SESSION I: BUILDING A SUSTAINABLE ENERGY MARKET

Building a Sustainable Energy Market :  Industry View - Jean-Pierre Hansen

  Jean-Pierre Hansen - Videoclip 1

Jean-Pierre Hansen,  CEO of Belgian electricity major Electrabel,  opened the first session of the Conference by pointing out that,  over a decade since the process of bringing energy into the internal market began,  “we have today large European electricity companies,  but not yet a European market.”  The liberalisation process was presented to European consumers as a guarantee for lower energy prices, and there is now great disappointment that prices have increased, with a resulting tendency to make electricity companies the scapegoats, while the general uncertainty is also undermining vital new investment.

Mr Hansen emphasised that markets only deliver within their designed framework and “won’t deliver on policy goals for which they were not designed.”  We therefore need a clear EU energy policy that takes account of the three elements of the “iron triangle” - competiveness,  security of supply and sustainability - and that will drive forward market integration.  Regional market development is a necessary practical step on the way to an EU internal market in electricity and this should be based on voluntary cooperation between market players,  facilitated by regulatory authorities with an EU focus and a framework that reflects the regional dimension,  he said.

Jean-Pierre Hansen - Videoclip 2

Building a Sustainable Energy Market: Status of Energy Market Package  –  Ana Arana Antelo

  Ana Arana - Videoclip 1

Ana Arana,  Head of the Electricity and Gas Unit at the Directorate-General for Transport and Energy of the European Commission, focussed on the main aspects of the proposed  “third package”  of energy market legislation,  which was designed to overcome identified shortcomings of the current situation – “market concentration,  conflicts of interest in integrated companies,  lack of market integration, and lack of independence of national regulatory authorities (NRAs).”  The European Commission proposals to solve these shortcomings include proper unbundling,  cooperation of transmission network operators through a new body ENTSO,  harmonisation of NRA powers and the creation of a European Agency for Regulators.

Ms Arana updated the audience on progress in the EU legislative process and described the heated debate in the Council of Ministers before they reached a compromise on 6 June to allow continuing vertical integration of electricity and gas groups while removing any “conflict of interests”  through proper separation of transmission activities from the other segments.  She reiterated the Commission view that only full  “ownership unbundling”  would achieve this aim and that other unbundling models on the table - both the Independent System Operator (ISO) described in the Commission proposal and the Independent Transmission Operator (ITO) model worked out by the Council - were  “second best.”  Ms Arana was optimistic that even if progress slows under the forthcoming French presidency of the Council, there will be time to reach final accord with the European Parliament before expiry of its mandate next year.

  Ana Arana - Videoclip 2

Building a Sustainable Energy Market: A Regulator’s View – Walter Boltz

  Walter Boltz - Videoclip 1

“A market requires the right framework to promote competition, efficiency, customer service and transparent price-formation.” Currently, however,  integrated companies “enjoy high margins and limit entrance of new players,”  Walter Boltz,  head of Austrian regulator E-Control,  told the audience. Mr Boltz expressed his doubts as to whether we are  “really on the right track with the third energy package,”  and would have preferred to see  “structural solutions”  adopted under the third package so as to ensure independence of transmission,  rather than  “behavioural remedies”  such as the alternative ISO and ITO models of TSO-unbundling.

As the new legislation will not be properly in place before 2011,  we need to pursue the ongoing regional integration initiatives,  which will dilute concentration,  but due to various uncertainties,  necessary investment is lacking in both grids and generation,  he said.  Although one aim of the legislation is that greater competition would mean lower electricity prices,   the European Commission has underestimated external factors,  including raw material costs,  he alleged. Moreover,  poor transparency means prices  “are not comparable and will not come down due to competition,”  hence a lack of consumer-confidence in the market.

If TSO-cooperation proves fast and effective, NRAs become really independent and work properly for market integration, and the Regulators’ Agency is set up quickly with relevant powers, the package might deliver. Otherwise a fourth package would be on the table soon, warned the Austrian Regulator.

  Walter Boltz - Videoclip 2

Panel Debate:  New EU Energy Market Package:  a Step in the Right Direction  ?

  Alan Svoboda - Videoclip 1

Alan Svoboda,  Executive Director of Sales and Trading at Czech power company CEZ,  echoed Jean-Pierre Hansen in underlining that “markets can’t function all by themselves:  the policymakers must set the right regulatory framework,  but they should not continually change the rules.”  He warned that  “unexpected shifts in regulation create policy risks which have to be factored into the electricity price”  and also discourage all but big players from investing in necessary capacity.

Given the continuing worldwide need to make use of coal-fired power,  carbon capture and storage (CCS) technology must be developed and deployed,  but is just too expensive to treat as a  “normal business investment” and should be promoted through public funding, perhaps even via a global investment fund,  he suggested.  In the current energy-climate dilemma,  nuclear power also provides a key solution,  he argued.
Alan Svoboda - Videoclip 2

Pieter Stieger - Videoclip 1

Pieter Stieger,  Group Commodity Head of Energy at paper and packaging group Mondi,  stressed that the electricity market rules should be designed to avoid conflict between sustainability and competition.  He especially liked the proposals in the third package for a Regulators’ Agency as  “supra-national cooperation is very important”  if cross-border investment is to be achieved.

Mr Stieger argued in favour of competitive markets, but as an energy-intensive business,  Mondi needs  “rules that allow us to perform on the global market.”  As the EU emissions trading scheme is now factoring a CO2 price into the electricity price,  some global competitors now have  “the same carbon footprint but a different cost-base,”  he said.  Looking at the  “iron triangle”  of competitiveness,  security of supply and sustainability,  Mr Stieger underlined that consumers have an important role to play in increasing energy efficiency across the economy.

Pieter Stieger - Videoclip 2

  Pierre Bornard - Videoclip 1

Pierre Bornard,  Senior Executive Vice President of French transmission operator RTE,  and Chairman of the steering committee of European transmission operators’ association ETSO,  pointed to the huge investments needed in grids – innovative research and development as well as actual construction – in the coming years,  stressing that  “regulators must realise that you can’t decrease transmission tariffs for ever”  if you want to develop the infrastructure.  Meanwhile local opposition to new lines, especially vital cross-border links,  is blocking authorisation.  Moreover,  integrating the vast amount of expected new renewables-based power into the networks poses a real challenge.  “TSOs are committed to delivering innovation to meet the challenges of sustainability and growing demand,  but integrating markets and grids needs guidance at EU level, ”  he underlined.
Pierre Bornard - Videoclip 2

Gunnar Lundberg - Videoclip 1

After a majority of the audience expressed the view in a round of electronic voting that the European Union is  “not properly equipped to address the triangle of competition, sustainability and supply security,”  and that national control is the biggest factor holding back market development,  EURELECTRIC Markets Committee Chairman Gunnar Lundberg pointed to the lack of European mindset.  He regretted that the current debate on the proposed third package of energy market legislation is focussing too much on how to unbundle transmission and not enough on how to drive forward European market integration. For example, the Council of Energy Ministers is reluctant to agree a strong Regulators’ Agency.  “National interests are still very strong and politicians are struggling to grasp that the best way to achieve both sustainability and competitive prices is through a functioning, integrated market. If we are really aiming at a single energy market, we need strong common political action,”  he stressed.

Pending full implementation of the new legislation,  which would take until around 2011,  the ongoing regional initiatives would be a vital source of progress and the electricity industry is fully committed to driving these initiatives forward,  stressed Mr Lundberg.
Gunnar Lundberg - Videoclip 2

Walter Boltz underlined that when it comes to integrating markets there will be winners and losers in the short term and therefore there will always be some resistance,  but in the long run this is the right way.  Total self-regulation will not work,  and it is therefore vital to create a set of clear rules in a top down approach.

Guy Farmer - Videoclip 1

Guy Farmer,  Managing Director of Citi Global Markets,  pointed out that electricity company share prices rose in recent years on the back of rising power prices but that there is now less upside opportunity and share prices are dropping off somewhat. The financial community is ready to invest in companies pursuing renewable energy projects and also views established non-carbon-emitting generation – such as nuclear and large hydro – favourably,  marking down the shares of companies with mainly coal-fired generation. However,  there now appears to be increased focus on regulation and nationalism,  which makes markets more opaque and deters investors,  warned Mr Farmer.

Guy Farmer - Videoclip 2

Session II >>