Highlights of the 2009 EURELECTRIC Annual Convention & Conference

SESSION I: DECARBONISING POWER - DECARBONISING EUROPE

“We have a new administration, with democrats holding the majority in both chambers, and a supreme court judgment stating that lowering carbon emissions is feasible through the Environmental Protection Agency without new legislation. It’s not about time, it’s just the right time to address climate change,” Jeff Sterba, Chairman, President and CEO at PNM Resources Inc. told the audience as he gave an overview of developments in the USA towards tackling climate change. He stressed the need for a reliable carbon price to foster resources management, clean energy, smart technologies, and green investments. However the big issue still to be addressed is the assessment of economic costs, particularly identifying who should bear the cost of moving to a green economy. The regional impact of electricity price increases, given that 27 of the 50 states are over 50% dependent on coal-fired power, is a highly controversial issue, he stressed, adding: “We need to find the way to do it smartly, so as to minimise impact on consumers.”

He also highlighted the main aspects of the Waxman-Markey bill, currently under discussion in the US. The bill would provide for a reduction in greenhouse gas (GHG) emissions of 17% by 2020 from 2005 levels, equivalent to a 5% cut on 1990 emissions, through a cap-and-trade system similar to the EU Emissions Trading System (ETS). Apart from the regional economic impact and related re-distributional effects, there is also now scepticism regarding financial markets – leading to calls for a carbon tax - regarding the use of offsetting mechanisms and also regarding the commitment from developing countries in reducing carbon emissions.

“If we delay our actions, our cumulative emissions will require steeper reductions and lead to higher costs”, said Artur Runge-Metzger, Head of Unit for Climate Strategy, International Negotiation and Monitoring of EU Action at the European Commission’s Directorate for Environment, emphasising the role of the EU in addressing climate change and inviting the US administration to follow in making substantial commitments to reduce GHG emissions. Analysing the situation in the EU, where “growing imports of fossil fuels and an ageing power fleet represent a challenge, but also an opportunity to move to a decarbonised Europe”.

He stressed that the current financial crisis poses several questions to be carefully addressed. With rising unemployment, the impact of rising electricity prices might be of great significance. Meanwhile it is difficult for electricity companies to find a way forward in promoting new investments, given their reduced cash flow and current low carbon prices. “Nevertheless, the power sector has to play the main role in reducing carbon emissions and we, the public sector, have high expectations on you delivering this objective”, he stressed, arguing that, up to 2030, with proper demand side management and distributed generation no excessive costs would be incurred. Moreover, there is still significant potential to be exploited in the promotion of energy efficiency, which would reduce overall demand for energy. “Increasing investments in clean energy now can further stimulate the EU economy. There is no need to delay investments in low emission energy infrastructure”, he concluded.

The electronic audience voting session that followed the two opening speeches provided interesting insights for the following debate. More than half the participants saw decarbonising as an asset rather than a liability, confirming the growing trend registered at the Annual Conference in previous years. Moreover, almost three quarters of the audience saw the EU Emissions Trading Scheme (ETS) and a global carbon market as a more cost-effective way to meet carbon reduction objectives than a carbon tax. The audience was however divided in identifying the main driver for investment decisions in low-carbon power generation - the price of CO₂, the long-term predictability of the cap and return on investment receiving almost equal votes in the survey, although the first of the three came out slightly on top. Finally, the audience was totally divided in assessing whether the EU’s various announcements on CO₂ reduction targets and the continuation of the ETS offer sufficient predictability to make long-term investment decisions.

Panel debate

Session I Panel Debate - Videoclip

For the panel, chaired by Michael Grubb, Chief Economist at The Carbon Trust, the speakers were joined by Bill Kyte, EURELECTRIC’s Chief Advisor on International Climate Policy, Owen Wilson, Chairman of the EURELECTRIC Environment and Sustainable Development Policy Committee, Alan Svoboda, Executive Director for Sales and Trading at the CEZ Group, and Christian Egenhofer, Senior Research Fellow at Brussels-based think-tank CEPS.

Michael Grubb opened by asking speakers what else needed to be done to allow the electricity sector to move to carbon-neutrality, taking into consideration the need for investments in new power generation and infrastructure, and the problems related to planning authorisations and social acceptance.

Alan Svoboda stressed that the fuel mix should have a stronger focus in the debate: while promoting new renewable sources and capturing and storing carbon from fossil fired plants are high on the political agenda, we shouldn’t forget that nuclear power will also be a critical part of the solution by 2050. We should look along the cost curve and see where cheaper action can be undertaken, he argued, underlining that subsidies, particularly for renewables, tend to distort the picture for company investments.

“Electricity is the key to a low carbon world”, said William S. Kyte stressing the importance of the agreement to establish an International Electricity Partnership reached last year in Atlanta between electricity companies from main developed countries. “Electricity has delivered carbon reductions through energy efficiency and fuel switching, but we’re still at an early stage: only after 2020-2025 will we deliver major reductions through new technologies, such as CCS, nuclear and, large scale renewables, and also through the higher penetration of electricity. We should be sending out a clear message: electricity is the key to the energy future!”

Owen Wilson focussed on the predictability of the regulatory framework. “The longevity and trajectory of the EU ETS are critical conditions, but not sufficient”, he said. He also reminded the audience that the upcoming Directive on Industrial Emissions would have a tremendous impact on technology deployment and lead to plant closures, while delays in the availability of CCS and social acceptance for nuclear risk could heavily impact on the ability of the electricity sector to meet demand. “There is a risk of new investments being stranded at some moment in the future”, he warned.

Looking at the resurgence of interest from some quarters in promoting a carbon tax rather than cap and trade systems, Christian Egenhofer said: “We should give some time to the ETS to deliver before coming too fast to the conclusion that emission trading will not deliver”. Regarding the US debate over cap and trade, he highlighted how technology transfer and offsets have the power to decarbonise economies in developing countries.

Commenting on recent research on price floors, he expressed his doubts over the political feasibility of such an option and whether this would really add more certainty to the system, with the danger of ad hoc intervention by governments in the market. He also commented on renewables, stating that subsidies cannot be justified for CO₂ purposes only: the aim is to get them massively deployed, thus lowering costs.

“Price volatility and uncertainty over long term prices are certainly important, but having a long-term predictable cap is crucial”, said Jeff Sterba. He stressed that a firm commitment to long-term predictability is crucial for investment.

Mr Svoboda pointed out uncertainties linked to the current regulatory framework. In particular, he questioned whether the carbon price would be allowed to rise sufficiently high to allow marginal technologies to deliver carbon-reduction, irrespective of the social consequences that this would create. “There is a risk that the carbon price will not deliver the right investment signal”, he concluded.

Bill Kyte followed up by stressing that “politicians should come out very strongly on expected demand and supply, and discuss with the industry how to match such expectations”. Addressing questions from the audience, he clearly stated the importance of treating electricity as a sector exposed to competition, therefore there should be no reason for discriminating against the sector in favour of cement or steel. Trading in renewables would allow the EU to meet its RES target more cost-effectively, he pointed out.

Following up the discussion on renewables, Mr Wilson commented that, although he saw a vital role for RES in the energy mix, there is a need to clearly assess the stability of the system and the extra costs related to accelerated RES deployment. He stressed the need for major investments in the electricity sector, especially when looking at the penetration of electricity in other sectors. “We have to move forward, with the need to integrate the view of policy-makers with the industry in reducing carbon emissions”, he concluded.

Mr Runge-Metzger commented on subsidies for renewables, underlining that it could be argued that the cost of subsidies contained the carbon price plus a “premium for energy security.” He confirmed that there would be no retreat from the 20-20 targets and stressed the strong opposition from the European Commission to the introduction of floor prices in the carbon market, as this would bring additional costs to the system while increasing uncertainties in the market.