Brexit and the law of unintended consequences

brexit

On the 23rd June 2016 Britain voted to leave the European Union by a 52%/48% majority. Both before and after this vote there has been much analysis and forecasting of the impact of this decision on the UK’s economic outlook, much of this done by the Bank of England. The Bank has recently been forced to admit that growth will beat its previous gloomy forecasts but what the Bank and other Government economists have failed to recognise or appreciate is that it is impossible for businesses that are reliant on significant imports in sectors where EU imposed Minimum Import Pricing (“MIPs”) exists to “bounce back” post Brexit.

The renewable energy sector, more specifically the Solar PV industry, is one such sector where Brexit is having a damaging impact and there is very little the industry can do because of the “double whammy” of MIPs and a devalued pound caused by uncertainty created by the Brexit decision itself.

MIPs were introduced in 2013 to protect the European Solar PV manufacturing industry from cheap Chinese imports. Currently the MIP is set at €0.56/watt, which is significantly higher than the global “free market” price. This blatant protectionism does nothing for the UK because we have no UK Solar PV manufacturing base to protect and therefore we are forced to import at artificially high prices. The fact that the UK voted to LEAVE the EU does not help in the foreseeable future because until Article 50 is triggered and for about two years after that, we are still (technically) in the EU and accordingly MIPs apply unless the EU decide to withdraw them in the meantime.

The second “whammy” for net importers such as the UK Solar PV industry, is the strength, or more accurately the lack of strength, of sterling compared to the Euro and US Dollar. When Britain voted LEAVE, Sterling suffered its biggest one-day fall on record against the US Dollar and didn’t fare much better against the Euro. Although there was a marginal recovery in the aftermath of the Brexit vote, nevertheless Solar PV panels, whether Chinese imported (and subject to MIP), from Europe or from the rest of the world (and traded in USD) are c.10% higher now than their pre-Brexit levels.

The renewable energy market is a global market and in the important sub-set of this market, Solar PV, UK players are being forced to go out to battle for global investment with not one, but two arms behind their backs. Fortunately, there are a few businesses, such as Egnida, that have a pretty powerful “head-butt” and so far we have used our ingenuity and innovation to compete and keep this industry moving forward no thanks to the EU, Brexit or the UK Government.

 

Randall Edwards

Chairman

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