Are we approaching an age of energy abundance?

Do you remember the first months of 2008? Every week, prices increased. Oil prices rose near an all-time high of 150 dollar per barrel and some analysts “predicted” that they would soon reach 300. That was obviously a disaster every time you had to fill the car. But European buyers of natural gas were also affected as back then almost all the gas contracts were pegged to oil prices. Natural gas prices rose above 40 euro per MWh. And if you were impressed by the tripling of oil prices, what to say of coal that rose from a level around 50 dollar per ton to more than 200. Electricity prices were obviously affected by these increases in combustible prices and in many countries baseload prices rose to a level near 100 euro per MWh. For buyers of energy these were terrifying times. Every delay in price fixing decisions caused a frightening increase in energy costs. We had several emergency meetings with companies in those days that were desperately looking for ways to avoid dramatic increases of their energy budgets.

Most analysts agreed on the root cause of this unprecedented bull-run. As countries like China and other emerging economies grew at exponential rates, the planet just wasn’t capable of producing enough commodities to fuel that growth. The developed economies had already depleted the world’s geological reserves so much, that there wasn’t enough left now that the developing economies joined the race. We were just plainly running out of oil, coal and natural gas. That was the simple logic behind the 300 dollar per barrel prediction of a Goldman Sachs analyst that forced many buyers of energy into panic decisions. And the fact that other commodities such as copper were also rising to historical highs proved the point. The peak oil theory became wildly popular. This was a calculus introduced decades ago by a Shell geologist called M. King Hubbert. According to Mr. Hubbert, production of oil reserves followed the elegant path of a bell-shaped curve. At some point the peak was reached and after that ever declining production rates were inevitable. Mr. Hubbert had applied his bell-shaped calculus to the US oil production and produced a reasonably accurate forecast of the peaking moment. As oil prices increased exponentially, more and more observers became convinced that we had reached or were at least near the peak of the curve of worldwide oil production. Some were even convinced that we were on the right side of the bell shaped curves of coal and natural gas production as well …

Open-minded people will acknowledge that reality is in most cases way too complicated to fit elegantly bell-shaped curves. But I have to admit, that as prices just kept on rising, even I was tempted into some Hubbert-style thinking. What explains the attractiveness of the peak theory? I believe it is our instinctive scarcity scare. Most of the people reading this blog article can satisfy their basic needs without much trouble, just like me. Just consider the most essential needs, warmth and food. Heating myself and my family means the occasional phone call to the plumber to fix my gas-fired boiler and checking gas bills and contracts from time to time. And the struggle for daily food means phone calls with my wife in which we discuss food variety and who will take the ten minutes to stop by a shop on the way back home. However, thinking about it, I have to return just two generations to find ancestors for whom the struggle for essentials was much harder. I remember a story told by my grandfather in which he scattered white flower on his coal reserves in the shed to check whether his suspicions of a coal-stealing neighbor were true. Less than a century ago, people still had to fight daily to get their share of the scarce energy and food. Unless you are born in some old aristocratic family, you carry in yourself the genes of people that survived due to their scarcity scare. This explains why perfectly civilized societies start the completely irrational hoarding behavior or even worse, looting, as soon as the first signs of scarcity are on the horizon. Slightly ashamed of our luxurious contemporary life styles, the idea of increasingly scarce energy supplies fascinates as well as scares us. The horror picture of 300 dollar oil fascinated us, because we are silently scared of having to return to the harsh daily struggle for the scarce commodities for keeping your family warm.

Some economists kept their cool and displayed a ‘what goes up must come down’ mentality. They remarked that this wasn’t the first peak in oil prices, and that previous peaks had been followed by deep decreases. They argued that high prices would put the laws of supply and demand at work, leading to corrections. Only, as the lead times for adaptation in energy are very long, this takes some time. As the bull-run extended in time, some renegade economists started to declare that energy was a basic good and hence not price-elastic. Whatever its price, consumers would continue to consume ever more energy. And accepting the ‘inevitable’ truth of M. King Hubbert’s peak theory, even if producers wanted to increase supply, they couldn’t. The cooler economists responded that energy supply and demand are price-elastic, but it is slow elasticity. Investing in more energy-efficient equipment and in new production isn’t done overnight. These delays explain the ‘boom-and-bust’ cycle of energy prices. Cool-headed economics has proven to be right again. In the second half of 2008, the energy prices corrected sharply and dropped back to their pre-peak levels. Peak oil (and other energy) theorists used the economic crisis as an excuse. As soon as that crisis would pass, the plain logic of the bell curves would kick in again. But isn’t the economic crisis in itself a sign of the elasticity of energy demand? If energy prices rise too high, this pushes the world into a recession, causing demand to drop sharply. The 2008 crisis (which still isn’t over, at least not in Europe) has a complicated web of causes. But high energy prices are definitely part of that. The increasing impact on their budgets of high fuel prices was one of the reasons why so many Americans couldn’t pay back their mortgages. So, even if 300 dollar oil prices and equivalent prices of other energies are possible, they would very probably be extremely short-lived, as they would push the world in a deep recession. That draws a bleak picture of life in a perpetual economic crisis on the other side of Hubbert’s peak. The last five years have learned that economic stagnation isn’t fun, so we all have a moral duty to avoid ever ending up there.

As the economy has recovered, specifically in the commodity-devouring developing economies, energy prices on the world markets have increased again, but they haven’t hit the previous highs (yet?). Electricity in many countries of Europe is currently even trading at its lowest level since 2005. And we are clearly seeing that energy demand and supply are impacted by more fundamental phenomena than just the economic crisis:

DEMAND SIDE:

- Combined with climate policy measures, the high prices of 2008 have caused renewed enthusiasm for energy efficiency improvements. This seems to have caused a sustainable downtrend in energy consumption in the developed world (both the EU and the USA). However, the effect of this is largely undone by continuing growth in energy demand in the developing world.

SUPPLY SIDE:

- Oil production in 2011 was 1,5% higher than in 2008. So, we are not on the right side of the bell-shaped curve yet. It should be remarked that these extra barrels are increasingly expensive to produce, causing oil prices to remain high. But it looks like we still have enough oil left. Thanks to shale oil, US oil production was 16,44% higher in 2011 than in 2008 and some are optimistic that these unconventional resources could ultimately mean an end of oil imports in the US. So, Mr. King Hubbert, the tail end of the US oil production curve is not bell-shaped …

- Peak theorists that simplistically extended the peak oil theory to coal and natural gas, were ignoring the fact that undeveloped reserves of those fossil fuels were much higher than those of oil. As oil prices remain high, the world has tapped into its coal and gas reserves. Coal production in 2011 was 12,8% higher than in 2008, gas consumption grew 7,5%. This clearly shows that the peaks in coal and natural gas were nothing more than an expression of slow elasticity. Natural gas production has been boosted by conventional and unconventional gas production. I have extensively written about the shale gas revolution on this blog. If it can spread across the globe, gas abundance could become a reality.

- The prices of wind and solar power production have dropped to a level that necessitates only limited subsidies to stimulate their growth. Therefore, the growth of the share of energy produced from these renewable sources seems unstoppable.

The previous energy crisis (the 1970’s) was followed by a long period of energy abundance and historically low prices. Are the trends above sufficient for the world to be entering an age of energy abundance again? The hunger for energy of the developing economies is continuing to put pressure on the world’s energy markets. But if shale gas becomes a worldwide reality, energy abundance could become a fact, especially if it is combined with an adoption of more energy-efficient and more renewable technology by the developing economies.

There are many obstacles on the road to energy abundance. And the legendary unpredictability of energy markets makes it impossible to say if we are heading for it or not. So please don’t interpret this blog as a forecast of low energy prices. The important message is that abundance is not unthinkable. Still, we see many energy buyers that continue to be driven by scarcity scare in their price fixing decision. This is partly due to the fact that abundance stories don’t get much political and press attention. Many conservative politicians prefer the peak energy theories because they fit within their energy independence policies that are supportive of their hawkish geopolitical position. Do you really think that the American public would have allowed the sacrifice of American blood and money in the Iraq War if back in 2003 they would have known that they were heading for the abundance of homegrown shale gas and oil? On the liberal side, the scarcity scare fits within the anxiousness to do something about climate change. This seems to be the predominant policy of Europe. We need to be very careful as we are approaching a possible age of energy abundance. If Europe unilaterally choses for more efficiency and renewable rather than more (unconventional) oil and gas, we might end up with a much higher bill than the rest of the world. Can we really afford that?

Benedict is giving a presentation on this topic on our (Central) European Energy Procurement Conference on the 16th of May in Warsaw. Send an e-mail to info@eecc.eu if you want to attend or click here.

Filed under: Energy demand, Energy history, Energy policy, Energy technology, Forecasting, Market analysis, Natural gas, Oil

A short reflection on the back-loading fiasco

Emission rights prices have dropped below 3 euro per ton in a reaction to the failure to adopt a proposal to prop up the ETS-markets in the EU Parliament on Tuesday. The ETS wizards were working on a so-called ‘back-loading’ mechanism. This would mean that emission rights would have been withdrawn (or rather not-auctioned) in the first years of the 2013 – 2020 trading period and then released later on. I don’t think that would have had a lot of impact on the price. In the end, the only way to really create a price for emission rights is to make sure that the amount of rights available to the market (allocated and auctioned) is lower than the actual emissions. Delaying the auctioning of emission rights prices within the trading period is quite senseless, as the mechanism has ample possibilities for using your allocated rights in different years. Most importantly, the emission rights that companies get allocated for free come in double portions. At the moment that you have to hand in the emission rights equal to your emissions in the previous year, you have a double portion of rights on your account. You have the rights allocated in that previous year and those in that year. So, if the back-loading would have started to push up prices, holders of double portions would have had an incentive to start selling those rights, bringing down prices again. When the initial proposal to back-load 1,3 million rights was watered down to 900 million, it became even more clear that this wouldn’t make much more than a dent in the graph of emission rights prices. So, the vote of Tuesday was not much more than a symbolic attempt to do something about the failure to create a real price for greenhouse gas emissions with ETS.

(Nevertheless, traders got enthusiastic again, trading the EUA price above 5 euros last week. Enthusiastic or desperate to see a failing market repaired?)

The importance of Tuesday’s vote should therefore be searched in its symbolic value. It was a close call, but it was a “no”. That makes clear that there is no willingness at all among EU policymakers to repair the ETS-system. The European Council refuses to do it, as several countries, Poland foremost, are loudly protesting against higher emission rights prices or reduced allocations (to their own industries). Inside an important Member State, Germany, there is no agreement among Cabinet Members to do it. And now the Parliament is also refusing. The European Commission wants to do it, but the fact that they are stopped by the European Parliament now, is a strong proof that the EU is a democracy.

Is this lack of political willingness a sign that Europe’s politicians have a lack of interest for the environment? I don’t think so. Europe is going through an awful economic crisis. I am in Barcelona at this moment. I was walking through the streets last night, and I remarked how rapidly the number of homeless people in this country has grown. Moreover, the homeless seem to be better dressed than in other countries. That’s because they are recent victims of the crisis that still had a normal life like you and me a few months ago. Increasing prices for emission rights would mean that the cost of running an energy-intensive industrial company in Europe would go up. So, we would see more of those heavy industries shut down, adding the workers to the mass of unemployed people. Electricity prices would go up, increasing the cost of doing business and of life. If you look at what is going on in Europe, the no-vote for back-loading looks like a good decision from an economical point of view. Can we really afford the luxury of a cost-increasing higher ETS price at this moment? 39 companies said yes with an advertisement in the Financial Times. A lot of them were electricity producers. Maybe they should publish how much windfall profits they’ve made in the last decade on ETS. That would put their publicity campaign in a different light. Areva, the builder of nuclear power plants was there. Of course, they would like to see a higher price for emitting carbon, as that would increase the chances of nuclear power plants being built. Not a single energy-intensive industry was among them. If anything, the publicity in the Financial Times shows the winners and losers of ETS.

I’m not hesitating to cheer the no-vote for back-loading because I’m still searching for indications that ETS has delivered a substantial contribution to reduce carbon emissions. It has created a lot of complexity, a lot of extra costs and windfall profits for certain businesses. But it hasn’t been capable of delivering a solid financial signal to investors in carbon reductions. That doesn’t mean that Europe is not having a climate policy, on the contrary. We are reducing our emissions, and one of the reasons is that European countries are frontrunners in pushing companies and citizens to reduce their carbon footprint. The whole ETS circus has nothing to do with that. Europe’s carbon reductions are driven by more traditional and more local policy measures. Some examples are: subsidies for renewable energy (adding taxes to power bills which drive consumption reductions), insulation norms, product norms, e.g. for cars or lighting bulbs, technology choice obligations in the framework of environmental permits. Maybe not the most efficient ways of stimulating carbon reduction, but definitely more effective. I agree that in theory emission trading should be more efficient, but in practice it has proven to be impossible to make it effective. I call upon Europe’s climate policymakers to stop wasting time (and energy) on symbolic issues like back-loading. Our economy and the climate cannot afford that. Emission trading would have been great, and it’s a pity we haven’t been capable to make it work. But in these economic times, we have to be realistic and focus on the continuation of Europe’s (traditional) climate policy while trying to reduce their cost for the economy and society as a whole.

Filed under: Climate change, emission trading

A manifesto of energy pacifism

My country is starting to prepare itself for the commemoration of the 100 years since the first world war. As I sit at my desk and write, I look at the meadows on the other side of the channel which lies behind my backyard. The people that lived in my house a century ago would have been looking at trees instead of the open space that it is now. It was called ‘De Boomforeest’, which is a strange old Flemish word, as it seems to mean ‘wood of trees’ to me. In 1918 the trees disappeared as the fleeing German Army put fire to the ammunition that it hid in that wood. Everywhere you go in this corner of Flanders, you find the scars, silent reminders of the carnage that took place here three generations ago. My great-grandfather lost four years of his youth in the Great War. He was fortunate and got back alive. In the first weeks of the war, he was shot in the leg, his horse dropped dead under him. He limped through the rest of his life, but it saved him from the frontline service that would have surely killed him. So there he was, stuck for four years in trenches just twenty kilometers from where his wife was all alone raising his children in enemy territory.

Last week I visited an old client of mine which has its plant south of Ypres. The engine of my car was roaring as it scrambled up and down the nice rolling countryside that you find there. But as I was climbing the small hills, I thought about those thousands of soldiers from the British and German empire that were killed as they ran up and down those slopes. It’s hard not to think of them when you are there, as every few kilometers you pass one of those endless cemeteries with thousands and thousands of graves. The fields and meadows over there are dotted with small ponds from which the cows drink. It gives the landscape a particularly peaceful atmosphere. That is weird, as these ponds are craters of the many bombs and mines that exploded there less than a century ago.

Less than a century ago is about to become more than a century ago. My father was born in 1947, two years after the last war that tortured my country ended. I am part of the second generation that has lived without ever experiencing the horror of war. But I still carry some war in me. My grandfather, the son of the 1914 horseman, told endless stories about his fathers’ adventures in the trenches and his own experiences when the Germans came back in 1945. In the second World War, my part of Belgium was again hit hard, as the Lys River that lies to the East of where I live was the last line of resistance of the Belgian army. My godfather, the brother-in-law of my father, lived in the neighboring village Ingelmunster in a house that was partly destroyed in that battle of the Lys. He has told me that story a hundred times, and still today I can see the freight and disgust in his eyes as he tells about the soldier that pointed a gun at his mother. My children will probably be the first generation that grows up without these testimonials of war. I come from Flanders and for centuries my country was the favorite battle ground of Europe’s armies. But since 68 years, war has not reached our realm. If you think about the situation in Syria these days, it makes you realize what a privilege such peace is, what a luxury. How many of us realize this? Earlier this year, the EU received the Noble Peace Prize as an award for this accomplishment. However, this unleashed a storm of criticism from an odd coalition of eurosceptics and anti-capitalists. As I look outside my window at the scar of the Great War across the canal, I realize that such criticism is like the cries of spoilt children that don’t realize what it is to live a lifetime without war.

As a passionate reader of the books of Daniel Yergin, I realize that the wars that ravaged my country have a background in (energy) economics. Most of the countries on this planet lack sufficient raw materials and energy sources to support an industrial economy. Industrialization creates the need for importing commodities from overseas. As Europe’s nations industrialized they developed industrial colonization. Even my own tiny Belgium ‘owned’ a colony many times its size and especially richly endowed in resources: Congo. In 1914, the nations of Central Europe, Austria and Germany had missed out on the colonization wave. This inevitably caused the clash of empires of the first World War. During that War, military strategy saw unprecedented changes. My great-grandfather went to the war on horseback, but by 1918, the first tanks were rolling through the streets. The mobilization of society caused by the invention of the internal combustion engine had an important military counterpart. Nobody understood this better than Adolf Hitler who composed the fastest moving military in the world. That is why the Germans reached the village of Ingelmunster so rapidly. The bomb that hit my godfather’s house was dropped by a Stuka airplane. However, feeding that military mobility demanded enormous amounts of fuel. That is what many people see as the main reason for Hitler’s attack on Russia and his move towards the South-East, he was heading for the oilfields of Baku. The thirst for fuel of Hitler’s army eventually caused its defeat.

Military conflicts over access to energy or other resources are no longer a reality in Europe. The European Union has chosen a different model. For all its imperfections and even if it is currently going through a deep crisis, the EU is a strong witness of the fact that doing business together is a forceful tool for avoiding war. Capitalism and market liberalism as a tool for peace, that is the message of the EU. Europe’s politicians are less and less directly intervening in economic life. The fact that the EU is one of the few regions in the world which has a liberalized internal energy market is a good example of that. Most people probably don’t realize it, but buying electricity and natural gas in an open market is an act of pacifism. Because, when politicians try to secure energy supply, it often ends up in military conflict. Energy market liberalism is a more peaceful way of realizing security of supply than geopolitics. We can only hope that the rest of the world will follow the European example. Security of supply should be realized through the establishment of a worldwide open market for trading energy. However, politicians across the globe still want to play the great game and secure energy reserves by political and eventually military force. Think about the following:

• Western interventions in conflicts almost always smell of oil. Lybia and Iraq are obvious examples.
• Russia clearly puts a primacy on politics over economics when it comes to the marketing of its massive energy reserves. The wars of the Caucasus clearly have much to do with Russia’s anxiousness to keep the Central-Asian oil and gas reserves from finding a direct way to Europe.
• China’s energy policy is characterized by its willingness to work together with rogue regimes and massive investment in a blue water navy to protect the flow of oil and gas (LNG). This military build-up leads to increasing tension with neighboring nations and the US.

Politicians should not sign energy deals. All they should do is make sure that the world’s energy markets function well. Because their meddling with energy in particular and more broadly economics doesn’t lead to the best possible deals. And even more so because it only too often ends up in military conflict.

All the liberalism in this blog article might sound like a salute to Margaret Thatcher who died this week. Well, it is not. Of course, she paved the way for the European liberalization projects. But her nationalism made her blind to the fact that liberalism has to cross a country’s borders. She would have been such a much greater figure if she would have given a European dimension to her fight for the withdrawal of politics from economic life. And was her war in the Falklands only about restoring national pride? Or did it have something to do with the oil and gas reserves of which the British government knew since 1969 that it was to be found in the Falklands’ territorial waters? The death of the Iron Lady stirs a strong yearning for strong statesmen and –women, especially in these days when bickering politicians fail to come up with a solution for an economic crisis that continues to plague us. However, let us all hope that current and future politicians are less willing to call to arms than Mrs. Thatcher. Especially not over oil and gas. Let’s trade energy in open markets instead of fighting wars over it. No more scars of wars, not in my backyard and not in anyone else’s backyard.

Filed under: Energy history, Energy policy

Time for action on Belgian industrial power prices

Febeliec, the Organization of large Belgian energy consumers published an alarming report this week on the prices that Belgian industrial consumers pay for electricity compared to their competitors in the Netherlands, Germany and France. For both parts of the country and for all types of consumers, Belgian power prices are clearly more expensive than in any of the surrounding countries. Industrial consumers pay 6,5 to 10 EUR/MWh more on the total electricity price in Flanders and 7 to 25 EUR/MWh more in the Walloon region. And that is compared to the average price similar consumers pay in surrounding countries. More than these figures, the relative differences are telling. Large industrial consumers face a 12% (1 TWh consumer in Flanders) up to 45% (100 GWh consumer in Wallonia) price handicap for electricity compared to their Dutch, French and German competitors. Recently, several large Belgian industrial companies have announced that they will close down plants in Belgian, with the loss of many jobs as a result: Ford, ArcelorMittal, Caterpillar, Duferco, Saint-Gobain. Not all of them are energy-intensive, but it is clear that such an energy price handicap is not keeping these companies here. Febeliec is more than right in calling for action.

First of all, my compliments to Deloitte, that made this study for Febeliec. Often, studies comparing energy prices fail to produce relevant results, especially when they are based on empirical data such as traditional surveys. What individual companies pay is the result of a large number of parameters. It is hard to find much line in such diversified empirical data. Deloitte has chosen a more theoretical approach. Studying baseload prices, they avoid the trap of drawing conclusions from incomplete and/or unrepresentative data. Deloitte has studied baseload prices for the commodity part of the bill and the official tariff structures for grid fees and taxes. Doing so, it can draw pertinent conclusions on structural differences. These have been checked by the expertise of Febeliec, but I can’t imagine anything else than a broad confirmation.

In the conclusions, we can see a few big lines:

1. The bad position for Belgium can be explained by: lower exemptions for Belgian large consumers compared to Germany, lower reduction on wholesale commodity compared to France and higher overall tax levels compared to the Netherlands and France.

2. Inside Belgium, there is a structural difference between the Walloon Region and Flanders, which is completely due to the difference in taxes on power consumption.

3. The competitive disadvantage is biggest for the ‘smaller’ large consumers, the consumers of ‘hundreds of GWh’s rather than those of TWh’s’. But obviously, the larger consumption of a TWh consumer leads to a larger disadvantage in total euros per year.

Having an insight into the energy bills of more than 200 mid-sized and large energy consumers in all of the countries in the study, we can only confirm these conclusions. They are the logical consequence of the power market policy in the different countries. We can summarize that policy as follows:

France has never fully embraced electricity market liberalization. It wants to continue to give the price advantage of its nuclear power production to its consumers, both industrial and residential. The loi NOME introduced an element of competition, but the mechanism still causes prices to be lower than those in the liberalized surrounding markets, although recently, the drop in prices in Germany has caused the French power price advantage to disappear.

The Netherlands manages to keep its industrial power prices reasonable by keeping grid fees and taxes at bay. Contrary to popular belief, the Netherlands is not the Walhalla of renewable power. Yes, there are many windmills, but if you look at them closely, you will see how old most of them are. In the last decade, the Netherlands hasn’t had the programs of massive subsidies for renewable energy like we have seen in Germany and Belgium.

Germany has very high grid fees and taxes. But it has also adopted a policy of conscious protection of large consumers of energy. With the Härtefall regulation, an German energy-intensive company can get massive exemption of the extremely high EEG-entgelte, the tax for paying renewable power subsidies. And it gets even better if your load duration exceeds 7000 hours, which means that you have an extremely stable off-take of power, which is only possible if you use the power for stable, around-the-clock and electro-intensive processes. Such companies pay 0 euros for using the grid in Germany. This might give the impression that Germany is a power consumer’s paradise. But that is not the case. The Febeliec study is focusing on those very energy-intensive companies only. For many others, the cost of power in Germany is extremely prohibitive, much more expensive than in Belgium.

Belgium has a power market policy that is … typically Belgian. And I’m not just referring to the difference between the regions. Belgian energy policy fails to make firm choices, such as the deliberate measures for protecting large consumers in Germany. Belgian energy policymakers try to protect small consumers (especially residential) which waters down the potential for protecting large industrial consumers. Moreover, politicians don’t always take their responsibility. They broadly smile before the camera’s when they open another renewable energy production site. But when it becomes clear that the subsidies for renewable have caused a derailing of the tax part of the power bill, they look the other side. They blame the suppliers and the lack of competition and refuse to take responsibility over the cost-increasing effect of renewable energy policy. Well, the Febeliec study is clearly showing that the main problem are the taxes, and not the market. Energy producers in Belgium are not selling their product at a structurally higher price than producers in neighboring fully liberalized markets such as Germany and the Netherlands (although there is quite a big gap with Germany at this moment, but it is explicable).

The problem is clearly larger in Wallonia. The Green Certificates system in the Southern Region of Belgium has continued to pay out much larger subsidies to owner of solar panels for a much longer time than the system in Flanders. The Walloon Government is currently reviewing the green certificates system, but the high subsidies have caused an investment boom, meaning that a lot of owners will continue to benefit from these high subsidies, causing further inflation of the cost to be reflected in energy taxes on consumers’ bills. The Febeliec study is confirming what we are seeing in the power bills of our Belgian clients: there is a big problem with the cost of green power in Wallonia. If you know how much investment costs in solar panels have decreased in the last four years, this problem of over-subsidizing is shocking. It might have caused the creation of jobs in the solar panel sector. Subsidized jobs, I should clearly say. If that causes the loss of industrial companies and non-(or less-) subsidized jobs, this is a very painful evolution. We hope that it is not too late to cure this, and that the Walloon government will increase the exemption of green certificates costs to industrial consumers, just like the Flemish government has done earlier. And we hope that the Febeliec study will inspire both governments to make even bigger efforts to protect the energy-competitiveness of our economy. And they should not just think about the large single-site companies. There are many companies that use a lot of electricity scattered over different sites. As exemptions are calculated on a site-by-site basis, they often pay an extremely high power bill. This should be considered when reviewing exemption systems. Finally, we hope ministers think about the Febeliec study before they air unnecessary and cost-increasing ideas such as the creation of a capacity subsidy for gas-fired power stations, or the construction of a doughnut artificial island to store renewable energy at sea.

Filed under: Belgium, Energy policy, France, Germany, Market analysis, The economy, The market today, the Netherlands

Procurement: generating savings or adding value?

Last week I had some interesting discussions with clients – procurement professionals – on the topic of reporting savings. It raised fundamental questions about the role of a procurement division in a company. We are witnessing some contradictory evolutions in corporate procurement practices nowadays. Some of our clients are still making the first steps in centralizing and professionalizing their procurement activities. Procurement tasks are taken away from local managers and a new corporate procurement team is set up at headquarters. But then we see other clients that have gone through this centralization a decade ago and now start to build down their centralized procurement divisions and push the responsibilities for buying goods and services back towards local site (procurement) managers. Is this a normal ‘ebb and tide’ phenomenon inherent to corporate life? Or is there something more going on? I believe that putting too much emphasis on the ‘savings’ made by procurement teams is responsible for this.

As a centralized team takes over the buying of certain categories of goods and services, they start to grab the ‘low hanging fruits’. The volume effects, the synergies and the professionalism of buying centralized often cause massive savings for different categories. It is obviously very tempting for procurement managers to make a lot of noise, “look how much money we have made for the company”. Moreover, setting up a large team of corporate buyers is very challenging in many industrial organizations. Especially when CEO’s have a background in production, they tend to be very skeptic about the value of large teams at headquarters, far from where the real value is created in the industrial processes. It is of course very tempting for the procurement manager to validate the decision that has just been taken to set up a corporate buying team by reporting the large savings made by the initial round of grabbing the low hanging fruit.

As energy procurement consultants, I recognize this temptation. One of the most gratifying aspects of our job is precisely this possibility of making cost reductions. Especially the savings that result from negotiations of contracts can give quite a kick. Last week, one of my colleagues was walking around with that recognizable big smile. He had reviewed the energy contract situation of a client with a large cogeneration unit and saved over a million euro per year with the negotiation of new contracts. It is of course very tempting to broadly “boast” about such savings. They obviously justify our consultancy fees. However, we try to resist that temptation, for a double reason. First of all, it is impossible to perpetuate such savings. They typically occur in the first year of working together with a client when the injection of energy market knowledge allows us to cure what went wrong in buying energy (the low hanging fruit). Secondly, however exciting they are, such savings by negotiations are just one aspect of the added value that we can create for our clients. Therefore, we have always preferred not to put too much emphasis on them. We don’t want to create the wrong expectation that we will make such savings every year and we want our clients to understand that buying energy is not just about making savings by negotiation.

I can only recommend corporate procurement managers to do the same thing. Making a big show of the initial ‘low hanging fruit’ savings round will create a pattern of expectation. The performance of the procurement division will be measured on measurable cost reductions only. You will find yourself struggling with an increasingly complex savings calculus. You will lose a lot of time in discussions with your buyers and with the financial manager over the realism of the reported savings. And especially if the savings reporting system is pushed all the way through to a bonus calculation for buyers, you will find out that it starts to live a life of its own. That your buyers are no longer doing what is best for the company, they do what is best in the (abstract) framework of the savings calculus. I have spent a large part of my professional life in the presence of corporate buyers. And at several occasions I witnessed buyers that “conspired” with the sales people to fake a saving. (For example: savings calculations that are based on differentials between initial, second best, average prices offered and the final price. Buyers ask the sales guy to make a first bid that is high enough. Don’t laugh, I’ve seen this happening before my eyes at least ten times.)

Too much emphasis on the savings reporting inevitably ends in the situation one of the clients I was discussing with this week told me about. He said: “a new CEO walked in and said, ‘I’m tired of procurement reporting astronomic savings of which I’ve never seen a penny in my bottom line’”. The client also told me that procurement in his company was now decentralized again and the corporate procurement team was scaled down. It happens too often that corporate buying teams are restructured because “the savings they generate are no longer justifying the costs”. As my client pointed out rightly: “why are they never asking the same questions about the corporate finance team?”, or corporate marketing? HRM? Because everybody acknowledges the value of doing such activities on a corporate level even if this value cannot be measured in exact ‘euros or dollars saved’.
Everybody will acknowledge that it is impossible to squeeze a lemon indefinitely. At some point, the low hanging fruit is gone. Reported savings inevitably decline (or they become increasingly ‘artificial’). That doesn’t mean that a central procurement team loses its added value for the company at that moment. Looking at procurement from the point of view of one category, namely energy, I see that in large international organizations, corporate buying generates the following added value:

1. Because of the smaller size of what they buy, site buyers will often buy a large number of categories. Corporate buyers can focus on one or more categories and become specialists in them. This inevitably leads to better decisions.

2. Companies shouldn’t just aim at making savings, they should aim at making savings “where possible”. That means that the buyers do all they can to “make the best possible deal, taking into account the market situation”. Professional buyers that are specialized in one or just a few categories are better at that. I observe again and again that local buyers or site managers sign sub-optimal contracts because they lack market knowledge.

3. Negotiating contracts is just one (albeit important) aspect of the procurement job. As they become specialists, corporate buyers can develop other aspects of their job and generate considerable added value with that. When they buy commodities, the procurement specialists can develop and implement the risk management and risk analysis tools that are necessary to protect the company against price volatility. And in products as well as services, buyers’ market knowledge can be an essential component of corporate supply chain management and quality control.

4. Even if cutting away the corporate procurement team is a direct cost saving, this will be compensated by the fact that buyers or site managers have to spend more time on procurement activities.

I recognize the need for metrics to judge a procurement division’s performance. But procurement professionals should avoid that the evaluation of their performance is reduced to savings reporting. They shouldn’t neglect the crucial role they play in the risk management, supply chain management and quality assurance of their company. Too much eye for savings is a dead end street. And moreover, too much emphasis on savings causes a regrettable neglect of other added values created by professional procurement, added values that are more difficult to measure. Everybody knows that reducing the role of the buyer to “the guy that comes in at the end to squeeze the lemon” is a farce. There are much more intelligent ways to do a procurement job and create a sustainable added value for the company. Management should judge their procurement teams on that broader added value.

Filed under: Procurement, Risk management

Energy market liberalization: success or failure?

Europe’s energy market liberalization is much more successful than many (academic) observers seem to realize. This weekend I was reading the book ‘The EU’s Major Electricity and Gas Utilities since Market Liberalization’, written by Christian Schülke and published by IFRI, the French think tank that has published extensively on international energy topics. In the second part of his book, mister Schülke is giving an assessment of the status of Europe’s liberalized energy markets (the book was published in 2010, so I guess that most of this was written in 2009). As somebody who is daily working in these markets and who is experiencing it first-hand by negotiating electricity and gas contracts for medium-sized and large industrial clients, such accounts always sound overly pessimistic. Maybe it’s a flaw of my character, but I have a much more positive view on Europe’s energy market liberalization. Of course, continental Europe is lagging behind the UK and Scandinavia. But we should realize that those regions lie a decade ahead of us. If you compare the current energy markets in the Benelux or Germany, are they so much worse off than those in the UK and Scandinavia of 2003? I don’t think so.

Academic assessments of energy market liberalization often repeat the same misconceptions about energy markets again and again. One of those is the idea that German power prices are pushed up by non-competitive behavior by the so-called German ‘Oligopol’. Mr Schülke (a German, judging by his name), claims that RWE, E.On, Vattenfall and EnBW generated 80 to 95 percent of all German electricity in the years to 2009. He repeats the claims by the German authorities that the RWE – E.On tandem is a ‘Duopol’ because they produce 45% of the electricity. He even cites accusations that they abuse that ‘market power’ to push up prices on the EEX exchange. Well, Mr. Schülke, the Cal 14 power price has just dropped to a level slightly above 40 euro per MWh. Do you really think that the evil spirits of RWE and E.On are very happy with that price level? There are many commodity markets that function perfectly well with two or four players having a major stake in the production capacity. Moreover, is the German situation much different from the situation in the UK? And by focusing on the historic market shares of the large German utilities, analysts have completely missed out on the effects on the German electricity market of the Energiewende, the switch towards renewable energy. The many small-scale renewable power stations are in the hands of a multitude of owners. This has caused a considerable loss of market power by the RWE’s and E.on’s, which is explaining why they couldn’t do anything about the dramatic drop in power prices in recent months.

The broader problem is that such academic misconceptions find their way to the popular opinion and to the policymakers. In Germany, the focus on perceived oligopolistic behavior has drawn away the attention from the real reasons for German power price inflation. With the recent increase of EEG-entgelte, the taxes to pay for the Energiewende, to more than 52 euros per MWh, there is no more way for Germans of getting around the fact that taxes on energy consumption in their country are sky-high. But with all the focus on the oligopoly, many Germans completely miss the fact that the grid fees that they pay are much higher than those in other European countries. And this is not caused by oligopolistic behavior but rather by its opposite; the fragmentation of the German grid sector. Still, we don’t see any steps taken towards a rationalization of the German energy grids, rather to the contrary.

It is not surprising that academic observers have a hard time making a correct assessment of the status of liberalized energy markets. As markets are deregulated, their real-world results, the deals that are made between suppliers and clients become private. A large part of the energy price is no longer the result of generalized and relatively transparent negotiations between governments and monopolistic suppliers. The commodity part of the energy bill is now the object of individual energy supply contracts that – without exceptions – contain stiff clauses on confidentiality. Researchers don’t have access to these contracts to find out what is really happening in the market. Moreover, interpreting statistic data on what clients pay is also very hard. Anyone that has ever seriously tried will agree with me that it is extremely hard to compare energy prices. A client’s energy price is the result of a multitude of factors: load profile, grid connection situation, the moment of fixing the price, tax levels and reductions on those taxes, flexibility in terms of volumes or payment conditions, services included in the contract, etc. Filtering from all those variables the effects of liberalization is impossible. That is why general pricing information such as it is gathered by Eurostat is offering a poor empiric basis for researching the functioning of energy markets.

For that reason, academic observers often fall back on two main methods of analysis. On the one hand, they make a theoretical assessment of the legislative apparatus to organize energy markets. On the other hand, their empirical analysis is often based on analysis of ‘switch rates’, a market is deemed to be successfully liberalized if many clients have switched suppliers. There are risks of misapprehension involved in both. First of all, the analysis of the legal framework puts a lot of emphasis on the unbundling issue. Of course, it is important that grid companies guarantee third party access (TPA) to their grids. But, as far as I can judge, unbundling is not a necessary and certainly not a sufficient condition for that. As far as I am concerned, good rules for capacity allocations on grid infrastructure is much more important. The application of the use-it-or-lose-it principle and the implicit auctioning mechanisms implemented in the North-West-European gas and electricity market have contributed much more to the success of liberalization than unbundling. As far as the switch-rate is concerned, recent experience in Belgium has proven that low switch-rates are often caused by apathy of consumers rather than by a lack of competition. Due to the recent emphasis by the press (and the government) on the possibilities and necessity of switching energy suppliers, many Belgians found their way to alternative suppliers and the switch rate increased dramatically. That clearly shows that before, it wasn’t low because the competition wasn’t there. Policymakers sometimes put so much emphasis on switch rate that it becomes a goal in itself. Well, it is not. If anything, switch rate is a symptom of a well-functioning market. Europe didn’t push through its energy market liberalization only to see clients leave the traditional utilities. Europe liberalized its energy markets because that would improve competition and service level. It was also more or less promised that this would bring lower prices. And European-minded policymakers also dreamed of a pan-European marketplace for gas and electricity. From my daily experience in the market for industrial consumers in Western-Europe (Benelux, France, Germany, Austria, Spain, Portugal and Italy), what can I say about the realization of these goals?

1. Can consumers get competitive offers?

Only during a very brief period in my eight years at E&C have I witnessed a lack of competition in a market that had been fully liberalized. In the winter of 2005 – 2006, it had become almost impossible to get offers for the supply of gas in the Belgian market. As prices in the UK soared, most suppliers preferred to send their gas through the Interconnector. Today, it can be challenging to get electricity offers in France, but that is because the market is only half-liberalized and the Arenh system is creating only pro forma competition. And it was hard for a long time to get competitive offers in Germany’s gas market, but that was due to a lack of basic regulation regarding grid access and utilization, a situation that has changed dramatically since 2007. Today, in any market in which I work, with every tender we organize, we can find a minimum of four suppliers willing to supply. And if suppliers are refusing to offer this is due to reasons that have nothing to do with market organization such as the credit risk of a certain client or the problem of declining retail margins. So, my conclusion is that low switch rates are due to a lack of interest in the possibilities of open energy markets rather than due to a lack of possibilities.

2. Can consumers get access to better services?

Answering this question starts with another question, namely, what services are important for an end-consumer? It is my conviction that hedging services are by far the most important. Due to liberalization end consumers are now fully subjected to wholesale energy market volatility. There is no longer a government that can push that volatility risk towards the suppliers by refusing retail price increases when wholesale markets soar. Fortunately, in most countries, most suppliers now offer a wide range of hedging services in the shape of so-called multi-click contracts. Suppliers in Spain and Italy have been conservative for a long time and refused to develop such services. However, recently this has changed drastically, opening up possibilities for a new way of buying energy in those countries also. Specifically in the gas markets, the availability of hedging services has been very helpful to many clients. As oil markets rose in the past decade, oil-indexed gas formulas rose along. In the old days, the government would have been obliged to increase tariffs accordingly. And due to the opaque character of those tariffs, industrial consumers would have had no possibilities of hedging against that increase. In the open markets, the formulas have become transparent in the contracts, and suppliers took a step further and gave their clients a possibility of swapping them to fixed prices. Those hedging services have helped many clients in avoiding budgetary disasters in the period 2007 – 2008. Others created a disaster by fixing at the peak. Which emphasizes that in a liberalized market, it is the client himself who is responsible for what he pays, and no longer the government. Freedom breeds responsibility.

3. Has energy become cheaper?

To this key question, I always try to give a nuanced answer. If you just look at the figures, you will say no. Energy has definitely become more expensive in the past decade. But we should consider that in that decade oil prices have increased tenfold and we have seen massive increases of gas and coal prices as well. Many countries have also launched unprecedented subsidization programs for renewable energy.

As far as gas prices are concerned, my answer is very clear, liberalization has been a blessing. Without it, we would have never known the switch to gas-to-gas or Hub pricing. We would have remained stuck in the old world of importing gas under rigid long-term oil-indexed gas contracts. As Europe became more dependent on imports in the past years, the exporting countries would have bluntly used that market power to impose those stiff terms on the consuming countries of Europe. Based on the oil price, we would have now paid more than 40 euro per MWh for gas, whereas the current price on the Hub markets is some 15 euros per MWh below that level.
For electricity, the answer is less clear. With power market liberalization, the traditional (average) cost price plus model of regulated markets is replaced by a marginal cost pricing model. This has caused large increases of power prices when the fuel cost of the marginal power stations (gas and coal) increased. In countries with a high proportion of power production that has average costs below that marginal cost, the price of electricity has been more volatile and higher than it would have been without liberalization. I am thinking about Belgium, France, Germany or Spain with their high proportion of renewable and nuclear power stations. But as recent experience has shown, when fuel prices (such as coal) drop, the prices in the liberalized markets fell to levels below regulated market level. Last week, Uniden, the organization of French large consumers, complained that the German industrials now paid less than the French, despite the regulated tariff in France.

For all the volatility and extremely high prices of the last five years, it is clear that the open markets have given clear price signals. The recent drop in power prices was also caused by the decrease in demand and the increase in supply that is the predicted outcome of a period of high prices in free market economics.

4. Is there a pan-European market for energy?

No, but as far as gas is concerned, we are getting near. In the past years, we have made many multi-country gas contracts. Certainly with companies having sites in the Benelux, Germany and France. The UK is more complicated as you have the exchange rate issue and many differences in market design. Spain and Italy have also been challenging so far. The interesting thing of these gas contracts is that they contain one multi-country volume commitment, reducing the risk of take-or-pay penalties as one site consumes less. And we manage to make contracts for the different countries with one single price formula (TTF plus add-on) and one common hedging service. Today, for electricity this is impossible. Due to a lack of interconnection capacities, the wholesale markets in electricity have converged less than those in gas. And as power bills have a higher non-commodity component, there is more emphasis on grid fees and taxes, which are different in every country.

The difficulties to make pan-European power contracts show that there is indeed much that remains to be done to call European energy market liberalization a full success. And there are still remarkable differences between the different countries. France has never made much efforts in liberalizing its power market. And the governments of Italy and Spain have repeatedly shown a total lack of willingness to define and implement the right policies to open up their markets. However, academic analysis tends to focus on the wrong issues, such as unbundling and switch rate. Recent experience has shown that the key factors for opening up markets is the effectiveness and efficiency of the capacity allocation processes. In that field, more progress has been made than liberalization pessimism implies.

Filed under: Energy policy

German Cal 14 baseload power drops below 42 euro per MWh

It was the summer of 2005 and we had just created E&C, a brand new energy procurement consultancy focused on servicing clients in taking energy price fixing decisions. The price of year ahead electricity in Belgium rose above 50 euro per MWh. Our phone was red hot with clients in panic. Such price levels were unsupportable! Little did we know then that this was just the beginning of an uptrend that would culminate in baseload prices near 100 euro per MWh in the spring of 2008. Then came the crisis and a sharp correction of the energy markets. As soon as the price dropped below 50 euro per MWh, every client wanted to fix. What seemed like a nightmare price level three years before was now generally described as “an opportunity we don’t want to miss”. And when in the spring of 2011 and in the wake of the Fukushima disaster baseload power prices in North-Western-Europe jumped back above 60 euro per MWh, everybody was so sad for not having fixed more at levels around 50 euro per MWh.

Today, the Belgian Cal 14 baseload has traded at 44,5 euro per MWh. And late in the afternoon, our jaws dropped as we saw the German Cal 14 baseload contract drop below 42 euro per MWh and as low as 41,7. Who would have thought that within less than two years we would see such historically low prices, when in March 2011, Frau Merkel announced the shutdown of seven nuclear power plants? If anything, today’s prices are once again reminding us of the fundamental unpredictability of energy markets. The only thing you should expect in energy markets is the unexpected. The clients I speak to these days can only express disbelieve. Is this possible? Yes, it is, and it is happening right now. Moreover, there are solid reasons for power prices to drop so low:

• Coal prices have dropped back below 100 dollar per ton. There are two main reasons for this. The first one is the increased (shale) gas production in the US. Across the Atlantic, power producers have switched to gas-fired production. Excess American coal is flooding the world markets. On top of that, China has started to import less coal as it is expanding its coal production.
• Demand for power is in a steadily declining trend. This is obviously due to the weak economic performance in Europe. But that is not the only reason. Heavy energy intensive industry moving out of Europe is another cause. And I am convinced that the declining demand is also a result of Europe’s climate change commitments. Just think about the lamps you currently buy. They consume just ten percent or even less of what you frequently bought eight years ago. We also observe that many industrial power consumers have gone through effective power consumption reduction programs.
• Increasing production of renewable energy is another reason for declining power markets that is to be attributed to climate policy. It is not a coincidence that Germany, with its continuing expansion of renewable power production is currently at the lowest level. MWh’s produced with windmills or solar panels have a zero marginal cost and their increasingly massive presence on the grids causes overall price levels to decline. And despite the fact that in many countries the subsidies to install renewable technology have been reduced, the growth of renewables continues.  Solar panels are claimed to have reached grid parity. Thanks to the rapid decrease of the price of the technology, residential consumers in many countries now no longer need any subsidies to earn money with the panels they mount on their rooftops.
• The declining price of emission rights is an example of how European climate policy has failed. In the EEX spot market emission rights have been trading below 5 euro per MWh this week. As everybody starts to realize that the European Union is not capable of solving the problem of over-allocation, will we see that price drop back to levels near zero?

The downtrend is strong, supported by fundamentals and is still going on. Of course, at any time something can happen that makes the downtrend turn around. Emission regulations could oblige power producers to shut down coal-fired plants. Or the failure of emission rights trading might be compensated with the introduction of carbon taxes, like we have seen in the UK. Or demand for power might pick up in a strong economic recovery, something we all hope for. Or more nuclear power plants might be shut down in the wake of some safety incident. At this moment we can only recommend to keep yourselves ready to fix prices when this fine downtrend comes to an end. In the meantime, “don’t catch a falling knife”. So many clients are unhappy today for fixing too much of their 2014 prices at levels just below 50, as they esteemed that the market would never drop much lower than that level. Again, their expectations about the market trumped them. So, don’t think you are dreaming, the price in Germany really has dropped below 42 and the downtrend continues.

Filed under: Belgium, Forecasting, Germany, Market analysis, The market today

¿Guerra entre Eléctricas y Gobierno? (in Spanish)

(un texto de Felipe Gracia, E&C Consultants)

La gran pregunta

 ¿Qué está pasando en el mercado Eléctrico Español en este comienzo de año donde los precios se han disparado de forma desmedida con respecto a los valores de finales de año y en especial en relación a los países de nuestro entorno?

Esta es la pregunta que en los últimos días se están haciendo casi todos los consumidores eléctricos y para los cuales se dirige el presente escrito.  La respuesta: las espadas están levantadas y se ha declarado la guerra entre las empresas Eléctricas y el Gobierno. El motivo: El gobierno ha tomado ciertas medidas en los últimos meses que inciden directamente en el beneficio de las mismas y ante lo cual no están dispuestas a ceder ni un ápice más.

Antecedentes

 Haciendo un repaso muy rápido, vamos a situarnos en el mes de Junio 2012 cuando los precios en OMIP (que es el mercado de Futuros) reflejaban unos valores de Energía para el siguiente año de unos 49,5€/MWh:

(click on the images to enlarge them)

Eran momentos donde los valores del mercado estaban en línea con el resto de países de Europa, e incluso menores ya que España siempre había ido un poco por debajo del resto, fruto posiblemente de la poca madurez del mercado, dada la reciente liberalización.

 Estamos en pleno año 2012, crítico por la situación de la economía y por la estabilidad del Euro, nuestra moneda única estaba siendo cuestionada por los problemas en países como Grecia, Italia o España. Con este panorama de fundamentales: economía tocada, demanda energética decreciendo por la falta de actividad de la industria nacional, una Europa con grandes problemas monetarios, Estados Unidos con una visión no clara de repunte de su economía y Asia donde China mostraba síntomas de desgaste y por primera vez se empezaba a mostrar una posible desaceleración de la economía. En estos momentos nadie pensaba que podía haber un cambio significativo en los mercados, ya que como se reflexionaba a pie de industria: “¿cómo vamos a pagar más cara la Energía, con la crisis que tenemos y la gran competencia que existe?”

También se sabía que el nuevo gobierno que había tomado posesión hacía unos 9 meses tenía una tarea por delante bastante complicada, que era la eliminación del “Déficit de tarifa”, un lastre histórico que databa del año 2.000 cuando el entonces Ministro de Economía Rodrigo Rato congelo las tarifas de acceso (lo que cuesta producir) por razones en principio de ayuda a los consumidores, pero cuyo efecto se ha demostrado muy pernicioso. Como muy bien explica mi colega Alejandro de Roca en su video sobre el déficit de tarifa presente en nuestro Canal EnergyticsTV de YouTube, “ El Déficit de Tarifa se genera cuando los costes del sistema son superiores a los ingresos, convirtiéndose en una deuda que debe pagarse a través de futuros ingresos”. Mediante una ley se prohíbe traspasar los costes reales y se genera una deuda (déficit) que se ha de pagar a sus dueños, en este caso las compañías eléctricas incumbentes (a cierre de 2011 Endesa era titular del 50% en números redondos del déficit actual, cuyo valor ascendía a unos 24.000 Millones €). La evolución del Déficit de Tarifa se muestra a continuación de forma resumida:

 

 Como se puede ver en el gráfico anterior, año tras año desde el 2000 se fue generando una diferencia entre los costes del sistema y lo que las compañías percibían por ello. Es importante observar que desde el 2008 los desfases anuales se incrementaron en gran medida, provocados mayormente por las ayudas a las tecnologías renovables que el gobierno socialista había promovido, sin ningún tipo de control. Fueron los años dorados del sector, como los de la economía Española, donde invertir en parques solares o en molinos de viento aseguraba unas rentabilidades espectaculares, pero era normal, éramos un país rico…

 Un primer intento de acabar con la deuda se produjo en el 2010 cuando el Ministro de Energía Sr. Sebastián promulgó una ley por la que se acotaba en tiempo e importe la deuda a generar y se daba una señal a los responsables de la voluntad de acabar con el problema.

 El plan del Ministro Sebastián era subir los Peajes de Acceso sobre un 30% entre 2011 y 2013, hasta el punto en que la retribución percibida fuera igual que los costes del sistema, y un poco más. Al mismo tiempo se titularizaba la deuda generada a través del fondo para la amortización del déficit de tarifa (FADE) y con los ingresos generados por los nuevos peajes se pagaba el principal y los intereses en un plazo de 25 años. Ese era el plan, pero como se ve en el resultado del 2011 los números no acababan de cuadrar ya que en ese año hubo subidas de peajes, pero se rebaso el límite marcado en el RDL14/2010 en unos 850 Millones €. En ese entonces el gobierno socialista en el poder estaba en su ultima etapa y ya se veía que el problema del déficit de tarifa debería ser solucionado por el siguiente que tomara el relevo, no se iban a desgastar más en este tema tan complicado y poco agradecido. Adicionalmente es importante considerar la situación de deuda país existente en ese momento, digamos que no era el momento más barato para emitir dicha deuda, sino más bien el peor posible.

La entrada del nuevo gobierno en 2012

Por todo lo comentado anteriormente, durante la campaña electoral que llevo a las elecciones de finales de 2011 ya se habló del déficit de tarifa; se dijo por parte de los diferentes partidos que había que solucionarlo si o si, ya que de ser un problema del sector energético se iba a convertir en un problema de país, por la magnitud económica actual unos 24.000 Millones € en 2011 y a lo que podía llegar 70.000 Millones € en 2020.

 El Presidente del Gobierno Sr. Rajoy y por delegación el ministro de Industria, Sr. Soria, ya había avisado de que su ministerio iba a trabajar una reforma integral del sector energético, en la que todos los que estamos relacionados con el mismo habíamos depositado muchas esperanzas. No se trataba de medidas superficiales, sino de calado para solventar problemas históricos que impedían una mejor operativa del mismo. Por desgracia, durante los meses siguientes se vio que esas esperanzas no se iban a cumplir, sino más bien otras de puro ajuste, probablemente también necesarias.

Ante la situación de grave crisis económica en que estaba el país y su reciente cartera, el nuevo ministro y de forma tímida, incrementó los peajes de acceso el 1 de Enero de 2012. De hecho fue la primera de las dos que hubo en 2012, la segunda se produciría en el mes de Abril.

Calma en el sector durante la primera parte del año, más bien mucha inquietud ya que se sabía que en el ministerio se estaba trabajando la reforma del sector, pero nada concreto se conocía al respecto. Todo cerrado y sin posibilidad de interlocución para los diferentes lobbies del sector, que no son pocos: eléctricas incumbentes a través de UNESA, fondos de Inversión con intereses en energías renovables en su mayoría americanos, asociaciones Industriales, compañías de renovables, asociaciones sectoriales de Gas, etc. Cuanto más se avanzaba en el año, con las dificultades económicas patentes, mas presión se metía al ministro Soria para que pusiera orden en el sector. Tras el verano ya se empezaron a conocer las primeras noticias de lo que podía ser la ley de reforma del sector energético y la cosa no pintaba muy bien, el alcance era diferente del inicial y se centraba en medidas fiscales, que poco o nada tenían que ver con el gran objetivo.

La Ley de Reforma del sector Energético

Para entender la necesidad de la actuación dada la situación del déficit de tarifa del 2012, consideremos el siguiente resumen de costes e ingresos del sector eléctrico:

 

 El total de los Costes del Sistema Eléctrico previstos para el 2012 ascienden a 20.374 Millones €, de los cuales 9.100 Millones € han sido primas al régimen especial (un 33% de dichas primas van destinadas a las Solar Fotovoltaica con una reducida participación en energía generada).

Los Ingresos del Sistema han sido de 14.654 Millones €, por lo que existe un desfase entre gastos e ingresos de:

      Costes 20.374 – Ingresos 14.657 = Déficit de Tarifa 5.720 (Millones €)

Los importes anteriores son orientativos, ya que cambian con cada revisión que el gobierno hace de los costes e ingresos del sistema, pero se ve de forma clara la urgencia y la gravedad de la situación. Recordar que el RDL 14/2010 fijaba el máximo déficit de tarifa para el 2012 en 1.500 Millones €. El exceso por encima de lo marcado en la ley es de unos 4.200 Millones €.

Como se puede ver en el gráfico, el desfase del 2012 se ha dividido en tres partidas:

• Impuestos:      3.000 Millones €
• Subasta CO2:    450 Millones €
• Resto:             2.270 Millones €

El gobierno, consciente del déficit existente decide tomar medidas para que la situación no se repita en 2013 y divide en los tres apartados anteriores el extra ingreso que se debe producir. La idea es que a través de diferentes medidas se ataje de una vez por todas el déficit y por fin se cuadren Costes e Ingresos.

Impuestos: La nueva Ley de Reforma del Sector Energético, mediante las  medidas fiscales que se muestran a continuación, pretende captar el importe denominado como Impuestos según los apartados que se muestran a continuación:

 

Es importante remarcar que a raíz de estas medidas, la empresa Nuclenor (Endesa e Iberdrola) propietaria de la Central Nuclear de Garoña en Burgos, decidió no ampliar su vida útil, aludiendo a que no era rentable dado el impuesto sobre los residuos radiactivos. Existen diferentes versiones de esta historia, pero parece razonable la rentabilidad de una central como Garoña hasta el 2019 aún con las mejoras e impuestos adicionales. El cierre de Garoña es reversible, de momento, y es un claro pulso de fuerza de las eléctricas al gobierno ante las posibles futuras medidas.

 

Garoña es uno de los 8 núcleos de las 6 centrales nucleares que tenemos en activo en España: Almaraz (1035+1045MW), Trillo (1066MW), Cofrentes (1092MW), Asco (1032+1027MW), Vandellós II (1087MW), y Garoña (466MW).

La potencia instalada total es de 7.850 MW, de la que Garoña supone un 6% del total. El cierre de la central afectaría por tanto a un 1,4% de la producción total de Energía, según datos del 2012.

 Subasta CO2: El gobierno prevé también conseguir unos 450 Millones € de la subasta de emisiones que se ha de producir en 2013, siendo éste el segundo de los capítulos.

 Resto: Aun así con estos dos primeros capítulos quedan pendiente de conseguir otros 2.270 Millones €, que no han sido detallados todavía, y que nos llevará a entender la situación actual de Enero 2013.

Efecto en el mercado de las Medidas Fiscales

Antes de entrar en detalle en la última partida del desvío entre costes e ingresos del mercado eléctrico denominada como Resto, y entender la situación actual de claro enfrentamiento entre gobierno y eléctricas, veamos cuales han sido los efectos en los cinco últimos meses del año de la nueva Ley de Reforma del Sector Energético.

Para comprobar el impacto de las medidas fiscales hay que mirar el mercado Eléctrico OMIP,  como anticipación del efecto en el precio de la Energía:

 

Hay 3 momentos vitales para entender la evolución de los precios y que coinciden con apariciones públicas de representantes del gobierno, donde desvelan el contenido de las reformas. Como se puede apreciar, en todos estos momentos el mercado las ha tomado de forma muy negativa, con importantes subidas de precios:

A) La segunda semana de Julio, el Sr. Rajoy habla sobre la intención de establecer un nuevo marco fiscal Energético. La noticia cae como una bomba en el mercado viendo que se decide por la vía de la Fiscalidad como medida de reforma y el 12 de julio el mercado sube 1,5€/MWh en tan solo 1 día.

B) El viernes 14 de Septiembre se produce el esperado anuncio del Ministro de Energía sobre el detalle de las Medidas, tras el consejo de ministros. Ese mismo día el mercado sube 1,2€/MWh y el lunes posterior vuelve a repuntar otros 1,1€/MWh, 2,3€/MWh en tan solo dos días. Al contrario de lo que sucede en el mes de Julio donde se vio una relajación de precios posterior al anuncio, en este caso los precios no bajan de forma inmediata.

C) Durante el proceso de aprobación de la ley en el congreso y ante las diferentes presiones de los lobbies que se ven afectados por el incremento en el Céntimo Verde al Gas, se anuncia una rebaja de éste a la Industria y una subida del impuesto a la Generación que pasa del 6% al 7%. Entre el 30 de Noviembre y el 2 de Diciembre el mercado subió otros 2€/MWh.

Fruto de esos 3 momentos concretos el mercado paso de valores de 49,5€/MWh a 55,5€/MWh un incremento del 12%, unos 6€/MWh.

Importante remarcar en este punto la situación de aquellos consumidores de Energía que se esperaron a negociar su contrato un par de meses antes del vencimiento a fin de año, los cuales vieron como sus precios subían esos 6€/MWh. El impacto de 6€/MWh para cada 1GWh de consumo es de 6K€, es decir para alguien que consuma 100GWh el incremento que supone sería de unos 600K€.

Situación actual

Tras el incremento de precios de los últimos cinco meses del 2012, a finales de dicho año los valores de mercado de Iberia en relación al resto de países de nuestro entorno eran de clara superioridad, como se puede ver en la tabla del 20 de Diciembre. Esa diferencia se ha visto agravada en los primeros días del 2013 como se puede comprobar en la tabla del 8 de Enero.

Fecha: 20 diciembre 2012                                    

  

Fecha: 8 de Enero 2013

 Las diferencias entre el precio de España y países Europeos como Bélgica (BE), Holanda (NL), o Alemania (DE) se han visto incrementadas en unos 3,5€/MWh adicionales a los diferenciales ya existentes a final de 2012.

La comparativa con el resto de países Europeos es interesante ya que valores de mercado dispares pueden significar razones muy claras en cuanto a los fundamentales, como lo serían la demanda o un cambio drástico en el mix de generación. Es cierto que entre los países el mix de producción ha ido cambiando durante el año, por ejemplo con la parada de centrales nucleares en Alemania o Bélgica.

En el gráfico siguiente se muestra la evolución histórica de los precios de mercados de futuros en Holanda (NL), Alemania (GER), Bélgica (BE), España (SP) y Francia (FR):

 

Si bien es cierto que en el pasado los precios eran diferentes (2008 – 2010), desde el año 2011 los precios estaban muy alineados entre los diferentes países, aspecto que comenzó a cambiar en el 3er trimestre del 2012, con Alemania disponiendo de precios históricamente bajos y España considerablemente altos, de ahí la divergencia de las líneas.

Pero lo que más nos está alarmando de los precios del mercado es que no solo atañe al mercado de Futuros, sino especialmente al mercado Spot (OMIE para iberia). Considerando las subidas debidas a las medidas fiscales que entraban en vigor en 2013, ya se asumía una subida de los precios de unos 3 a 5€/MWh respecto a los valores del 2012. Contando que la media del OMIE del 2012 ha sido de 47,23€/MWh con un mes de Enero 2012 de media 51,06€/MWh, los valores de comienzo de año eran de gran expectativa.

En el gráfico siguiente se comparan los precios diarios del OMIE desde el 1 de Enero de 2011 hasta la actualidad:

 

 Desde el día 4 de Enero, los valores rondan los 57 – 67€/MWh, incluyendo el fin de semana que corresponde a los días 5 y 6. Estos valores son entre un 11% y un 30% mayores que los mismos del mes de Enero del 2012 y suponen un incremento de entre 6 y 16€/MWh con respecto a dicho mes.

¿Es razonable estos precios en un país con una reducida actividad Industrial, y dada la crítica situación económica? A todas luces parece que no. Enlacemos esta reflexión con la ultima de las partidas que debía cuadrar el ministerio de energía para tener déficit 0 en 2013 que se correspondía con los 2.270 Millones € ya comentados.

Decreto Ley de Medidas de Protección de Empleados del Hogar

Normalmente el 31 de Diciembre, el Gobierno emite el nuevo decreto ley que determina los peajes de acceso de Electricidad y Gas para el próximo año. En los últimos ejercicios, dichos peajes se habían incrementado ayudando a la reducción del déficit de tarifa. Las Eléctricas habían previsto un movimiento igual, pero en este caso el gobierno actuó de forma diferente dada la situación especial que nos ocupa.

Por una parte se debe cumplir el RDL 14/2010 que marcaba el déficit del 2012 en 1.500 Millones € y Cero en 2013, pero por otro lado el déficit REAL del 2012 asciende a 5.717 Millones € y existe un descuadre de 2.270 Millones € para el 2013. Parece difícil cumplir con la ley, o mejor dicho imposible.

Las eléctricas pensaban que el gobierno haría el incremento de peajes necesario para recaudar los 2.270 Millones € en 2013 y por lo menos cumplir con la ley para 2013, pero nada más lejos de la realidad. El 31 de diciembre se emitió una ley de Medidas de Protección de Empleados del Hogar al que se le anexo una parte referente al sector Eléctrico. ¿Cual es la relación entre ambos temas?, ninguna, pero se utilizó este decreto ley para ambas finalidades. El resultado es que el gobierno deja la puerta abierta a que se coloque toda la deuda del 2012, no tan solo los 1.500 Millones € de la antigua ley, y desaparece la exigencia de déficit cero del 2013. Esta noticia es un autentico mazazo para las Eléctricas que ven como sus balances van a tener que soportar, de nuevo, el déficit que se produzca y que al mismo tiempo ven alejarse la solución definitiva al problema.

Uno de los mensajes más importantes percibidos por el sector es que parece que el gobierno ha tirado la toalla en el objetivo de eliminar el déficit de tarifa, y esto si que es algo vital para el futuro del sector y del país.

En el mes de Noviembre, Industria remitió a la CNE una propuesta de Peajes que hacia cuadrar el déficit del 2013, donde se asumía en los Presupuestos generales del estado lo que no se llegaba con las medidas ya tomadas (2.270 Millones €), pero en ese momento la CNE advirtió que dicha partida no constaba en la propuesta de cuentas públicas del 2013. Parece ser que se produjo otro choque de trenes entre los ministerios de Industria y Hacienda, o mejor dicho entre los señores Soria y Montoro y a la luz de los acontecimientos ya podemos adivinar quien gano la batalla.

Las dudas que existen sobre la mesa son 1) Cuales serán los peajes definitivos para el 2013 y 2) Cómo el ejecutivo hará cuadrar las cuentas para eliminar el déficit a partir de este año. Los precios actuales parecen muy elevados teniendo en cuenta los fundamentales que debería regir el mercado, por lo que habrá que esperar y ver cómo se van resolviendo los diferentes asuntos que están sobre la mesa. Si realmente las eléctricas están, de forma temporal, afectando los precios del mercado, este efecto no puede ser permanente y los mercados deberían volver a los valores razonables de acuerdo a criterios de oferta y demanda.

¿Y en 2013 que?

Además de todo lo anterior, debemos pensar que el ministerio tiene el deber de finalizar la ley de reforma del sector, con medidas de calado, no tan solo fiscales. El ministro Soria ya anticipó parte de esas medidas, como son:

• Redefinición de las competencias de Estado y CCAA
• Liberalización del suministro para disminuir el coste de la Tarifa de Último Recurso
• Unificación del régimen Especial y el Ordinario
• Revisión de la retribución de las actividades reguladas: trasporte y distribución
• Decreto del Balance Neto: Autoconsumo y su compensación
• Nueva regulación de las conexiones y acceso al sistema
• Nuevo desarrollo reglamentario para las energías renovables
• Análisis de la Eficiencia energética bajo el prisma de la rentabilidad razonable
• Redefinición de las partidas que conforman los peajes de acceso a las redes
• Nuevo tratamiento de los sistemas eléctricos insulares y extra peninsulares
• Mejora de los procedimientos de autorización administrativa

Estaremos atentos a las evoluciones de los mercados, pero por regla general cuando los precios están tan altos lo más importante es ser fieles a la estrategia marcada para la compra de Energía vigilando los límites máximos y las compras periódicas.

Filed under: Energy policy, Energy suppliers, Market analysis, Spain

Le marché de l’énergie français en Décembre: une fin d’année mouvementée pour EDF et GDF!

Les différents événements observés à la fin de l’année 2012 témoignent de la mutation constante des marchés. EDF s’est montré très offensif sur le marché du gaz pour asseoir davantage sa position et tenter de faire face aux tensions croissantes. En revanche, les déconvenues liées à l’EPR et le souhait de Hollande de fermer Fessenheim jettent un froid sur la scène nucléaire française. Même bras de fer avec GDF en Belgique, qui cherche à redémarrer ses centrales nucléaire à Doel et Tihange. Par ailleurs, dès Janvier, GDF va pouvoir appliquer en France une hausse des tarifs réglementés pour le gaz, mais en augmentant heureusement la part d’indexation sur le marché hub dans sa formule d’approvisionnement.

Electricité

Un nouveau dérapage des coûts de construction du premier EPR en France a été annoncé début décembre. La facture avoisinerait désormais les 8.5 milliards d’euros, au lieu de 3.3 milliards d’euros prévus au début du projet. Suite à cette annonce, l’italien ENEL a décidé de se retirer du projet, laissant EDF faire cavalier seul et lui rembourser au passage les 613 millions d’euros investis. Enel se justifie également  au travers de la « forte baisse de la demande d’électricité et un calendrier incertain pour les autres investissements dans le nucléaire en France». La question de la rentabilité de l’EPR est alors ouverte. Tout dépend de la suite qui est donnée: s’agira t-il d’un modèle unique ou est-ce le premier d’une construction en série? Le président du directoire d’Areva (Luc Oursel) a lancé quelques chiffres: selon lui, le prix de l’électricité produite sur ce site coûtera entre 70 et 80 euros par MWh, à comparer aux prix de marché inférieurs à 50 euros par MWh actuellement, et au prix de l’ARENH de 42 euros par MWh en vigueur. Même si la construction en Finlande souffre également de problèmes, le chantier des deux EPR en Chine obéit encore au planning fixé et se maintient dans le budget prévu. Toujours selon Areva, le coût de l’électricité fournie par un EPR standard devrait à terme tomber à 60 euros par MWh en Europe. En effet, M. Oursel a confirmé son objectif ambitieux de commercialiser au moins 10 EPR de 3ème génération d’ici la fin de l’année 2016 et se doit donc de rassurer la clientèle! Parmi ces 10 EPR, 2 seraient très probablement construits en Grande Bretagne et exploités par EDF Energy, mais il y a encore quelques incertitudes à l’heure actuelle.

Poursuivre l’exploitation d’une centrale existante est donc bien moins risqué en termes économiques. Cependant, le débat a encore été ravivé quant au souhait de François Hollande de fermer Fessenheim d’ici 2016. Il s’agirait d’une bien mauvaise affaire pour EDF au vu des investissements en cours. Le montage du dossier de démantèlement prendrait environ cinq ans, mais EDF serait contraint de réaliser entre temps les nouveaux investissements imposés par l’expérience post-Fukushima, soit environ 350 millions d’euros. Cela s’ajoute aux travaux récemment effectués pour prolonger l’exploitation de la centrale jusqu’en 2021. Ceux-ci avaient déjà couté 300 millions d’euros. Ces travaux en font par conséquent une centrale à l’avant-garde des normes de sureté les plus exigeantes! Par ailleurs, dernier bémol, EDF se doit fournir de l’électricité à ses homologues allemands et suisses qui ont participé au financement de la centrale, et cela au coût de production actuel estimé à 25 euros par MWh, bien inférieur au prix de marché (centrale déjà amortie). Une perte de plusieurs centaines de millions d’euros est là aussi à attendre. Pour orchestrer cette fermeture, Francis Rol-Tanguy, surnommé M. Fessenheim, a été nommé en Conseil des ministres mercredi 12 décembre. Il devra garantir que les emplois liés à la centrale soient préservés. Il n’est cependant pas parvenu à entrer sur le site lors de sa visite le vendredi suivant, refoulé par des salariés mécontents, qui n’ont « pas besoin de liquidateur ». De nouvelles actions sont prévues.

En Belgique, Electrabel (filiale de GDF) tente d’obtenir le feu vert pour redémarrer Doel 3 et Tihange 2, les deux centrales stoppées  suite à la découverte de fissures dans les cuves qui abritent les cœurs des réacteurs. L’entreprise a remis début décembre un rapport à l’Agence Fédérale de Contrôle Nucléaire (AFCN) avec ses conclusions et son plan d’action pour le redémarrage des deux unités, estimant qu’un redémarrage est possible : “Toutes les normes et standards internationaux ont entièrement été respectés lors de la construction des centrales” et  “le constat initial selon lequel il s’agirait de défauts dus à l’hydrogène non évolutifs et formés lors de la phase de forgeage est confirmé” et indique que « les résultats confirment l’intégrité des cuves des réacteurs considérés, ce qui permet le redémarrage immédiat et l’exploitation sûre de Doel 3 et Tihange 2 ». L’évaluation finale de l’AFCN est attendue pour la mi-janvier 2013. Une telle annonce a redonné de l’optimisme au marché de l’électricité en Belgique, avec des prix atteignant des niveaux intéressants.

Il y a quelques années, il était fait mention d’une renaissance nucléaire à travers le monde. La France avait la volonté ferme de placer son industrie nucléaire à l’avant-garde de cette nouvelle vague d’investissements. Que reste t’il de cet optimisme? La catastrophe de Fukushima et les évènements de 2012 en Belgique ont montré que l’électricité nucléaire semble moins sûre que promis initialement. Tenant compte des conséquences catastrophiques qu’un accident de centrale nucléaire pourrait avoir, on ne peut prendre aucun risque avec un potentiel problème de sécurité/sûreté. De plus, en raison de la taille de ces centrales, un arrêt lors d’un éventuel problème mène à un défaut de capacité disponible considérable. Imaginez-vous que l’on découvre demain un problème nécessitant  de fermer immédiatement toutes les centrales nucléaires en France. L’échec financier de Flamanville démontre que le nucléaire n’est pas une électricité bon marché non plus. Sans aides à l’investissement et avec la prise en compte de ces coûts de sûreté, l’électricité nucléaire se veut plus chère que l’électricité produite à partir des sources fossiles. De plus, elle n’est que légèrement moins chère que l’électricité verte produite à partir d’éoliennes, à travers les panneaux photovoltaïques ou grâce aux centrales biomasse. Les coûts d’investissements de ces énergies vertes suivent par ailleurs une courbe décroissante, ce qui n’est pas tout à fait le cas pour le nucléaire.

Le gouvernement français actuel semble être sensible à ces arguments contre l’expansion de l’industrie nucléaire. Néanmoins, si l’on tient compte de la grande dépendance du nucléaire en France (la plus forte dans le monde), un renversement complet et rapide de la politique énergétique nous semble difficile à réaliser.

Gaz

Les tarifs règlementés du gaz naturel vont augmenter en 2013. Delphine Batho a confirmé une hausse de 2,4% au 1er janvier, et non pas de 0.8% comme cela aurait du être le cas. En effet, le Conseil d’Etat a  jugé trop faible la hausse de 2% accordée par le gouvernement à GDF Suez en Octobre dernier et réclame une correction (estimant que la limitation de la hausse imposée par l’Etat n’était pas conforme, porte préjudice aux fournisseurs alternatifs et crée un déséquilibre budgétaire pour GDF). Les nouveaux tarifs permettront donc de rattraper le retard accumulé. Cependant, bonne nouvelle, la renégociation des contrats d’approvisionnement demandée par le premier ministre a aboutie positivement : la part d’indexation sur les hubs va augmenter de 26 à 36% dans la formule d’indexation du prix (et donc dans le portfolio de GDF), permettant de contenir cette hausse qui aurait le cas échéant été de 4%. La part des produits pétroliers recule donc. Seconde modification: les prix seront ajustés tous les mois et non plus tous les trimestres pour lisser les évolutions.

La partie d’échec géopolitique qui oppose les deux projets de gazoducs concurrents South Stream et Nabucco, portés respectivement par la Russie et par l’Union Européenne, vient de tourner à l’avantage du premier. Vladimir Poutine a inauguré le démarrage de la construction du gazoduc South Stream. Celui-ci est censé couvrir 2 380 kilomètres dont 925 kilomètres en offshore pour une mise en service fin 2015. Le coût est estimé à 16,5 milliards d’euros. Le tracé évite soigneusement l’Ukraine, et permettrait également de contrôler une grande partie des livraisons du gaz en provenance des gisements de la mer Caspienne et du Kazakhstan, concurrençant directement le gazoduc alternatif Nabucco. Henri Proglio, PDG d’EDF était présent à l’inauguration, dans la mesure où EDF intervient à hauteur de 15 % dans ce consortium. De nombreuses discussions quant à la pertinence de ce projet sont ouvertes. Il est cependant clair que cela va à l’encontre de la politique de L’Union Européenne visant à accroitre la diversification des approvisionnements de gaz!

Preuve du dynamisme et de la volonté de développement d’EDF dans le marché gazier, l’entreprise s’est portée candidate au sien d’un consortium à la reprise de TIGF (filiale transport et stockage de gaz du Sud Ouest mise en vente par Total), estimée entre 2 et 3 milliards d’euros. Annoncé comme un autre possible repreneur probable, GDF n’a pas remis d’offre. Sa filiale GRTGaz gère pour l’instant les réseaux des 2 autres hubs PEG Nord et PEG Sud et aurait pu compléter son tableau de chasse avec la dernière pièce du puzzle, permettant éventuellement un rapprochement plus rapide des 3 hubs.

La France continue à mener une politique à double visage concernant son marché de gaz naturel. D’un côté, la pression mise sur GDF pour évoluer vers une plus forte indexation Hub (plutôt que l’indexation pétrolière) est en phase avec la politique européenne. Mais d’un l’autre côté, des opportunités pour le renforcement des marchés Hub sont ratées. La France souffre du manque d’unité de son marché interne de gaz. Si GDF reprenait le réseau TIGF, une unification pourrait être réalisée, avec comme résultat un meilleur fonctionnement du marché Hub français. En plus, alors que la France pousse GDF à forcer ses fournisseurs à s’indexer sur le Hub, EDF assiste le plus grand ennemi des hubs gaziers, Gazprom, à réaliser son projet South Stream, un projet menaçant la diversification de fourniture nécessaire pour la réussite des marchés Hub en Europe.

Les adaptations récentes de la politique énergétique de la France semblent être inspirées par une acceptation de certaines réalités de marché plutôt que par une volonté d’avancer. Reste à voir si une politique plus visionnaire se réalise.

article by Baptiste Desbois

Filed under: Energy policy, Energy suppliers, France, Natural gas, Uncategorized

TIGF sells its gas transportation grid

It has always been an oddity in centralist France, this part of the gas transportation grid called TIGF. It is situated in the South-West of the country and it is owned by Total and not by state-held gas firm GdF. Total has now decided to divest and sell its piece of French gas grid. Four bidders are selected: EdF, Enagas, AXA and CDC. Hold on, you might ask, did you say EdF and not GdF? Well indeed, GdF, owner of the rest of the transportation grid in France is not among the bidders. So the unification of France’s gas transportation grid will not happen.

One of the main flaws in European gas market liberalization is the lack of a North – South gas corridor. There is a pipeline link between the Netherlands and Italy, but so far, no extensive trading activity was seen due to failing capacity rights allocations. And Spain is a gas island, linked to the rest of Europe with just a small pipeline. Also, the lack of good links between France’s regional gas grids (PEG North, PEG South and TIGF) makes North-to-South gas competition difficult. Not unifying France’s gas transportation grid by having GdF at least bid for TIGF therefore looks like a missed chance at first sight. The lack of interconnection with Southern-Europe means that the key-consuming region in the North-West is not plugged directly into the gas fields of Northern-Africa. It also means that Spain’s many LNG import terminals, which due to the crisis have large spare capacities cannot be used to alleviate the broader European market. Organizing a better North-to-South gas market integration looks like a vital step in improving Europe’s diversity (hence: security) of supply.

The necessity of diversifying Europe’s gas supply has been emphasized by the recently announced takeover of Wingas shares by Gazprom. Wingas was a 50/50 joint venture between Wintershall, the oil and gas business of German chemistry giant BASF and Russian gas behemoth Gazprom. BASF has now ceded its shares to its Russian partner, getting access to upstream production assets in Russia in return. The acquisition of Wingas earmarks Gazprom’s continuining efforts to get hold of downstream assets in the European market. And this is not a small step. Wingas is a large gas supplier in Germany and has important positions in the Benelux, French and UK market and in Denmark, Austria and the Czech Republic. Gazprom is now completely owning one of the top ten European mid-stream gas companies. Getting control over Wingas is an important step in Gazprom’s strategy of acquiring a dominant position in the European gas market. Without entering into the geo-political speculations that always surround Gazprom’s business decisions, anyone with a heart for European gas market competition will agree that becoming to reliant on a single source of supply isn’t a good thing. With North-Sea gas production starting to decline and with increasing competition on the world’s LNG markets, extra supplies coming from the South of Europe could bring welcome relief.

(Just another remark on Gazprom’s acquisition of Wingas. Gazprom’s strategy of dominating Europe’s gas market doesn’t seem to be very successful until now. Gazprom seems to be losing rather than winning market share. The Russians’ stubborn resistance to the replacement of expensive oil-indexed gas pricing with the more fair and transparent pricing at Hub conditions is the main cause for this. Shortly after the announcement of the Wingas share deal, BASF announced that it signed a 100% Hub-indexed 4,5 bcm per year gas deal with Statoil. This is an important illustration of how Europe is turning its back on Gazprom and its oil-indexation fetish. But of course, if the Hubs can’t get access to supplies outside of Russia, Gazprom might prevail in the end.)

Returning to the South, it is very interesting to see Enagas, the owner of the Spanish gas grid bid for TIGF. If they would be successful, this could lead to a better interconnection of the Spanish and French gas markets. It could also mean that a cross-border gas grid and balancing zone comes near. We could consider this to be comparable to Gasunie’s attempt as of next year to extend the Dutch gas Hub TTF into Northern-Germany. Such cross-border gas grid operations are a very interesting developments towards an integrated European gas market. However, with so many things that are still to be fixed inside the Spanish market today, this paragraph might sound like day-dreaming, I realize. There remain issues to be solved with different odorization practices in France and Spain for example.

The fact that Electricité de France (EdF) is among the selected bidders confirms that the traditional French electricity producer continues to diversify. EdF wants to become a broader energy group by expanding its gas business. It is unclear to me in how far it can achieve this by going into the grid operation business. This seems to be based on the mistaken belief that owning parts of grids is helpful in extending market share. The experience of the past five years in Europe’s gas markets have shown that independent grids with easy access to their capacities are the best option for developing gas trading. It is also unclear how financial insitutions like AXA and CDC will contribute to solutions for Europe’s gas grid challenges.

Finally, by selling TIGF, Total is following a trend among IOC’s, Independent Oil Companies. These are retreating from downstream energy marketing to have more capital to invest in the increasingly expensive exploration and production activities where they are in fierce competition with NOC’s (National Oil Companies). Last week I was speaking to the country manager of a large IOC and he confirmed to me that his company had no intention at all to go into the retail gas business in Europe. Total is still offering gas to end clients in several European countries, among them obviously France. Could the sale of TIGF mark a broader retreat to the upstream activities?

Filed under: Energy policy, Energy suppliers, France, Natural gas