Executive Forum

MULTITUDE OF ENERGY POLICY TARGETS CONFLICTS WITH INDUSTRY GOALS  –  Luca Cesari

As a lead-in to the final session of the Conference,  the Executive Forum,  Luca Cesari,  Global Industry Managing Director,  Utilities at consultants and Barcelona Conference sponsor Accenture,  examined various conflicts between the current EU 20-20-20 policy targets and with industry goals.  Tracing the path from the monopoly,  central planning era to the advent of competition in the electricity sector and shifting policy focus from supply security to greenhouse gas (GHG) emissions reduction,  he pointed out the reality that  “utilities have always responded to both market and policy change to reduce their risks and reduce rewards.”

The ambitious EU targets for the year 2020 – a 20% reduction in GHG emissions;  a 20% share in total energy consumption for renewables;  and a 20% improvement in the efficiency of energy use – are achievable,  Mr Cesari assured the audience.  He pointed nevertheless to policy conflicts and also  “conflict with the strategic imperatives of the industry” – pursuing policy goals in spite of potentially high cost to consumers;  supply security versus intermittent renewable power;  EU policy aspirations versus local priorities;  and the drive to reduce energy demand versus businesses’ desire to maintain the level of sales.

For example,  if the EU and governments  “push the carbon agenda to its full extent,”  they could unleash a  “technology boom”,  but at high cost.  On the other hand,  if development is left entirely to the free play of markets,  the solutions will be low-cost but will not bring about the decarbonisation required,  he warned.

The optimal outcome,  Mr Cesari told delegates,  will require technological innovation and elements of competition with a guarantee of regulatory certainty.  Policymakers and regulators should  “avoid wait-and-see tactics”  and design a framework that will drive investment,  accelerate planning of cross-border infrastructure,  and ensure a  “stable system”  for renewables,  nuclear power and CCS.  Companies will then need to take a strong position on the winning solution and invest sufficiently,  sharing risks where necessary with governments or other stakeholders - as in the Finnish nuclear power approach.  They should exploit local advantage,  such as windpower in Spain or the UK and invest where feasible in cross-border transmission in order to balance the risks of intermittent power generation.  They should consider redefining their market and selling services instead of energy.  Mr Cesari borrowed a well-known current political slogan to draw his conclusion:  “yes we can!”

ELECTRONIC VOTING

Ahead of the Executive Forum debate,  50% of the audience expressed the view that the 20-20-20 targets do in fact make sense in spite of the apparent conflicts,  but that they are not likely to be reached. Half of all delegates present said that the CO2 target should be the main focus,  while 20% thought that we need all targets and 20% would prefer to concentrate solely on energy efficiency.  A third of the audience saw the EU reaching the RES target by 2025,  the greatest obstacle being a lack of coherent policy.  The audience was almost equally divided as to whether the 20-20-20 targets will jeopardise supply security and strongly divided as to whether they are compatible with competition and liberalisation.

EXECUTIVE FORUM :  “20-20-20”  TARGETS –  HOW TO RECONCILE THEM ?  IS IT POSSIBLE ?

Moderated by Matt Brown,  Director at Massachusetts-based Cambridge Energy Research Associates,  the Executive Forum featured top managers from some of Europe’s most prestigious electricity companies:  Endesa-CEO and retiring EURELECTRIC President Rafael Miranda;  Lars Josefsson,  President and CEO of Vattenfall and newly-elected EURELECTRIC President;  Fulvio Conti,  CEO and General Manager of ENEL and new Vice-President of EURELECTRIC;  Wulf Bernotat,  Chairman of the Management Board and CEO of E.ON;  ESB CEO Padraig McManus;  Ian Marchant,  Chief Executive of Scottish and Southern Energy and Pedro Lopez Jimenez,  Chairman of Union Fenosa.

Introducing the debate,  Matt Brown echoed speakers from Session II and III when he stressed the importance of energy efficiency,  warning against  “underestimating the role energy efficiency can play”  towards attaining the EU energy-climate aspirations.  He also emphasised the importance of demand response through approaches such as smart metering.

Padraig McManus - Videoclip 1
Padraig McManus argued that we need to decide what we really want to do and set that as the main objective.  Achieving the RES target will inevitably lead to a decline in carbon emissions,  as will greater energy efficiency,  but nevertheless the major focus should be on the greenhouse gas target.  Mr McManus pointed out that there was still very limited take-up of  “green energy”  by consumers and warned that we will need to invest hugely in the demand-side and in energy efficiency,  as a public call to “save the planet”  will not be a sufficient incentive.
Padraig McManus - Videoclip 2
 

Ian Marchant - Videoclip 1
Ian Marchant agreed that there is a  “spin-off”  between the energy goals,  each one helping to attain the other targets – for example energy efficiency reduces demand and so contributes to supply security,  just as the GHG target will drive a fuel mix that in turn helps to achieve the RES target – but like Mr McManus he argued that the GHG target should be the key objective.  Given the fact that the carbon market is still young,  it is inevitable that the ETS needs some modifications and corrections to ensure that it set the right price to drive the technology to reduce GHG emissions,  he said, adding:  we need a “number of push and pull policies.”

The next 10-15 years will be  “a transition period,”  and the fundamental point is that  “our energy system has to become basically better ,”  he told the audience. Mr Marchant expressed the view that  “energy will become more expensive”  as it is a  “scarce resource that has been under-priced for too long.”
Ian Marchant - Videoclip 2

Lars Josefsson - Videoclip 1
Lars Josefsson said it was bizarre that after 40 years of nuclear power we are still discussing whether we should use the technology or not and equally bizarre that we have had renewable energies for 40 years and we are still subsidising them.  Markets can only deliver what they are designed for and the electricity market was not designed to reduce CO2 emissions – so “emissions are not a market failure”.

However,  the market will deliver energy,  setting a price for deployment of competitive technology,  and so we should not be  “picking one winner technology”  but keeping all technologies available and allowing the market to set the price at which a given technology can be deployed,  he argued.

He also believed that we should  "shoot for the emissions target and forget the rest.”  The power sector “can be the first sector to be CO2-emissions-free.  We should aim to achieve that and communicate properly on what it involves so that people understand,  then help to key in the other sectors and areas of society,”  he stressed.
Lars Josefsson - Videoclip 2

Wulf Bernotat - Videoclip 1
Wulf Bernotat on the other hand argued that the three targets of the “iron triangle” deserve equal weight.  We will continue to need a broad energy mix containing coal – even if the efficiency of coal plants is diminished by fitting CCS technology - and nuclear power,  as well as RES,  and so policymakers should pursue a  “practical and pragmatic”  approach.  Among other things,  the European Commission should do more to coordinate CCS development,  said Mr Bernotat.

The E.ON CEO stressed the need to involve the demand side and said we should  “start with energy efficiency and with setting the right energy price”.  In the global context,  climate change action will go nowhere unless the USA follows Europe’s efforts,  he underlined.
Wulf Bernotat - Videoclip 2

Rafael Miranda - Videoclip 1
Rafael Miranda agreed that we need a “balanced solution”  to the  “iron triangle,” which means finding the right balance between the three targets.  Without a clear policy framework,  no company board will ever be willing to invest in a “risky business” like CCS so we need a transitional period when this new technology receives support in the early phase of development.  Once CCS has been demonstrated, the money to invest should be available from the financial markets,  he predicted.
Rafael Miranda - Videoclip 2

Fulvio Conti - Videoclip 1
Fulvio Conti supported a balanced approach, with a long-term view,  involving different technologies.  “We need more RES,  but should also deploy CCS and renew interest in nuclear power,  which will be a big part of the solution”  he told the delegates. Mr Conti suggested that the 20-20-20 targets should really be called 30-30-90 “because the policymakers are looking for a 30% cut in GHGs, while the Kyoto Protocol only covers 30% of global emissions and 90% of the burden is being placed on the electricity industry,”  he argued. Given the global nature of the GHG problem,  “it is foolish of politicians”  to limit the use of the international credits – Clean Development Mechanism and Joint Implementation – in the ETS scheme,  he told the conference.

Mr Conti argued that markets function perfectly if no targets are set.  However if there are compelling targets,  they should be achieved through regulation and  “coordination between policy and market”,  as policy targets will not be delivered automatically by the market. “Politicians like capturing CO2 but do not like storing it,”  he suggested.
Fulvio Conti - Videoclip 2

Pedro Lopez Jimenez - Videoclip 1
Pedro Lopez Jimenez told the audience that we still lack a clear definition of the problem we are facing.  He stressed that the global issue of climate change needs a global solution and insisted that we must maintain a range of different technologies,  driven by the market,  in order to sustain a broad energy mix.  The system of today is  “too complex and lacks consistency and we need to go back to common sense,”  said Mr Lopez.
Pedro Lopez Jimenez - Videoclip 2

Closing Speeches >>