated entities acting in EU, a risk posed as GB traders no longer hold
certain privileges:
• Irrespective of Brexit, some EU member states have require a licence to trade electricity / gas or act as BRP
but allowed equivalence assessment for licenses held in other EU Member states for EU seated persons.
• Reservation 17 has reconfirmed and in some cases expanded existing restrictions for trading without local
establishment or license (countries such as Czech Republic, Spain and Poland have or are considering
revoking licences of UK entities).
• Whilst not expressly referred to in the reservations, the seat requirements of some EU Member states in the
reservations also do not allow UK seated entities to be BRPs (e.g. Austria already started revoking
authorisation of UK incorporated entities).

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 Certificates
across Europe
Different types of renewable certificates are commonly
traded in Europe, including:
• EECS certificates (in particular GoOs)
• National GoOs, for instance UK REGO or Polish
green/blue certificates of origin
• Support certificate schemes, for instance
Norwegian/Swedish Elcert, Romanian GoOs or
the UK ROCs.

AIB Members
EU / EEA / EFTA - AIB Member (with EECS GOs)
EU / EEA / EFTA - AIB Member (with EECS GOs) – import only
EU / EEA - AIB Member (with EECS GOs, GoOs and support certificates)
EnC - AIB Member (with EECS GOs)

Other
EU - Non-AIB (with GoOs and/or support certificates)
UK - Non-AIB (with REGOs and ROCs (closed scheme))
EU - AIB Observer (with GoOs)
EnC - AIB Observer (with GoOs in legislation)
EnC - Non-AIB (with GoOs in legislation)
I-RECS (via local issuer or rest of world issuer)

* countries with dotted colours are those which have formally applied for AIB membership

Information from www.aib-net.org - correct as of 25 January 2021

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Renewable energy certificates and mutual recognition
• Guarantees of Origin (GoO), as defined in Article 19 of Directive (EU) 2018/2001 (RED2), are EU-specific
tracking instruments to identify renewable sources of electricity.
• When a member state, GB implemented GoOs into national law as Renewable Energy Guarantee of Origins
(REGOs). These remain in UK law as the Electricity (Guarantees of Origin of Electricity Produced from
Renewable Energy Sources) Regulations 2003.
• GB is not a member of the Association of Issuing Bodies (AIB) and therefore:
• Harmonised European Energy Certificate System (EECS) GoOs are not issued in GB; and
• EECS GoOs cannot be imported into GB.
• Before the IP deadline on 31 December 2020, EU law continued to apply and GB remained part of the IEM.
• Export of REGOs from GB (either into an AIB country or another non-AIB country) could be done by
cancellation statement or by a swap agreement (i.e. REGOs are exchanged for EECS GoOs). The same
approach applies to imports of EECS GoOs into GB.
• EU GoOs have three different main applications in GB: for the purposes of fuel mix disclosure (FMD), for
feed-in tariff (FiT) levelisation exemption, and for Contracts for Difference (CfD) payment obligation
exemption.

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The effect of Brexit on the GoO market in the EU and GB
• A key design characteristic for GoOs (under RED and RED2) is their mandatory recognition by other
Member States.
• From 1 January 2021, the UK has been released from its renewable energy targets under RED2, and from
its mutual recognition obligation with respect to GoOs.
• Since the UK is also not an AIB member, they are also not bound by the EECS rules (which even go beyond
the mutual recognition obligation by facilitating the trade between national registries).
• While the TCA affirms the need to support renewable energy, continued cooperation in developing offshore
wind assets as well as specifications and standards in this respect, no mention of GoOs or any broader
energy attribute certificates is made.
• The European Commission has stated that from 1 January 2021 onwards, UK REGOs will no longer be
recognised by EU Member States. RED2 requires a dedicated intergovernmental agreement for EU
member states to accept GoOs from third states. The TCA does not address this point.
• Ofgem has stated that they will continue to accept GoOs from EU Member States. However they intend to
review this arrangement and will likely reciprocate with regards to REGO acceptance in the EU.
• Biogas GoOs under RED2 will have the same treatment as electricity GoOs, the current gas mass balance
approach is not expected to change, although this is subject to any change by certification standards.
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What to expect
• Based on AIB Ex-Domain Cancellation (EDC) statistics, EU member states have already reduced their
import of REGOs in 2019 and 2020. With the EU no longer recognising REGOs since 1 January 2020,
import to the EU is expected to come to a complete halt.
• Despite the uncertainty with respect to the arrangement of GoOs and REGOs, EDC statistics do not
suggest a real change in the UK's import of EU GoOs to date.
• If the UK does reciprocate and terminate the recognition of EU GoOs, this would likely lead to a significant
shortfall in demand. For the period 2019 to 2020, the UK accounted for 5% of the GoO market.
• The implications would likely be the most significant for Norway, which according to the EDC data accounts
for the greatest volume of GoO exported into the UK.
• With the effective withdrawal of REGOs from the EU market, it is expected this will be offset by newer AIB
entrants such as Greece and Portugal with net GoO exports.
• The energy chapter of the TCA has an expiry date of 2026, subject to mutual extension. It is possible this
may be replaced by a dedicated energy agreement which may include provisions on the trade of renewable
electricity and biogas and mutual recognition of REGOs and EU GoOs.

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Trading in wholesale energy products, energy
derivatives and financial instruments, and transaction
reporting

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TCA wholesale energy market and financial instruments

• Article 6 of the Energy Title in the TCA deals with wholesale electricity and gas markets. Article 7 of the
Energy Title deals with the prohibition of market abuse on wholesale electricity and gas markets.
• In Northern Ireland, Regulation (EU) 1227/2011 on Wholesale Energy Market Integrity and Transparency
(REMIT) will continue to apply.
• In Great Britain (GB), the majority of the REMIT regime is maintained with some changes. Ofgem has sole
power to enforce and monitor the arrangements in place from 1 January 2021.
• Market participants in GB who want to trade in EU wholesale energy markets, undertake cross-border trade,
or trade with the single electricity market, will need to register with an EU regulatory authority. The EU‘s
ACER manages re-registration in the EU.
• In Northern Ireland, market participants can stay registered with the national regulatory authority, the Utility
Regulator.

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End of Transition Period and TCA impacts
Examples: Impact on classification? What set of rules apply?
Financial • Financially settled PPAs.
Instruments • Loss of REMIT carve out benefits. • Place of settlement.
• EU ETS Allowances.
/ Regulated
Activities • Secondary transmission • UK ETS allowances vs. EU ETS • Seat of transaction platform
rights. allowances as „allowances under (RM, OTF, MTF).
para 11 Part 1 Schedule 2 RAO.
• Seat of party based on offer or
• REGOs (change of Art. 7.1 and 7.3 acceptance or transmission or
• Physically settled PPAs. DR 2017/565 reference). receipt of order.
REMIT
Wholsale • OTF Gas futures.
Energy • LNG Spot Transaction.
• Physically settled PPAs and REMIT
Products IR conditions and thresholds. Transaction Reporting
• Transmission or storage capacity
traded on third country trading • UK REMIT reporting dormant
• Certain private wire supply (Exit SI – “until data collection
agreements. venue with similar function to RM,
MTF or OTF. system in place)”, ongoing
Below • RMU VERs.
Threshold / consultation.
• REGOs, GoOs, IRECS (if
Out of Cross-border
Scope
Art. 8 (d) and 7(3) of DR
offering / reverse
• UK FS transaction reporting
2017/ 565 are not met).
solicitation (EMIR) to UK repository, ESMA
re-registration for EU trades.
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Example: Application of FSMA to UKAs
• European Directives were implemented in the UK via adopting legislation. This legislation has now been amended in light
of the withdrawal of the UK from the EU. For example, the RAO definition of an emission allowance in Art 82B has been
updated by The Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019.
• Emission Allowances themselves as listed as financial instruments in the RAO – specifically as units recognised for
compliance with the requirements of Directive 2003/87/EC (Emissions Trading Scheme). May indicate a predicted linkage
and mutual recognition in the future as no specific tying of the definition of the UK ETS.
• Article 82B of the RAO notes, however, that an emission allowance as per the above definition is only a “specified
investment” (for the purposes of UK regulated activities) where:
a) an investment firm or qualifying credit institution is providing or performing investment services and activities on a professional basis,
b) management company which has a Part 4A permission to do so is providing certain investment services or an ancillary service;
c) a market operator is providing particular investment services; or
d) full-scope UK Alternative Investment Fund Manager is performing certain investment services or ancillary services in respect to the
emission allowances.

• The categorisation of firms providing services in respect to emission allowances means the scope of UK regulated
activities in respect to emission allowances have narrowed – to only investment firms, banks, markets and fund
managers. This continues to mean that certain businesses – like pure emission allowance brokers - may provide services
in respect to them without authorisation.
• This narrow scope also reflects that pure EUA dealers may be excluded from the scope of “financial services” under the
TCA so may be able to rely on the broader services aspects of the TCA into the future.
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Thank you

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