On 22 December 2025, a policy paper on the UK-EU Summit - Common Understanding was published alongside a specific policy paper on the outcome of the exploratory discussions on the possible participation of the United Kingdom in the European Union’s internal electricity market. 

This indicates the UK and EU’s intention, following the May 2025 joint summit, to work towards an agreement on the UK’s participation in the EU’s internal energy market (the Electricity Agreement). The policy paper is limited to a relatively high-level statement of intent and indicates some of the key areas which will need to be worked through before any agreement is reached. Given the likely complexity, it is not surprising that no specific deadlines are set for this. 

Proposed rule alignment

Those with an interest in energy markets will want to carefully consider the proposed alignment of rules relating to wholesale and retail energy markets, including the rules on promotion of renewables while ensuring a level playing field. Of broader relevance and interest will likely be the aspects relating to:

1. dynamic alignment; and
2. state aid and subsidy control. 

On the former, the policy paper says that the “Electricity Agreement should also ensure the application of the same rules at all times by providing for dynamic alignment of the rules applicable to and in the United Kingdom with the relevant Union rules on the promotion of renewables, giving due regard to the United Kingdom’s constitutional and parliamentary procedures.” 

There are a number of different models which have been adopted in arrangements between the EU and non-members. It is unclear from this which model is envisaged by the EU and UK. 

State aid

On state aid, it says that the UK “should ensure that State aid control is carried out by an independent authority which, in terms of State aid control, enjoys the same powers as the European Commission and that is subject to the same rules as those applying to the European Commission in that regard. This should include, inter alia, rules on transparency, investigation and evidence gathering, ex ante control of State aid, issuing binding State aid decisions and recovery of incompatible State aid (plus interest).” 

This seems to suggest, at least in relation to the electricity sector only at this stage, a much stronger role than that carried out by the Competition and Markets Authority’s Subsidy Advice Unit (SAU). The SAU’s role is limited currently to providing advisory opinions only. This could lead to a two-track approach to subsidy control in the UK, with the energy sector subject to more robust requirements than the rest of the economy, or potentially become the blueprint for broader changes.    

Watch this space

Developments in this space will need to be watched closely, particularly in light of the Prime Minister’s very recent comments on seeking closer alignment with EU markets.