EURELECTRIC ANNUAL CONFERENCE 2005:
"POWER FOR EUROPE: CAN WE SHAPE THE FUTURE?"

SESSION II: FUTURE POLICY-MAKING:
"CAN THE CIRCLE OF COMPETITIVENESS BE CLOSED?"

“Competitiveness, growth and jobs are the key priority” for EU industry and enterprise policy under the “Lisbon Agenda” and “enhanced competitiveness will in turn allow us to achieve our social and environmental ambitions” Heinz Zourek, Deputy Director-General at the European Commission’s Directorate-General for Enterprise, told the audience. In his presentation, Mr Zourek set out to show delegates “what the European Commission is doing” in its drive to update the Lisbon Strategy for greater competitiveness, and to “secure your support” for a streamlined approach to EU regulation that is intended to “modernise, not destabilise, our European system”. Noting that the recent mid-term review of the ten-year 2000 Lisbon Agenda had “not been encouraging” and that the EU “is not delivering on its ambitions for growth and jobs”, Mr Zourek explained that the Strategy had now been shifted from the previous approach where there were “so many areas and priorities that it was becoming increasingly difficult to know what the true priorities were” and “refocused on the criterion of growth and jobs”.

A “partnership approach” is required, in which EU Member States identify their national priorities and synergies are sought at EU level. However the four overarching aims are to extend and deepen the Internal Market; improve EU and national regulation; ensure open and competitive markets; and improve infrastructure, he told delegates. The Commission’s drive for “better regulation” unveiled in March seeks to cut red tape by amending or withdrawing some EU legislation, strengthening the impact assessment system and setting targets and deadlines for the programme of simplifying EU laws. This should not be seen as “de-regulation” but implies taking a “critical look” at legislation and assessing whether the aims can be better achieved by other means, stressed Mr Zourek. He also identified research as a key priority. While the EU-25 spends under 2% of its GDP on R&D, compared with 2.6% in the US and 3.1% in Japan, the difference is largely accounted for by lower industry-financed research in the EU, he pointed out.

Pointing out that “competition in the energy sector was introduced to help improve the overall competitiveness of the European economy”, but that the electricity industry is now “sandwiched between expectations from customers and policy-makers on the one hand and taxation, levies, costly support schemes and higher fuel prices on the other”, EURELECTRIC Secretary General Paul Bulteel offered the audience a four-point Roadmap to Improved Energy Regulation and Competitiveness. Under point 1, he welcomed the European Commission’s renewed focus on the Lisbon Strategy and in particular the prioritising of prior impact assessments for any new piece of industry-related legislation. Point 2 calls for a new “beyond Kyoto” approach to climate change action which involves wide international cooperation and an end to the situation of “Europe going it alone”. Point 3 demands a review of the broad regulatory framework that includes, in addition to the liberalisation package, legislation on climate change and other environmental goals, energy efficiency, renewable energy sources, combined heat & power, plus taxation. Mr Bulteel called for a “bolder programme for better regulation, in terms of properly integrating environmental objectives into a competitive electricity market”. Consistency, market-orientation and a “least-cost” approach to such measures as support schemes for renewable energy technologies are essential components of the new approach, he told delegates.

Stressing point 4 – the need for greater recognition of the role of electricity in the modern economy, including its overall contribution to energy efficiency and sustainable development - Mr Bulteel underlined the need to distinguish between the key priorities of society (the “key drivers” – which are currently climate change issues, fuel dependency and the imperative of economic competitiveness) and secondary objectives and derived targets ( the “toolbox”). He offered a possible approach to reaching key goals through a “rainbow trading” system which would keep separate CO2 and RES certificate trading, but make them interchangeable via conversion factors allowing market arbitrage.

The electricity industry took the lead in analysing the mechanism of CO2 emissions trading through the GETS simulations. Now perhaps the industry should once again take the lead in analysing this “rainbow trading” approach, suggested Mr Bulteel, also stressing the need for broad cooperation to bring the positive role played by electricity back on to the policymaking agenda. He quoted from the Vienna Declaration adopted on 12 June: “expectations of an energy-efficient, low carbon, energy secure and competitive economy can and should be met by further electrification”.
 

“European power markets are undergoing major structural changes”, Martin Roman, CEO of Czech major CEZ reminded the audience, but argued that “the regulatory framework is not consistent as it tries to balance several diverse objectives”. He described the two major issues that must be addressed to complete the transformation of the European power market as “removing remaining barriers (both technical and administrative) to cross border trade so as to allow further progress in the integration of national markets” and supporting new plants investments “to ensure competition in power markets, security of supply and to reduce environmental impacts”.

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PANEL DEBATE

UK Conservative MEP Giles Chichester, Heinz Zourek, Deputy Director-General at the European Commission’s Directorate-General for Enterprise, EURELECTRIC Secretary General Paul Bulteel, Martin Roman, CEO of Czech major CEZ, Walter Hohlefelder, Board Member of German energy major EON, Walter Boltz, Managing Director at Austrian energy regulatory body E-Control

For the panel session, chaired by UK Conservative MEP Giles Chichester, speakers were joined by Walter Boltz, Managing Director at Austrian energy regulatory body E-Control, and Walter Hohlefelder, Board Member of German energy major EON.

Mr Chichester argued that the “bottom line in all energy policy-making” is security of supply ie “keeping the lights on”. While a basic believer in the efficacy of markets, he acknowledged that “we do need a regulator to protect against monopolies”, but questioned the role of the European Commission in the energy sphere. He also suggested that one of the fastest growing industries in the European economy is “the regulatory industry”.
 

Mr Hohlefelder stressed that “as a whole, liberalisation has been a success story”, though acknowledging issues around interconnection, where “there is perhaps some room for improvement”. However, efficiency and productivity gains achieved by the electricity industry - and thus some of the benefits of liberalisation - are being “eaten up by politicians imposing ever more burdens on the industry”. He calculated that some 40% of the current power price in Germany is accounted for by schemes to support renewable energy and other impositions. Similarly, the highest electricity price is actually to be found in the UK, “where they have the toughest regulator”, he insisted. He received the backing of a large section of the audience when he said that “regulators should confine themselves to scrutinising the regulated businesses – notably distribution and transmission - and not get involved in power generation prices”.

Mr Boltz countered that “in general, it is not possible to distinguish between the generation part of the grid and the rest” as they are “too integrated”. Faced with calls for more regulatory certainty, Mr Boltz argued that “there are just as many uncertainties in other industries”, so that it is difficult to see why the energy industry should be “protected”. He explained that “the problem we are now facing is the patchwork of legislation and the lack of implementation of the electricity directives”, with the result that “the wholesale markets are patchy”.

On the question of market power and the role of the vertically-integrated model, Mr Hohlefelder argued that “not only small is beautiful, but big companies also have a role to play in a competitive Europe”, explaining that “we need strong large companies to come up with the 500 GW of capacity needed over the next 30 years”.

In a broad debate over the sheer complexity of the energy-environment interface, Mr Bulteel agreed that there are a lot of uncertainties that cannot be precisely catered for, but maintained that “there is a way towards a long term approach to improving the energy framework” in the light of the three key issues of competitiveness, security of supply and climate change, taking account of the important role of new technologies in finding solutions to the problems”. The required approach should be based on “keeping things simple” and “going back to basics”, he argued.