Europes Changing Energy Future - MSLGROUP Energy Report July 2014

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A few years ago, who would have imagined a world where shale is rewriting geopolitics, where solar and wind are supplanting coal in Germany, or where there are serious concerns over the lights starting to go out in the UK. One thing is clear – the European Energy landscape is changing at a pace that has never been seen before. In our fifth report, we bring you in-depth commentary from energy experts in Brussels, France, Italy, Germany, Poland, Sweden, the Netherlands and the UK. Connect with us to seek advice on attracting the best talent, investor communication; crisis preparedness and corporate reputation management. http://www.mslgroup.com To find out more about MSLGROUP’s services, please contact Nick Bastin on nick.bastin@capitalmsl.com | Share your feedback with us on twitter @msl_group.

Transcript of Europes Changing Energy Future - MSLGROUP Energy Report July 2014

  • 1 ENERGY REPORT July 2014 Issue 5 | July 2014 INSIDE THIS ISSUE France Energy transition and COP 21 : French ambitions stand the test of reality PAGE 6 Brussels 3rd EU attempt to boost a common strategy for energy security PAGE 12 Italy National resources and missed opportunities PAGE 8 Sweden Increased Swedish electricity requirements in the future PAGE 15 Germany Politicians must get their hands dirty for a successful Energiewende PAGE 4 United Kingdom Does the UK need to be better energy interconnected with mainland Europe? PAGE 10 ENERGY REPORT Europes Changing Energy Future
  • 2 ENERGY REPORT July 2014 Contents Politicians must get their hands dirty for a successful Energiewende 4 Energy transition and COP 21 : French ambitions stand the test of reality 6 National resources and missed opportunities 8 Does the UK need to be better energy interconnected with mainland Europe? 10 3rd EU attempt to boost a common strategy for energy security 12 Increased Swedish electricity requirements in the future 15 The Dutch quest for European LNG leadership 17 Crimean gas shadow 19 MSLGROUP can make the difference 21 Where we are 22 2
  • 3 ENERGY REPORT July 2014 Rising to the challenge The European energy landscape is evolving at a rapid pace and many of the accepted norms have been challenged and abandoned. A few years ago, who would have imagined a world where shale is rewriting geopolitics, where solar and wind are supplanting coal in Germany, or where there are serious concerns over the lights starting to go out in the UK. One thing is clear the European Energy landscape is changing at a pace that has never been seen before. Similarly, the events in Ukraine and the Crimea have pulled Europes re- liance on Russian gas into greater focus. While that may be unpalatable for some, the reality is that with nuclear off the agenda in much of Eu- rope, coal on the decline, and renewables too intermittent for baseload power, Russian gas is likely to remain a key feature in Europes energy mix for years to come. This throws up a diverse series of communications challenges; from ex- plaining to people that they should learn to love wind turbines and solar panels, that nuclear could be part of the solution and, perhaps most im- portantly, that energy saving can make a bigger difference than any fuel switch to reducing carbon emissions, enhancing energy security and re- ducing demand. One thing that never changes is that energy projects are big, expensive and long term. Change requires huge investment of capital, as well as regulatory and legislative time and resource. Communications and en- gagement will have a critical role to play across multiple stakeholder audiences to help Europe navigate this transition a challenge that we relish! Nick Bastin Managing Director, Capital MSL and Head of MSLGROUP EMEA Energy Practice Introduction 3
  • 4 ENERGY REPORT July 2014 Germany Corrects Its Failing Policy on Re- newables With Germanys new grand coalition government in place, the Energiewende seems to be back on track: A far-reaching, and long-overdue, reform of the countrys Renewable Energies Act or Erneuerbare-Energien-Ge- setz (EEG) has just been passed by the German parlia- ment. It will right some of the most significant wrongs which have been dogging Germanys energy regime in recent years. One of the key problems has been this: Germany has seen an almost uncontrolled increase in renewable energy generation, from around nine per cent of total energy production five years ago, to just under 24 per Politicians must get their hands dirty for a successful Energiewende Vital reform passed, but mixed signals by politicians continue to pose a threat to the Energiewende. Florian Wastl MSL Germany florian.wastl@mslgroup.com cent last year. Due to the system of fixed feed-in tariffs for energy from renewable sources, this has led to an ever-widening gap between wholesale energy prices, which have been falling, and the guaranteed tariffs for renewables. As a result, the countrys green ener- gy levy (EEG-Umlage), paid by consumers in order to bridge this gap, has risen from just over one euro cent per kilowatt hour in 2009 to a staggering 6.24 euro cents this year. Much of this will now change: Under the reformed EEG, the uncontrolled growth of renewables will be reigned in, guaranteed feed-in tariffs will be reduced and renewables will face more market-like conditions whereby they will need to become more competitive. It could have been a lot worse. In many ways, Germanys Energiewende has been pulled back from the brink. Communication Challenge Remains But things are far from well. This is because German politicians have been sending very mixed signals about the Energiewende. There is a widening gap between what they have been saying about the Energiewende 9% 24% 40-45% 2009 2013 2025 Germany has seen an almost uncontrolled increase in renewable energy generation, from around nine per cent of total energy pro- duction five years ago, to just under 24 per cent last year. 60% 50% 40% 30% 20% 10% 0%
  • 5 ENERGY REPORT July 2014 as a whole, and what they have been saying about the implementation of its parts. On the one hand, there is widespread agreement about the need for a speedy transformation of Germanys energy system. Ambi- tious targets, albeit slightly reduced, remain in place: By 2025, 40-45 per cent of Germanys power is sup- posed to come from renewable sources. On the other hand, in the wake of local opposition, pol- iticians often backpedal when it comes to executing vital Energiewende-related projects on the ground. For example, Horst Seehofer, prime minister of Bavar- ia, Germanys largest federal state, and leader of the CSU, Angela Merkels CDUs sister party, recently con- founded the pundits by publicly questioning plans for expanding the national grid. His remarks came after an 18-month consultation process and a cabinet decision in favour of the plans. However, faced by a poor show- ing in local elections in March and at the European elections in May, Seehofer was trying to woo NIMBY voters in his federal state. For short-term electoral gain, he deliberately jeopardised a central pillar of the Energiewende and created confusion and insecuri- ty for local residents, investors and political partners alike. This is just one example of a politician playing the populist card when it comes to the Energiewende. There are many more. For instance, instead of allay- ing residents fears about onshore wind farms in their neighbourhoods, politicians have been quarrelling over whether setting the minimum distance between residential homes and windmills should be the prerog- ative of the federal government or the 16 German fed- eral states. If the states had their way, it would create a plethora of different regulations, varying from one federal state to another a nightmare for investors. But the point is a different one: What we are seeing are politicians outdoing each other in playing to peoples fears, instead of leading the way on tough decisions. The debates about shale gas exploration and the much-needed pumped storage hydro power stations follow along very similar lines. In fact, some vital de- bates are not even taking place at all, such as the one about carbon capture and storage technology (CCS). Admittedly, CCS will not turn conventional power sta- tions into beacons of green energy overnight. Never- theless, it could help industry to capture its own emis- sions and thereby make an important contribution to Germanys climate goals. Similar to nuclear power, however, CCS has become the pariah of German pol- itics. No one wants to get their hands dirty and touch it. Politicians will need to stop paying lip service to the Energiewende as a whole, and start leading the argu- ment on its implementation where it will be most felt. Instead of playing to peoples fears, they will need to make the case for action, even if this means taking unpopular decisions or advocating controversial tech- nologies. If they do not do this, EEG reform may have made the Energiewendes regulatory framework a lot more sound, but the political rhetoric will continue to sow fear, insecurity and false expectations. The ramifications for the Energiewende could be dis- astrous: If grids are not extended fast enough, storage facilities are held up indefinitely, and ever-changing regulations designed to please local protest groups make it impossible for investment to go into vital pro- jects, progress in the Energiewende as such could stall. By continuing to question its parts, politicians are increasingly putting the project at risk as a whole. What we are seeing are politicians out- doing each other in playing to peoples fears, instead of leading the way on tough decisions.
  • 6 ENERGY REPORT July 2014 Two intertwined milestones This Aprils cabinet reshuffle has had a major effect on decisions that will be taken in the upcoming months regarding Frances energy plan : Since her appointment in April 2014, Sgolne Royal has undertaken the role of French En- ergy and Environment Minister. Despite her loss as presidential candidate in 2007, Royal has a charismatic personality, a high media profile, undeniable political clout, and is well-known for her commitment to envi- ronmental issues during her time as President of the Poitou-Charentes region in France. Her pragmatic po- sition in terms of sustainable development was reflect- ed in her first speech as a minister, during which she reminded the audience of her opposition to punitive ecology. At the same time, the French Green Party an- nounced their decision of nonparticipation in the new Manuel Valls government, denouncing Valls excessively free-market policies. While continuing their support of the presidential majority, the environ- mentalists now place all of their hopes in the future energy transition law. Should this law disappoint them, they may finally rupture with th