Opening the conference, Fulvio Conti, outgoing President of EURELECTRIC and CEO of Enel, stated that he was proud of having been EURELECTRIC President for the past two years. There was a need to speak with one voice towards the EU institutions and to focus activities on a few key priorities. He was handing over the Presidency with a legacy of priorities that could be described with the equation 3i plus e: investability of the sector, integration of markets to achieve cost-efficiency and affordable prices, innovation to unlock efficiency gains, and environment, with the EU Emissions Trading Scheme (EU ETS) as the key driver to reducing emissions. "EURELECTRIC's recent Power Choices Reloaded study shows that we cannot afford a lost decade," he concluded.
In his welcoming words, Virginio Merola, Mayor of Bologna, outlined the key role of local communities as the protagonists for sustainable development and economic growth. Bologna was firmly committed to reaching the target of 20% CO2 emissions reduction in 2020. The municipality had therefore adopted an action plan for sustainable energy, he said, while presenting recently set-up examples of the urban lighting system, electro-mobility and photovoltaic projects. Further collaboration between public and private energy companies would be necessary to convert the city of Bologna, and European cities at large, into green, energy-efficient economies that provide a high quality of life to citizens, he added.
Gian Carlo Muzzarelli, District Council Member of the Region Emilia Romagna, highlighted the region's special focus on energy efficiency and innovation. "We strongly believe in the 20-20-20 targets and we have objectives that are more ambitious than burden sharing." He also underlined the importance of cooperation in order to develop national strategy and raise awareness of citizens. "Being green does not mean being the jewel of somebody's crown, but being the seed of change," he said. Most municipalities in the Emilia Romagna region have also signed up to the Covenant of Mayors, a European movement of local and regional authorities who have committed themselves to increasing energy efficiency and the use of renewable energy sources on their territories.
Flavio Zanonato, Italian Minister of Economic Development, highlighted differences between the difficult situation of the energy sector in Europe and the dramatic changes taking place in the USA. Europe had to learn from the US as a country in which both carbon emissions and cost had decreased. "We must reflect on this current situation in which it is cheaper to use coal than gas," he said. He asked for openness towards new initiatives like shale gas that could allow Europe to produce energy cost-efficiently and diversify energy sources at the same time. New CO2 reducing technologies could be of help. To this end, he called for common efforts promoting research and innovation.
"The cost of energy is fundamentally important for the competitiveness of our industrial system," stated Antonio Tajani, European Commissioner for Industry and Entrepreneurship. Energy policy that allowed Europe to be more competitive was one of the crucial points, together with reducing taxes on energy: European industries paid twice as much for energy compared to the US and three times as much as China. As a result, a number of industries were at risk of disappearing from Europe. "We want to keep being leaders in the transition to the low carbon economy - but not to the detriment of industry," he said. Long-term contracts between power producers and industrial customers could be a possible tool, as could more Europe in energy policy.
Fulvio Conti, outgoing EURELECTRIC President and CEO of Enel, opened his speech by stating that energy markets were being side-lined by inconsistent politics and regulators, resulting in extra costs for consumers. This development did not reflect the importance of electricity as a cleaner, more efficient and smarter energy vector. The European Commission must go back to the drawing board and develop a system approach to energy policy, consisting of the following elements: a 2030 framework conducive to greater investment; the EU ETS as a key driver requiring an urgent fix; faster market integration and bringing renewables into the market; reformed renewables support schemes; and unlocking innovation potential.
Masayoshi Kitamura, CEO and President of Japanese power utility J-Power, pointed out that after the Fukushima accident, Japanese oil and gas usage had rapidly increased to make up for declining nuclear power generation. The fuel cost for power generation had increased by more than 30 billion USD in 2012. The accident had also triggered the Japanese government to set up a review of the electricity system, he said, pointing to its ambitions of full liberalisation of retail markets, the separation of transmission and distribution grids and the abolishment of tariff regulation by 2020. To curb increases in fuel procurement costs and electricity prices, the government was now also supporting the building of new coal-fired power plants. But Japan's energy strategy should aim for a well-balanced, diversified portfolio, including nuclear and renewables, he concluded.
The panel debate was introduced by electronic voting among the audience, presented by Serge Colle, Head of Accenture Utilities Practice - Austria, Switzerland, Germany. The results showed half of the audience believing that the US had the most successful energy market strategy, followed by Europe (31%) and China (17%). However, more than 80% thought that EU energy policy had fully or partially pursued the right overarching strategy. Two thirds believed that it would not be easier to go back to a regulated non-competitive industry. As for greenhouse gas mitigation, nearly 40% saw renewables as the most important option on the supply side over the next decade, followed by about 25% each for nuclear build-up and a switch from coal to gas. Only about 10% preferred carbon capture and storage. Panellists used this input to discuss Europe's low-carbon energy strategy, including the struggling EU ETS.
Peter Terium, CEO of German utility RWE, stated that it was a mistake not to have built a flexibility mechanism into the ETS in case of an economic backlash. Two steps were needed to fix this: rapid agreement on a 2030 decarbonisation target to incentivise investments, and a more dynamic path for the ETS based on economic growth and the expansion of renewables - not on quarterly political decisions. He underlined that markets - not civil servants - provided the best way to choose among the many energy investment options. However, with a high amount of RES (20%), the energy-only market based on a kWh logic did not work anymore. "The electricity industry delivers a service to customers, not just kWh," he explained.
Discussing the future energy mix, Dick Benschop, Vice President Gas Market Development and President Director for Shell Netherlands, said: "I see a certain logic for a combination built on energy efficiency and gas. The role of nuclear is the most political one depending on national discussions." Mr Benschop also emphasised the need to focus on the reform of the EU ETS in Europe: "The carbon market is clearly failing as the price signal is not there." He saw a combination of ETS reform and a strong CO2 target as key in this respect. He also called for the need to "be more honest about prices and costs" and to adequately reward CO2 savings made by the industry.
Fabien Roques, Head of European Power and Carbon Research at IHS CERA, stressed that we had to rethink how to define well-functioning energy markets. The EU ETS had to become the primary driver, with some supply adjustments. He agreed with Mr Terium that today's electricity system based on marginal pricing no longer works with renewables, stating that price signals for flexibility and capacity are needed. "You have to put the competitive pressure on the side where it matters, which is the capital investment," he concluded.
Don D. Jordan, former CEO and Chairman of Houston Industries (Reliant Energy), told the audience how "the magic" of shale gas and oil that hit the US had changed the whole energy strategy of the country, resulting in investments in gas power generation and plans regarding gas liquidification and its transport to other parts of the world. Recognising that many other countries did not have the same advantages, he therefore stated that "you have to find the strategy that fits to your particular country." He also expressed certain doubts about how much customers could benefit from retail competition: "You would have to be a Nobel prize winning mathematician to pick the best rate."
Fulvio Conti, outgoing EURELECTRIC President and CEO of Enel, criticised "juicy subsidies" that were creating distortions on a national or even municipal level. He also expressed his concern that taxes and levies on electricity were going up while electricity company share prices were falling and generation asset values were close to zero. Europe had to create a level playing field so that markets could function. While it was true that emissions were decreasing, it had to be noted that it was happening for the "wrong reason" - the reduced demand due to the economic down-turn. He called for the EU ETS to be restored to provide better incentives for investments.
Masayoshi Kitamura, CEO and President of J-Power, explained that electricity companies had the responsibility to contribute to global emissions reductions by "becoming technology-smart and using all available resources." He pointed out that Japan had its limitations to the energy mix, with no shale gas and restrictions to the use of land for the deployment of solar photovoltaic and wind. Japan's new energy strategy should be based on a well balanced portfolio that included renewables, coal and nuclear energy, he argued.
Summing up the panel debate, António Luís Guerra Nunes Mexia, CEO of utility EDP and new Vice President of EURELECTRIC, concluded that the energy policy choices of the last decade regarding sustainability, competitiveness and security of supply had heavily impacted the energy sector. He stressed the need for a new system built on a model that provides both the right short- and long-term signals for investments. "The past was not wrong, but the paradigm change that is taking place today also requires the rules of the games to be changed," he said, adding that "firstly politicians and regulators need to understand what is happening. And that takes time."
The second session, moderated by Barbara Lewis, Senior EU Energy & Environment Correspondent at Reuters, focused on the energy policy challenges in an international context. Speakers shared views from Europe and China about the main challenges our sector will face in the next decade and sketched out some solutions.
In his keynote speech, Johannes Teyssen, incoming President of EURELECTRIC and CEO of E.ON SE, pointed to the EU Energy Summit of 22 May 2013 and the support of Heads of State and of Government to follow a market path in energy policy. Re- industrialisation of Europe requires governments to define coordinated and consistent energy policies, he said. But today, only old coal plants with a low efficiency rate and new renewables assets are running, whilst more efficient flexible plants were staying idle and the system stability was put at risk, he warned. Investment was not taking place because existing over-compensatory renewables support schemes had left investors risk-averse and unwilling to invest in non-subsidised technologies. "We are stuck on the crossroads and have not moved in any meaningful direction," President Teyssen concluded, stressing the need to unleash investment and innovation with a real European approach to energy policies. "Renewable and conventional generation both need to work together as friends instead of enemies to deliver a common product," he urged.
Baosen Zheng, Executive Vice President of the State Grid Corporation of China (SGCC), outlined the grid challenges against the background of a large country featured by a rapid and exponential growth in energy demand. The power production relies on low carbon emitting technologies, with renewables and nuclear amounting for a large part of the Chinese energy mix, thus providing a proper basis for the electrification of the Chinese economy. To this end, the electricity grid is based on a centralised, robust and intelligent model that has been designed to transport electricity over long distances and deliver large-scale electricity supply, he explained. To cope with the fast expansion of the grid, SGCC is investing 490bn USD in building the network infrastructure, of which 150bn USD are dedicated to the construction of electricity highways.
According to new EURELECTRIC Vice President Henri Proglio, Chairman and CEO of Electricité de France (EDF), the EU had to face three main challenges: reduce its energy dependency, protect its companies and households from rising energy prices, and fight against climate change. Electricity definitely had a key role to play in all of them, he said. As such it was the responsibility of power companies to come up with solutions. They had to work on four core fronts: keep costs under control; make innovation a central part of the future; make investment possible again; and give a price to CO2 that reflects the real costs of carbon abatement. "We do not want another lost decade. We need to turn the next ten years into the energy decade," he concluded.
Speakers in the ensuing panel debate tried to respond to the key challenge identified by the audience through e-voting: the crucial need to keep electricity prices affordable for industrial and domestic customers in order to restore Europe's competitiveness.
Stephen Woodhouse, Director at Pöyry Management Consulting Ltd, started the debate by stressing that the carbon price was an effective way to decarbonise in the short term but that ultimately a "bankable" CO2 price was needed. "When we get to the higher costs of decarbonisation, it gets trickier," he added.
Christophe Gence-Creux, Head of the Electricity Department at ACER, highlighted different challenges the electricity sector will have to tackle in the next decade in order to improve the investment climate. The first priority, he said, was to speed up and complete the integration of the internal energy market through market coupling across Europe, selection of the intra-day platform, plus the integration of the balancing markets. He thanked EURELECTRIC for its efforts on the completion of the target models and its support for ACER, calling on the association to put pressure on ENTSO-E to propose a suitable proposal on the way forward for balancing by the end of the month. He also stressed the need for strong grid infrastructure as well as ACER's work to remove the obstacles to a proper functioning of the market and of cross-border trade.
Vittorio Prodi, Member of the European Parliament, highlighted two issues that could explain the current failure of the EU ETS. On the one hand, he stressed the absence of a global consensus on an emissions trading scheme. On the other hand, he regretted that 50% of the allowances under the ETS are given for free, which he felt considerably limit its efficiency. He also added that Europe needed a 'supergrid', which could be achieved with Eurobonds under the auspices of the European Central Bank.
Following up on the ETS, Professor Pantelis Capros from the National Technical University of Athens stressed that the ETS Directive contains all the elements to allow an effective and cost-efficient transition towards a low-carbon economy. The current failure of the ETS was not due to a failure of the carbon market but actually due to a failure of the political system in Europe, he analysed. He pressed European policymakers to urgently send a clear policy signal to power sector investors, or risk facing a 'lost decade' in which the European economy fails to reduce carbon emissions and piles up costs for future delayed reductions. He also argued that governments should use the revenues of the ETS to reduce the bill for renewables.
Philippe Joubert, Head of Global Electricity Initiative WEC, highlighted the huge uncertainty in which our sector was currently evolving, given a volatile and virtually non-existent CO2 price. Europe had been among the first movers, but if we wanted to keep that advantage, long-term and stable rules had to be agreed, he said. He also highlighted the key role played by innovation and regretted the loss of Europe's leadership on carbon capture and storage in favour of the US and China.
Replying to a statement made by MEP Vittorio Prodi, Hans ten Berge, Secretary General of EURELECTRIC, stressed that there were several means to reach the objective of a global consensus on emissions trading as the best tool to reach a carbon-neutral economy. In fact, the path chosen by the US was currently leading to much stronger CO2 reduction than in Europe, which had opted for the EU ETS. It was high time for policymakers to take this instrument seriously, he said. To this end, he called on EU policymakers to take decisive action to provide an early investment signal and to take steps to make the EU ETS the main policy instrument for driving investment in CO2 reduction.