Fortum - What is a consistent and
predictable energy policy?
Delivery reliability, responsible
operations and consistent financial performance are expected from energy
companies. To achieve these goals, the companies should be able to anticipate
the steering effects that domestic and international regulations have on their
investments, the lifetime of which spans decades.
The
operations of energy companies are directed by numerous national regulations
and
EU legislation. Thus national and
pan-European interests shape the operating environment of the companies. When
aiming for internal energy markets, common game rules rather than national
solutions would be more effective at ensuring a level playing field around
Europe.
Real economy
increases, the difficult factor
The financial crisis has weakened the
economy outlook for Europe, and growth has come to a virtual stand still. The
difficulties of the real economy are visible. To balance their economies, EU member states have ended up
with e.g. different taxation solutions; this easily puts companies that are
operating in the common markets into un-equal positions.
The value of energy companies bas developed
at a weaker pace than other sectors in Europe, and one key reason for this is
the uncertainty related to the European regulatory environment. In fact, the
heads of European electricity companies estimate that political risk is the
biggest factor slowing investments.
EU or
national aspects?
EU member states can independently decide
on the security of energy supply and on what raw materials are used for energy
production. To a large extent, member states can also independently choose how
they will subsidise renewable energy. Moreover, the EU has its own regulations regarding
nuclear safety, environmental issues and security of supply. The targets set by
the EU to increase renewable energy, reduce emissions and promote energy
efficiency also impact the operations of energy companies.
Even though the renewable energy targets
are based on a shared EU target, every country has its own mechanisms for
achieving them. In fact, there is a wide variety of subsidy mechanisms from one
country to another. The member states also enforce EU legislation in very
different ways. Additionally, the targets set by the EU are partially
overlapping, which blurs steering effect and efficiency of targets and means.
Subsidy
policy- Friend or Foe?
A national subsidy policy has a big impact
on energy production and investments. However, national models should not
conflict with EU policies. Since energy sector investments are often big.
whether a one-time power plant investment or the continues maintenance of
distribution networks, and the investment payback period may take decades,
committing to long-term, capital-intensive investments requires a consistent
and predictable energy policy.
A
market-driven approach to achieve the EU' s 20-20-20 targets
The EU has set a target to create an
internal energy market by 2014. A functioning internal energy market is a key
factor for Europe's economic competitiveness, for a secure supply of power and
heat, and for realising renewable energy targets. Europe is facing major
projects, such as overhauling outdated electricity networks. and significant
investments in new smart grids. The growing share of renewable energy increases
electricity transmission needs because consumption isn't always located where
the sun is shining or where the wind is blowing.
Cecilia Kellberg, Senior Advisor,
Environment and Climate Policy for Swedenergy, a Swedish non-profit industry
and special interest organisation for companies involved in the supply of electricity,
is glad that the political steering is taking matters in the right direction.
According to her, energy efficiency targets bring new challenges. The
connection between the energy efficiency targets and the other climate and
energy policy targets, i.e. increasing renewable energy sourees and decreasing
carbon dioxide emissions, must be taken into consideration to avoid conflicting
incentives and requirements. Currently, only the reduction of emissions is
being implemented at the EU level and within the sphere of market-based
emissions trading, whereas the targets related to renewable energy and energy
efficiency are being realised nationally and not in a market-based manner.
"National subsidies should be
phased out. Subsidies are likely to be needed for research and development also
in the future, but not for operative activities. Our fear is that electricity
production will become dependent on subsidies”, Keilberg notes.
A
decade of investments ahead
The next decade will require significant
energy sector investments- both in new low-emissions energy production and in
energy transmission and the distribution network. Nevertheless, the difficult economic
situation, Europe's uncertain growth prospects, and the increasing regulatory
risk experienced by companies have slowed the pace of investments. In a survey
of leaders of European electricity companies increased political risk was seen
as the most significant factor prohibiting investments. The energy sector's increasing
tax burden and changes made (even retroactively) to national subsidy schemes
for renewable energy are examples of regulatory risks weakening the investment climate.
Long-term investments require consistent and predictable regulation and
moderate prospects for economic growth. In the coming years, an increasing share
of European energy companies' investments may, in fact, be directed outside Europe.
“lt is becoming more difficult to make market-driven
investments. According to our members, the biggest risk is caused by political
decision-making and the regulatory framework. This is a big challenge because
in the next decade the sector should make massive investments both to replace
aging capacity and to transition to lower carbon production”,· says David
Porter, Chairman of Eurelectric's Task Force on Investment. “In the long term, electricity
demand is estimated to grow due to the increased consumption of electricity as
heating and cooling needs grow”.
Porter emphasises that companies want to
invest in the future. “Because huge amounts of capital are at stake, investments
should be attractive to investors. That's why we need clear and consistent steering
that is in harmony with a well functioning and integrated European energy
market. Decision-makers should avoid shortsighted policy measures that can have
unintended consequences. The industry and the decision-makers should engage in
close collaboration and strengthen mutual understanding and trust.