Joint Eurogas-EURELECTRIC Conference
“Can Europe finance secure and clean Energy in the future?”
- Impact of the current economic and financial challenges on the energy agenda -
26 May 2009
Hôtel Renaissance, Rue du Parnasse 19, Brussels
Roundtable I – How to finance secure energy supply for Europe
Jonathan Stern, of the Institute for Energy Studies at Oxford University, moderating the first roundtable discussion,
outlined various predictions of when economic recovery in Europe can be expected – cautiously predicting slow growth from 2011, with
a return to the 2007-2008 level of energy demand around 2012. The key question for investment projects is
“will they be in the money
or out of the money when they come on stream,” Mr Stern
stressed, warning that a number of projects coming on stream this
and the following year will be “definitely out of the money”.
Domenico DISPENZA - Videoclip
 Continuing on the same theme,
Domenico Dispenza,
President of European natural gas sector association Eurogas, confidently told the
audience that “new gas supply projects are still viable in the current context”,
providing that “the ingredients needed for a good supply project” are present.
As to what projects qualify as “good gas supply projects in general and in a credit-crunch in particular,”
Mr Dispenza listed a number of criteria. They must be strictly market-oriented; take into account the long term prospects; be based
on sound technologies; satisfactorily accommodate the multitude of stakeholders involved; and they must enjoy strong political support.
Moreover, where the project is carried out as a regulated monopoly activity, the regulatory framework must allow
“an acceptable rate of
return for investors,” he underlined, pointing to a
“residual lack of clarity” which still exists on some important issues, such as the relation between investment discretion and the obligations of project sponsors.
Herman DEETMAN - Videoclip
 Herman Deetman, Managing Director and Head of Utilities for Europe,
Middle East and Asia, at the Deutsche Bank, began by looking back
to the recent past when the big players’ capital expenditure programmes
were so lavish that it looked “as if we were going to end up with gold-plated power lines”.
But “we are now in a very different world,” he said, as companies seek to
significantly reduce their levels of indebtedness. The cost of capital has increased quite dramatically,
thus changing the cut-off point for investment projects, and there is an “additional element of uncertainty”
as to the availability of debt finance in the markets, which means that the big players are tending to postpone
or withdraw investment projects. In the same way, energy players have lost their appetite for leveraged takeovers - European utilities
are showing “no significant desire for any major debt- financed acquisition,” Mr Deetman told the conference.
He also pointed out that €30 - 40 billion worth of energy assets are expected to be sold off in the near future as companies strive to reduce their levels of indebtedness,
a trend which will impact the investment climate.
In this difficult climate, Mr Deetman raised the question of whether subsidy regimes, which are
“relatively more favourable” to renewable energies, need to
be extended to other technologies as well.
Michael LÄNGLE- Videoclip
 Michael Längle,
Chief Financial Officer of EVN, who chairs both EURELECTRIC’s Focus Group on Finance and Economics
and the Eurogas Taxation Group, outlined the current challenges facing the energy industry.
They include increased volatility in the market, lack of short-term liquidity and long-term financing,
and a reluctance on the part of the banks to lend money. Despite these negative impacts,
Mr Längle expressed the belief that companies can still proceed with their investment models,
continuing their investment activities and undertaking new ones “if the relevant framework conditions are appropriate and if -
and this is the most important thing – they are sustainable”. He echoed Eurogas President Domenico Dispenza on the need to invest in “good projects”,
stressing also the critical importance of a regulatory framework which provides both certainty and sufficient rewards to investors.
On the issue of financing, he welcomed the Economic Recovery Programme outlined by EU Energy Commissioner Andris Piebalgs,
but called on the EU financial institutions - the European Investment Bank and European Bank for Reconstruction and Development -
to play a more proactive role by providing much-needed liquidity and also sharing the risk with investors where necessary. Meanwhile member state governments also have scope
to act by providing guarantees for company loans and/or granting temporary tax incentives to stimulate investment activities,
Mr Längle pointed out.
Wolfgang PETERS - Videoclip
 Wolfgang Peters,
Chief Origination Officer for Gas at RWE Supply and Trading,
reminded the conference participants that 80% of Europe’s energy will still come from conventional sources in the near future.
Clean energy “does not only include renewables,” he argued, pointing out that
“gas is the lowest emitting fossil fuel” and is also “an enabler”
for wind energy, providing stability to the system. Looking at the current business and investment climate,
Mr Peters stressed that even if energy demand remains flat in Europe, investments spread over the next decades will certainly be needed to meet it.
“So long as sound economics carry these projects (…) there should be no concern about financing (…) and I do believe that lenders will be quite interested in lending the money required,”
he said. There may be some delays, but “energy is not an ailing industry,” he told the audience, pointing to huge investments in pipelines in and toward Europe,
off-shore wind parks and grid reinforcements, which are going forward despite the crisis.
When it comes to energy security and cooperation with non-EU supplier countries,
we “do need support at a political level,” he said, but stressed the need for a “healthy division of labour,”
- ie commercial contracts should be managed by the companies themselves, not governments, Mr Peters insisted.
Victor TUNON - Videoclip
 Victor Tunon,
Executive Director for Worldwide Gas Business at Spanish group Gas Natural,
presented the view of the energy sector in Southwest Europe,
where the most important priorities are to end the region’s relative isolation by achieving interconnection with
the continental European system, develop an internal market with neighbouring countries in the region,
and build underground storage capacity so as to increase supply security. One of the biggest obstacles
to realising these investments is the issuance of permits, a too-lengthy process that needs to be simplified, he argued.
Moreover, greater support is required for the development of new technologies, the development and deployment of existing ones,
and the training of technicians to undertake these projects. Mr Tunon also underlined that
“political support to companies by the European Union is very important in a global context”
where EU firms have to compete with big companies “that are supported by their governments and are often nationally owned”.
Ian CRONSHAW - Videoclip
 “Development in the energy sector was not sustainable at a business level, certainly not at an ecological level nor at an affordability level.
We were not seeing enough investment right through the energy sector in oil, power, gas or anywhere, and we were certainly not seeing enough diversity,”
Ian Cronshaw,
Director for Energy Diversification at the International Energy Agency (IEA), told the audience,
as he described the situation prior to September 2008. So “we already saw an investment climate that was in trouble”
even before the crisis, he pointed out. In the current situation, “companies with good, strong balance sheets are still investing”, but
“anybody who has a big, complex, long-term project like liquefied natural gas or nuclear plant is going to struggle within the next year,” he warned.
Meanwhile electricity demand in the OECD fell in the first quarter of 2009 by 4.9% on a year-on-year basis.
According to a recently-published IEA report, global electricity consumption could drop by as much as 3.5% in 2009,
representing the first annual contraction since the end of the Second World War. Nevertheless, “what worries me slightly is the asymmetry between demand and supply”
if demand comes back fairly quickly, he said. As for the current pleading for special subsidies due to the crisis,
Mr Cronshaw doubted whether the energy sector is worse off than other sectors, such as the automobile industry, but nevertheless agreed
that there is certainly a need for governments to support energy efficiency, demand-side management, renewables and carbon capture & storage as
“it is going to be very hard to get investments in the big demonstration projects that we need for that” , he acknowledged.
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