‘European Energy is a failure….’

Energy Policy in Europe is a failure, the industrial sector is in crisis: we must act urgently

This is the message sent by Gerard Mestrallet, CEO of GDF Suez, who along with the CEO’s of seven other European energy companies issued a joint statement to the European Council drawing to the attention of EU leaders “the urgent need to tackle the perilous situation facing the European energy sector”.

The CEO’s include Fulvio Conti of ENEL, Gertjan Lankhorst of GASTERRA, Ignacio Galan of IBERDROLA, Paolo Scaroni of ENI, Peter Terium of RWE, Johannes Teyssen of E.ON, and Rafael Villasecca Marco of GASNATURAL FENOSA

Meeting in Brussels, the day before the European Council meeting on energy and tax fraud on 22 May 2013, their joint statement underlines the seriousness of current challenges facing the sector and proposes appropriate policy actions. They say that the “current lack of visibility on energy policies and regulatory uncertainty will inevitably lead to an absence of energy investments” resulting in “negative effects on security of supply, employment and reactivation of the European economy. The status quo is simply not an option.”

According to their press release it is not too late for a revitalized EU approach to ensure competitive energy prices and a secure supply of energy for European citizens.

…this action would serve to restore the confidence of energy companies in the attractiveness of a European energy market. It is absolutely crucial that this revamped EU approach continues to support the fight against climate change, in addition to encompassing the following fresh elements:

  1. An improved market design, including a European coordinated approach to capacity mechanisms in which all assets contributing to the security of supply of European customers are fairly remunerated.
  2. A European carbon market able to support climate-friendly technologies and in which a reliable perspective is provided, notably, by establishing ambitious but realistic and stable post – 2020 greenhouse gas emissions targets.
  3. A more sustainable approach to the promotion of renewables so as to reduce costs for citizens and favour greater convergence between Member States.
  4. A strengthening of the policy framework to trigger investments in promising technologies, such as energy storage, new renewables, carbon capture and storage, smart grids and meters and shale gas.

Their statement goes on to say that they “very much look forward to EU political leaders taking stock of the critical situation the energy sector is facing” urging them to define a new policy direction based on the elements in their joint statement that are centred on contributions that investments in the energy sector make, not only in providing a secure and efficient product, but also through creating jobs and efficiently reactivating the economy.

Before the meeting with European Heads of State – in an interview with Denis Arnaud Cosnard in Le Monde – Gerard Mestrallet explains their approach:

This is a précis of the key points from the interview, translated from the French.

What do you expect?

First they must acknowledge that energy policy so far has failed, with the result that Europe is destroying part of its energy industry. There is an urgent need to redefine political ambitions and resources. We want to attract the attention of Heads of State to the acute nature of this crisis. We want to launch a solemn appeal.

Where did this initiative come from?

We decided to come together to send a message to world leaders. We are not asking for subsidies, but for visibility, for stable and consistent rules in Europe and for quantifiable targets in the fight against global warming.

EDF is excluded from the club?

No, EDF was invited but could not come. Naturally, EDF will also be invited next time.

So, Energy in Europe is a failure?

European policy on energy has a triple purpose: to fight against global warming, to improve competitiveness and to ensure the supply security of the continent. But each of these components is a failure.

In matters of environment Europe really is a failure? How did it happen?

Yes. Despite the Kyoto Protocol on reducing greenhouse gas emissions, despite the introduction of the carbon market on CO2 emissions, the energy sector has recently contributed to the increase in emissions, especially in Germany.

One reason is the revolution of shale gas in North America. The massive influx of gas derived from shale has driven down the price of gas and encouraged local electricity companies to burn gas rather than coal in their plants.

Accordingly, the United States has begun exporting cut-price coal to Europe that they had no use for themselves. This has made coal more competitive than gas and this is the opposite of what was intended.

And the carbon market?

This has been badly exposed. With the financial crisis, the price of carbon has collapsed to 3 euros per ton when it was planned to be around 25 to 30 euros to prompt a shift in behaviour.

In matters of competitiveness why are you talking about failure?

Electricity costs twice as much in France as in the United States. For industry, electricity cost 50 euros per megawatt hour (MWh) in the States and 115 euros in France and 140 euros in Germany!

What is needed is not that energy should be expensive, but that the price reflects the cost of generation. This is not the case, particularly for renewable energy, which is highly subsidized.

So, too much so?

In Germany, yes, that’s clear. Germany has undoubtedly gone too far in its support of solar and wind power and even the SPD says so. Between the economic crisis and the energy savings, electricity consumption continues to decline in Europe. The peak was reached in 2008. This has led to overcapacity in electricity production. It would make sense to reduce capacity.

Should we stop subsidising the cleanest energies?

No, our companies have among the world’s leading renewable energies and we are convinced of the need to fight against climate change. But we ask the Heads of State to harmonize support for these energies. And there must be a bearable cost for citizens. Above all, the priority must be to ensure security of supply.

What do you mean?

Never has the risk of blackouts been as strong as it is today. Europe has over-capacity in the production of electricity on an annual average, but lacks the capabilities to meet the peak demand. Imagine: in mid-winter, a cold anticyclone over Europe, very cold temperatures. The demand is very high, especially for heating, but there is no wind to make wind turbines work and no sun to operate solar panels. At such times, the balance cannot be made up by combined cycle power plants – or those that are closed at that moment because they are losing money.

So….

We must compensate owners of these plants to keep them operational. Otherwise they are all going to close. Some countries are beginning to implement such mechanisms. In Finistere, Direct Energy is building a gas-fired power plant which may not ever be turned on but will stop Brittany being plunged into darkness in the event of a crisis. And this company will remunerated. What we recommend is that this type of mechanism is established in a coordinated way throughout Europe.