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 II – How to Finance the European Energy-Climate Package?
“Who pays and who bears the costs” of meeting the various goals and targets set out
on a deadline of 2020 in the EU energy-climate package are key questions in ensuring the necessary action is
undertaken, underlined Matt Brown, Senior Director at Pöyry Energy Consulting, moderator of the second roundtable session,
before giving the floor to the panellists.
Hans TEN BERGE - Videoclip
 “It is crucial that electricity companies remain able to keep on their investment
trajectory despite the current financial crisis,” stressed EURELECTRIC Secretary-General
Hans ten Berge, pointing to the
consistently pro-active attitude demonstrated by the European electricity industry to the twin challenges of achieving
carbon-neutrality and maintaining supply security. This was most recently embodied in a Declaration issued by some 60
European electricity CEOs on 18 March, expressing their intention to work towards a carbon-neutral power supply in Europe
by 2050, delivered through an integrated electricity market, coupled with low-carbon and energy-efficient electricity
applications on the demand side, he reminded the audience. However, Mr ten Berge pointed to some serious inconsistencies
in the demands made by the energy-climate package, which will tend to increase the cost of meeting the targets – a cost which
“at the end of the day must be borne by the consumer”. Mr ten Berge underlined that
“if you specifically favour renewable energies,
if you require that one electricity customer pays for his CO2 emissions while another receives allowances to emit CO2 free of charge,
and if you discriminate between Member States,” then you will not achieve an integrated European Energy Market that will provide the
“optimal environment” for making the necessary investment decisions, he warned. “If you want supply security plus a clean environment
and you set a framework for achieving these aims through regulation, then you must be consistent in implementing that regulation” was
his concluding message to policymakers.
Dominik THUMFART - Videoclip
 “We can only reach the 2020 targets if there is a major wave of investments,”
Dominik Thumfart, Managing Director of Asset Finance & Leasing at Deutsche Bank, told the conference,
going on to identify the key obstacles to these investments. Echoing other panellists, he pointed to
the general lack of liquidity in the financial market; more restrictive lending standards and investment
criteria; higher project-consenting risk; regulatory risk posed by shifting government policy; technology
risk; merchant risk arising from differences in national regulation, notably as regards subsidies; and the
fact that “some of the sponsors display a fairly unrealistic view of what is achievable in the current market
environment” as they are in the “pre-2007 project mindset”. A lot of the current projects, particularly off-shore wind,
will require greater equity participation as opposed to debt-financing – which means you have to be able to provide
the right incentives to attract equity investors, Mr Thumfart underlined. This could be achieved by a variety of methods
including raising feed-in tariffs, setting a floor-price for green certificates, offering higher premiums over the
electricity market price or simply granting tax breaks, he explained.
Estanislao REY-BALTAR - Videoclip
 “As a developer of renewable energy, I am very confident that we have a clear, long-term goal towards clean and renewable energy,”
Estanislao Rey-Baltar, Deputy CEO at Iberdrola Renewables, told the conference, adding that the long term development strategy of Iberdrola Renewables has not changed. It is true that although
“financial markets show an interest to continue investing in renewables, the amount of credit available and the rate of return required have moved against us”. However, renewable energies are better off than other sectors, Mr Rey-Baltar argued, as they are
“a growth engine and a driver for economic development.” Moreover,
“their lead-time is short, so they can help stimulate the economy faster than other sectors,” he underlined. Nevertheless, he pointed to the challenges ahead - renewables still have to reach the same level of competitiveness as more conventional energy sources and they will have to be fully integrated into the electricity system.
Florence FOUQUET - Videoclip
 “Green energy will not be free of charge”, warned
Florence Fouquet, Head of the European Affairs Department at GDF Suez,
as she reviewed the impact study published by the European Commission in 2008, which estimated the direct costs of the energy-climate package
at approximately 0.584% of EU GDP in 2008 based on assumptions such as a price of €40 per tonne of CO2. Since then the economic situation has undergone
a “drastic change”. Ms Fouquet told the audience that the limited and unclear provisions on cooperation mechanisms set out in the new Renewables
(RES) Directive, coupled with the absence of a framework for a real and effective liquid market in guarantees of origin for RES-power constitute serious
weaknesses that will make it hard to meet the targets in the most cost-effective way. However, she approved of the dedicated funding mechanism based on
emissions allowances from the emissions trading scheme (ETS) to be provided for carbon capture and storage (CCS) technology, which
“could be an efficient
way to proceed if it is well implemented” and if “a significant part of the revenues” earmarked from the ETS allowances for RES and CCS are dedicated to it.
To stimulate energy efficiency, consumers must be given economic incentives, such as tax reductions for energy efficient households, she argued, while warning
nevertheless that: “artificially low energy prices will not boost energy efficiency”. In conclusion, Ms
Fouquet called on the European
Commission to draw up a review of existing financing mechanisms and provide specific advice to investors.
Mr Vittorio d’ECCLESIIS - Videoclip
 “It is not only the financial crisis, it is also the very bad timing of this financial
crisis, which happened to occur right in the middle of one of our sector’
s biggest ever investment phases,” said Mr Vittorio d’ECCLESIIS, Risk Office Director
at Italy’s Edison group. Another problem is that the crisis has affected not only access to
credit, but also seriously increased the risk profile of the industry, he explained. Moreover,
“there is also credit risk on the consumer side,” some consumers in financial distress finding it
hard to pay their electricity bills. However, the need to respond to the crisis must not change our overall objectives, he stressed.
“We have to invest in low-carbon technologies now to get the benefits tomorrow when we have to comply with the targets.
” Responding to a question from the audience, Mr d’Ecclesiis explained that while volatility can provide a healthy market signal,
“excessive volatility is clearly jeopardising the investment phase” and volatility that is basically caused by excessive speculation,
regulatory risk or market failure due to lack of liquidity in the market is certainly the negative kind, he added.
Looking at cures for unwelcome volatility, he pointed out that an integrated market free of network congestion would reduce the volatility of power prices in Europe,
while oil price volatility could be reduced by sharing the cost-burden of building spare capacity, as had been suggested earlier in the discussions.
Piotr TULEJ - Videoclip
 “There is definitely no indication that the European Union targets will be revised”,
Piotr Tulej, Head of Unit for Energy and Environment at the European Commission,
told the conference as he reviewed the various legislative texts which make up the energy-climate package, adding that the Commission has tried to create the most
cost-effective system possible for meeting the targets and it is now up to the Member States and industry to exploit the opportunities available.
As regards investment in low-carbon technologies, “we see the need for close collaboration between the public and private sector not only on the
EU level but also on a regional level”, he underlined. The decision to earmark funding based on 300 million allowances under the ETS new entrants reserve
– worth some €4 billion - “will provide a very good incentive for the industry to step into the development of CCS” and also to demonstrate renewable energy
technologies “still on the threshold of the market that have not yet been demonstrated.”
"Yes, we believe it’s possible. We are talking to the Member States and we are happy to talk to the industry on how to make it happen,”
concluded Mr Tulej.
Returning to the question of who will pay for energy-climate action, Mr ten Berge argued that the only ones currently paying the bill for decarbonisation are the electricity industry’s customers. He again pointed to the inconsistencies across Europe. Some major industries will continue to obtain free of charge their allowances to emit CO2 under the ETS after auctioning is brought in after 2013 - we have
“negative carbon leakage because money is being transferred from the electricity industry towards cement, steel and aluminium,” he argued. Moreover, some member states have negotiated a phase-in period for the auctioning of carbon allowances under the ETS, while others must introduce full auctioning for the power sector as from 2013.
Mr Tulej responded that these measures are intended to be transitional and that
“the freebee’s will not be handed out forever,” - the overall aim being to achieve a global carbon market.
The panel were finally posed the difficult question: “If you had one billion euro to invest in a clean energy technology and you could not invest in a portfolio of options, which one would you choose?”
Ms Fouquet chose nuclear power, Mr Thumfart would bet his money on off-shore windpower, while
Mr Rey-Baltar felt that on-shore wind with good geographical diversity in Europe and in the US was the best option.
Mr d’Ecclesiis would invest in gas to power and would also invest in nuclear energy in Italy if government policy makes this a possibility in future. Both
Mr ten Berge and Mr Tulej would invest in carbon capture and storage technology, which will help to
“build a bridge to the future,” argued Mr Tulej.
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