The new regional government of Flanders has announced that it plans investing in a new energy supplier. (http://www.energie-blog.com/2009/07/02/vlanergie-wat-nu/nl/, in Dutch, for more information). Apparently, the Flemish government believes that this is the sort of measures that are necessary to stimulate competition in the Belgian electricity market. I must say that I am skeptic.
First of all, it is rather strange that governments engage in energy production. Much of the liberalization movement was also about more private initiative in this sector. The recent sales of Essent and Nuon by Dutch local authorities to international groups like RWE and Vattenfall show this. Moreover, authorities seem to lack the kind of understanding of how energy markets function to successfully regulate them. Wouldn’t that lack of understanding be a recipe for disaster if that same government would become active in that market itself? And isn’t a government that acts both as regulator and as actor a potential source of conflict of interest?
I believe that there is a future for two sorts of energy suppliers:
– Big international groups with stakes in both natural gas and electricity markets, large trading capacities and a well-diversified production portfolio,
– Small niche players.
The big groups will act on an international scale. They will have the capital to invest in large centralized power production plants. I don’t think that the Flemish government will be rich enough to compete with them. Building such a group demands the sort of long term view on investment and patience that – alas – have become a rarity in Belgian politics where politicians contest elections every two years.
And then, what sort of power production would such a group invest in? A gas-fired power plant produces marginal Megawatthours. It is extremely difficult to compete with such marginal megawatthours with the money-making nuclear energy. Could there ever be a sufficient political platform for the Flemish government to invest in nuclear then? I don’t think so. The chance is pretty big that Vlanergie will invest in politically sexy renewable energy. But the problem with renewable energy in Flanders is that the potential is limited. The region is heavily populated, so the spots for putting up windmills, e.g. is limited. The problem with renewable energy in Flanders is not the lack of initiatives, it is the lack of authorizations for those initiatives. There are plenty of very interesting private companies that invest in renewable energy. They are engaged in heavy competition for the few available spots. I don’t think they like the idea of having another, government-sponsored, competitor.
The future of Vlanergie would probably be as a niche player then. But again, is that politically feasible? How will interest groups push their political counterparties when they feel that their group is not in the niche that is targeted by the energy company paid for with taxpayers’ money?