EUROPEAN POWER & ENERGY
(where almost 9.5 GW were decommissioned in 2011) and more generally for grid reinforcement to improve security of supply, accommodate decentralized and renewable energies, and transform present grids into smart ones. In gas, investment in large importation pipelines and LNG facilities are required. This estimation does not include a minimum of €350 billion of German investments in electricity generation and grids for compensating the nuclear phase-out, or the nuclear plants safety measures improvements required in Europe which will, in France for example, cost €10 billion for the 58 reactors. Current economic instability and a lack of reliable projections for the Eurozone’s future are discouraging many utilities from making the necessary investment. However, the post-crisis “wake-up call” promises to be challenging.
Utilities Under Pressure Over EEMO’s observation period (H2 2011 - H1 2012),
utilities stock performance and price earnings ratios decreased compared to the MSCI Europe. However, legislative and political activity during the period suggests European regulators and governments still consider utilities as ‘cash cows’. For example, the new EU energy efficiency compromise that requires utilities to ensure their own clients achieve energy savings from 2014 or face penalties is a significant burden. In addition, political decisions like the accelerated nuclear phase-out in Germany and annual taxes on nuclear power generation imposed by Belgium (and recently by Spain) show that key stakeholders still see utilities as an easy source of revenue.
A well-functioning single European energy market is one of the key prerequisites to
accomplishing a cost-effective transition to a low-carbon economy by 2050
Summary Progress has already been made: consumers can
switch suppliers for gas and electricity, and suppliers must provide clear explanations of terms and conditions. Work still needing to be done includes aligning national market and network operation rules for gas and electricity, as well as making cross-border investment in energy infrastructure easier. A well-functioning single European energy market is one
of the key prerequisites to accomplishing a cost-effective transition to a low-carbon economy by 2050. “But to this end, Member States must implement existing energy market legislation much more rapidly and remove market distortions like regulated prices and caps,” according to EURELECTRIC. They look to seek a quicker implementation of the target models for day-ahead market coupling, intra- day, balancing and forward markets to fulfil the ambitions for an integrated European market by 2014. “And this process should take place under closer monitoring and guidance of the Commission and ACER.”
34 December 2012
Integrate Renewables Renewables play a central role in achieving a more
sustainable, low-carbon economy. Increasing shares of renewable generation require the energy system to become much more flexible. Achieving a well-functioning integrated energy market by 2014 is crucial to deliver this flexibility by providing a value for electricity generation, demand and storage. With further progress in completing the internal energy
market and with increasing maturity of renewable technologies, existing national support schemes for renewables should be aligned and progressively phased out, according to EEMO. “Renewable producers should participate in the market and be given the same responsibilities as other power producers in areas like balancing obligations and grid connection costs,” EEMO recommends. In this way market integration will also contribute to addressing current generation adequacy concerns in many Member States. Meanwhile, if generation adequacy is still endangered, capacity remuneration mechanisms could be introduced. “They should be properly designed, coordinated across the EU and consistent with the broader market integration process.” The integration of vast amounts of renewables into
distribution grids will require an evolution towards ‘smart energy systems’ that offer new opportunities for suppliers, distribution system operators and customers alike. “Adequate regulatory incentives are needed to ensure the necessary investments, as are more flexibility on the demand-side, a change in network design and an evolution of the roles of both suppliers and distribution system operators,” say EURELECTRIC. The functioning of markets is critical to Europe’s energy
market ambitions and predicated on a robust, efficient and well regulated energy industry. In the months ahead European companies active in the energy space will be required to comply with ever more complex and demanding regulations, including surveillance, position reporting, standardisation, transaction reporting, risk management and transparency. At the same time, capital costs for those trading the markets are rising. This will require greater diligence in mapping out new trading practices which embrace ever more technology in real time. A fully functioning internal electricity and gas market
means open and competitive markets in all time frames, that is focused both in the long term and short term. Market participants use these markets to make their investment, production and consumption decisions. Long term markets provide crucial investment signals; short term and close to real-time markets drive the efficient use of both generation capacity and networks. In the pages that follow we will be exploring the themes
that are driving this process forward. •
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