European Energy Markets Observatory 2013

©

Capgemini 2013

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2012 AND WINTER 2012/2013 DATA SET - FIFTEENTH EDITION

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EUROPEAN ENERGY MARKETS OBSERVATORY S

2012 and Winter 2012/2013 Data Set
Fifteenth Edition, October 2013

In collaboration with

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European Energy
Markets Observatory

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Utilities the way we see it

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Gas Markets
Upstream Gas
Gas Infrastructures
Gas Wholesale Markets

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Electricity Markets
Electricity Generation
Electricity Infrastructures
Electricity Wholesale Markets

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Energy Regulation and Policies Overview
Governance and Coordination across Europe
Sustainability and Climate Change Targets

Customer Transformation

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A Strategic Overview of the European Energy Markets

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Contents

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28
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38
45
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58
64
68
78

Companies’ Overview
Finance and Valuation
Strategy and Organizational Challenges

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Renewable Energy Sources & Local Energy Transitions

Appendix Tables

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100

Country Abbreviations and Energy Authorities

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Glossary

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Team and Authors

©2013 Capgemini.
Reproduction in part or in whole is strictly prohibited.

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European Energy Markets Observatory

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Tables

Table 2.3 Map of generation capacities
projects in MW (as of May 2013) ...................... 32
Table 2.4 Current (2013) and future
(2020 and 2030) electricity capacity mix
(as of June 2013) .............................................. 37
Table 3.1 Investments from selected
electricity TSOs in their national grid
(2005 to 2012) ................................................... 38

Table 8.5 Aggregated European electricity
switching rates (2012) ....................................... 73
Table 8.6 Aggregated European gas
switching rates (2012) ....................................... 73
Table 9.1 Growth rate of renewable energy
sources for electricity production
(2005 to 2011 or 2012)...................................... 79

Booming activity in Smart Grid pilot projects
across Europe .................................................. 41

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Table 2.2 Installed and decomissioned
generation capacity per type of source
(2012 versus 2011) ............................................ 30

An unprecedent wave of investments
requires Excellence in Capital Project
Management..................................................... 34
.....................................................

Capgemini Consulting’s approach
for selecting the right smart meter
communication solution ................................... 43
Digital Revolution is forcing change for Utilities.. 49
The Smart Operations Centre: the key to
smart meter rollout in the UK ........................... 61

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Table 2.1 Peak load, generation capacity
and electricity mix (2012) .................................. 29

Table 8.4 Residential electricity prices –
all tax included and with PPP (H2 2012 and
% change with H2 2011) ................................... 71

Spanish energy reform: a high risk mission ...... 21

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Table 1.2 3x20 European Union climate
change objectives (status as of 2011
with 2012 provisional data) ............................... 25

Table 8.3 Residential gas prices – all tax
included and with PPP (H2 2012 and
% change with H2 2011) ................................... 71

Table 9.2 Growth rate of renewable energy
sources for heat production
(2008 to 2011 or 2012)...................................... 80

Table 10.1 Utilities sector EBITDA margin
evolution (2000 to 2013e) ................................. 85

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Table 1.1 Major energy events
(2012 and H1 2013)........................................... 22

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Topic Focus

Table 10.2 Utilities sector total debt evolution
(2005 to 2013e) ................................................. 85

Table 3.3 Map of interconnections levels
and interconnections projects (2012)................ 40

Making Demand Response Management
a real business model – discussion on the
challenges through the German example......... 82
example

Table 10.3 Utilities sector CAPEX to
revenues ratio (2000 to 2013e) ......................... 86

Table 3.4 Smart meters deployment status
in Europe (as of July 2013)................................ 42

Utilities: the customer experience goes digital ... 76

Table 10.4 13-year Utilities sector performance
versus the MSCI Europe index
(base 1 on 1 January 2001) .............................. 88

Table 4.4 Electricity futures prices
(year ahead) on the main European markets
(2012 and H1 2013)........................................... 48
Table 5.1 Domestic gas production versus
piped gas and LNG imports (2012) .................. 51
Table 5.2 Proven conventional gas reserves
in Europe (1980-2012)....................................... 51

Table 10.6 Utilities sector P/E, Europe and US. 89

Appendix Tables

Table A.1 Map of electricity distribution (2012) . 93
Table A.2 Map of gas distribution (2012) .......... 93
Table A.3 I&C electricity prices – VAT excluded
(H2 2012 and % change with H2 2011) ............ 94
Table A.4 Status of electricity price regimes
(as of July 2013) ................................................ 94

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Table 5.3 Technically recoverable shale gas
resources (2012) ............................................... 52

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Table 4.3 Electricity spot prices on the main
European markets (2012 and H1 2013) ............ 47

Table 10.5 Utilities sector dividend yield
(dividend/stock price) since 1 January 2000 .... 89

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Table 4.2 Yearly (2011 and 2012) and
winter (2011/2012 and 2012/2013)
average electricity spot prices .......................... 46

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Table 4.1 Commodity prices
(2012 and H1 2013)........................................... 45

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Table 3.2 Investments plans for selected
electricity TSOs ................................................ 39

The competitiveness dilemma for Europe’s
energy-intensive industries ............................... 70

Table A.5 Electricity retail market size (2012) .... 94
Table A.6 Residential electricity price
breakdown (as of June 2013) ........................... 95

Table 5.5 LNG imports to Europe (2012) .......... 54

Table 5.6 Map of gas imports (2012) ................ 55

Table A.7 Potential annual savings from
switching electricity retailer (H1 2013) .............. 95

Table 5.7 Map of pipelines and LNG
terminals projects (as of May 2013) .................. 57

Table A.8 I&C gas prices – VAT excluded
(H2 2012 and % change with H2 2011) ............ 96

Table 6.1 Investments from selected gas
TSOs in their national grid (2008 to 2012) ........ 58

Table A.9 Status of gas price regimes
(as of July 2013) ................................................ 96

Table 6.2 Investments plans for selected
gas TSOs .......................................................... 59

Table A.10 Gas retail market size (2012) ........... 96

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Table 5.4 Shale gas development status
in Europe (as of July 2013)................................ 53

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Table 6.3 Smart gas meters rollouts status
in Europe (2012) ................................................ 62

Table A.11 Residential gas price breakdown
(as of June 2013) .............................................. 97
Table A.12 Potential annual savings from
switching gas retailer (H1 2013) ........................ 97

Table 6.5 Gas storage projects
(as of May 2013)................................................ 63
................................................

Table A.13 Main financial characteristics of
European Utilities (2012) ................................... 98

Table 7.1 Gas spot prices
(2012 and H1 2013)........................................... 64
2013)...........................................

Table A.14 5-year Utilities sector performance
(base 1 on January 1, 2008) ............................. 99

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Table 6.4 Gas storage capacities (2012) ........... 63

Table 7.2 Gas futures prices
(summer 2014 and winter 2014/2015) .............. 67
Table 8.1 Total gas consumption and
size of I&C and residential markets (2012) ........ 68

Table A.15 H1 2013 Utilities sector performance
(base 1 on January 1, 2013) ............................. 99

Table 8.2 Total electricity consumption and
size of I&C and residential markets (2012) ........ 69

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A Strategic Overview of
the European Energy
Markets

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Editorial by Colette Lewiner

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uropean and global
energy demand

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In Europe, the economic crisis
worsened during 2012 with a GDP1
negative growth of -0.4% and a
forecast zero GDP growth for 20132.
While the US has started to recover
(with a 2.2% GDP growth in 2012 and
a 2.4% growth in Q1 2013), the BRICS
growth, still significantly higher than in
advanced countries, has slowed down.

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The present feeling is that while the US
will accelerate its growth in 2014/2015,
Europe should have only a modest
recovery in 2014.
Hopes of a quick and strong recovery
have vanished and forecasts on global
and European economies are prudent.
The primary global energy demand
is still growing, triggered by emerging
countries. The primary energy demand
share of non-OECD compared to
OECD has increased significantly (42%
in 2000 to 56% in 2012). This trend will
continue, fueled by growing populations
and standard-of-living improvements.

1

Gas consumption is correlated to direct
usage and to the needs of gas-fired
generation plants; the latter represents
currently 27% of total consumption.
This share that had increased in the
past should start to decrease with
numerous gas plant closures in Europe
(see hereafter).

Source: Eurostat

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Economic recession and energy
efficiency measures are limiting growth
in electricity consumption but new
electricity usages are fueling it, with
Information Technology and mobile
communication needs, for example,
now accounting for around 10% of
global electricity consumption5.

GDP: Gross Domestic Product

2

The crisis impacted both electricity
and gas consumption. In 2012,
European electricity consumption
decreased slightly year-on-year
by 0.2%. This decrease was more
pronounced in H1 2013 (-1.2% in
H1 2013 vs. H1 20123) while gas
consumption decreased more
significantly year-on-year by 2.2% (and
-0.4% in H1 2013 vs. H1 20124).

For an aggregated group of countries comprising France, Belgium, the Netherlands, the UK, Germany,
Spain, Italy and the Nordics, and representing almost 80% of European total electricity consumption
For an aggregated group of countries comprising France, the UK, Spain and Italy, and representing
almost 50% of European total gas consumption
Digital Power Group Study, August 2013



While energy efficiency is generally
satisfactory in the industrial sector, the
problems lie in the transportation and
buildings areas. Since a few years,
regulation has imposed low energy
consumption norms on buildings,
with success on new projects. The
main problem remains with existing
buildings where progress in energy
efficiency is slow. In countries like
France, subsidies and various types
of financial help exist. However they
are not well known by the potential
users, and their costs compared to
the end results are not good enough.
A simplification and clarification of this
complex system is needed.

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ossil fuels
situation

The global oil demand is still growing
but modestly (1.2% CAGR10 from 2000
to 2012).
While demand in developed countries is
forecast to stay flat, emerging countries
will continue to absorb more oil. Their
total demand share is continuously
growing from 37% in 2000 to 49% in
2012 to a forecasted 54% in 2018.
While global gas demand has grown
twice as fast as oil (2.5% CAGR over
the same period), growth in coal
demand has been triple that of oil (3.6%
CAGR on the same period).
Despite this slower oil consumption
growth, the unsettled situation in
Arab countries and Iran’s continuous
nuclear military program development,
triggering fears of conflict, have
impacted oil prices that stayed around
$106 per barrel over the last 12 months
(September 2012 to August 2013).
The shale revolution is also impacting
oil production and will change the
landscape drastically. US crude oil
production is growing at a quick pace
(4.2% CAGR from 2007 to 2012) and

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With no doubt, the best energy is the
energy that you don’t consume, so
implementation of energy efficiency
policies is the right long-term action to
take. However such policies involving
financial help (in a difficult economic
situation) and cultural behavior changes
(that are slow to happen) will probably
take more time than expected. Their
results should not be overestimated in
the energy transition scenarios.

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Capgemini Consulting’s Demand
Response (DR) study9 shows that
electricity peak consumption shaving
potential is significant (12-14%) as
customers are re ady to shift their use of
electrical devices from peak to non-peak
hours while electricity savings potential
in absolute terms, is more limited (2-3%).

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After studies performed by the EC6 in
2012 showing that the 2020 energy
efficiency (non binding) objective
would be difficult to meet7, the EU8
adopted in October 2012 a new Energy
Efficiency Directive. This Directive
sets compulsory objectives of a
17% decrease in EU primary energy
consumption by 2020, and requires
Utilities to make energy savings
equivalent to 1.5% of their annual
sales each year from 2014 to 2020.
If this objective is not met, the latter
would have to buy white certificates
for the missing savings. The cost of
acquiring those certificates could be
important and reach €1 billion per
year for large Utilities. According to a
compilation of the national estimates
reported to the EC covering 80% of
European consumption, it is believed
that the Member States’ commitments
in energy efficiency should lead to
a 17-18% decrease in consumption.
However to obtain these results,
many actions need to be successfully
implemented. Successful energy
efficiency programs leverage passive
and active actions:
• Passive measures include: home
insulation, improved energy efficient
appliances (e.g. low-energy lighting),

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Energy efficiency: The European
energy efficiency results are a
combination of national energy
efficiency measures and the economic
crisis (mainly impacting industrial
consumption and to a lesser extent
tertiary and residential consumption).

stand-by modes reduction (notably
for computers) and eco-designed
construction & equipments,
• Some active measures aim to
increase the financial benefit of
energy savings through dynamic
tariffs (e.g. “time of use” tariffs) and
higher energy prices. Other active
measures are designed to increase
customer awareness by launching
information campaigns or by
providing more accurate information
through the deployment of smart
meters that give hourly consumption.
Focused and intensive information
campaign, deployed in Japan during
the 2011 and 2012 summers when
nuclear plants were closed, were
efficient and helped avoid blackouts
during this peak consuming season.

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Forecast scenarios of future electricity
and gas consumption are below those
established one year ago, reflecting
a pessimistic view of the European
economic future and probably an
optimistic view of energy efficiency.

EC: European Commission
The 2020 target was at 1,474 Mtoe (toe: tons oil equivalent) for primary energy consumption. After years of growth, primary energy consumption peaked at
1,825 Mtoe in 2005-2006 and started to decrease in 2007 reaching 1,680 Mtoe in 2012

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EU: European Union

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Demand Response study 2012 - Capgemini Consulting, VaasaETT and Enerdata

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CAGR: Compounded Annual Growth Rate

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isolated in Europe. Other countries,
such as Germany and the Netherlands,
having performed preliminary
studies, are moving closer to shale
gas exploitation. Moreover the
British government is adopting very
advantageous fiscal condition in order
to develop fracking. Finally some
countries are launching exploration
activities, such as Poland and Ukraine.
In the latter countries, shale gas
development is strategic as it would
decrease their very high dependency
on Russian supplies.
There are a few pre-requisites for
rapid shale gas development in
Europe among which:
• A dense gas pipeline grid able to
gather the numerous gas flows,
• A legal revision of the underground
ownership rights16,
• Highly protective environmental
legislation notably regarding waste
water treatment, well casing security,
suppression of toxic gases releases,
• Operators improved transparency
notably regarding the composition of
”slick water”, used for fracking,
• Objective and simple information for
decision makers and public.

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Could such successful shale gas
development occur outside the
United States?
According to the EIA recent study14,
China and Russia followed by certain
Latin American countries, South Africa,
Australia and Canada are the countries
with the largest reserves after the US.
In Europe, many countries, including
France, have significant unconventional
gas reserves.
However fears linked to the
consequences of fracking15 technology
are slowing down shale gas
development in Europe.
France and Bulgaria have embargoed
this technology and they are now

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Non conventional gas12 growth in the
United States
Since the beginning of the 21st century,
American shale gas production has
grown in a spectacular way. In 2000 it
accounted only for 2% of the US gas
production. In 2012, its share grew to
34% and it should grow to 50% by 2040.
This spectacular growth has led to a
significant decrease in gas spot prices.
This price bottomed at $2/MBtu in April
2012 to grow again at $3.3/MBtu in
August 2013.
These low prices are favoring gas
usage instead of coal in electricity
generation plants, leading to decreased
US greenhouse gas emissions (-2.4%
in 2011 vs. 2010 and -1.6% in 2012 vs.
2011).
These gas prices have triggered an
American industrial renaissance by
allowing the repatriation of gas intensive
industries (e.g. chemicals or fertilizers).
Around 600,000 new industrial jobs
have been created in addition to more

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It is no exaggeration to say that this
last decade, the rapid development of
American shale gas is THE revolution
in energy.

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Surely, this will impact geopolitics,
probably lessening the global influence
of the Middle East oil producing
countries. However many events could
occur in the two coming decades,
making it difficult to forecast today what
will really happen in 2030.

than 1.7 million direct jobs linked to oil
and gas unconventional activities13.
Shale gas producers want to export
their gas by converting re-gas facilities
into gas liquefaction plants. American
gas-intensive industries are trying
to oppose these projects, fearing
that the US gas price would grow to
reach an international price and that
consequently, they would lose their
competitive edge.
In May 2013, the Department of Energy
authorized the Freeport LNG project
in Texas to export to countries that do
not have a trade agreement with the
US, including Japan and the members
of EU. It was the second such approval
after the Cheniere Energy’s Sabine
Pass project in Louisiana. Out of the
27 applications, some other exports
terminals projects should be approved.
With low gas prices and consequently
lower electricity prices, US industries
are getting more competitive than their
European peers and especially their
German peers who will suffer from
increased electricity prices following
Germany’s nuclear phase out policy.

©

according to recent IEA11 forecasts it
should surpass Saudi Arabia, becoming
the number one worldwide oil producing
country by around 2020. By around
2030, North America (including Canada
and Mexico) could even become a net
exporter.

In an optimistic scenario17, shale
gas production could compensate
European gas production decline and
allow to keep (and not deteriorate)
the present level (60%) of gas
importations dependency.
Impact on prices
As gas exchanges are highly
dependent on heavy pipeline
infrastructure and as LNG18 represents
only a fraction (10%) of the gas flows,
the gas market is very fragmented
and prices level discrepancy between
different regions is high. Thanks to

International Energy Agency, World Energy Outlook 2012

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Non conventional gas includes shale gas, tight gas and coal bedded methane. Shale gas has the most abundant reserves.

13

Bruce Bullock SMU COX presentation at Düsseldorf Montel Energy conference June 5-6, 2013
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EIA (Energy Information Administration, USA) study ‘Technically Recoverable Shale Oil and Shale Gas Resources: An Assessment of 137 Shale Formations in 41
Countries Outside the United States’, June 2013

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Hydraulic fracturing or fracking, is the fracturing of rock by a pressurized liquid

16

In the US, the underground belongs to the surface owner while it is generally different in Europe

17

http://ec.europa.eu/clima/policies/eccp/studies_en.htm, European Commission, September 2012

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LNG: Liquefied Natural Gas

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When US exportations will be effective
and if the gas price in Asia keeps a
premium compared to Europe, the
main flow of shale gas (under a liquefied
form) exported from the US should go
to Asia.
According to a recent study19, 6 Bcfd20
US shale gas exportation to Europe
would narrow US and European price
differences by increasing the US
price by $0.20/MBtu and decreasing
the European price21 by $0.70/MBtu.
While narrowing the US-Europe price

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However, presently the situation is
not rosy in Europe. The gas market
is depressed and the situation is
deteriorating for many reasons:
• Because of the economic crisis, gas
consumption decreased in Europe
by 2.2% in 2012 (compared to 2011)
after a decrease of 9.2% in 2011
(compared to 2010). During H1 2013,
a slight decrease of 0.4%23 was
observed,
• The growth in renewable energies
(sometimes uncontrolled) and the
priority given to them in the electricity
generation merit order (see later)
has reduced the gas-fired plants
utilization rate, making many of them
uncompetitive. In Spain, for example,
their utilization rate dropped from
66% in 2004 to 19% in 2012, while
the IEA believes that gas plants
require a utilization rate of 57% to
be profitable. The Spanish Industry
Ministry may introduce a legislative
reform to mothball gas plants
(10,000 MW could be impacted).
In Germany, as Combined Cycle Gas
Plants utilization rate has dropped
below 21% in 201224, Utilities may
close as much as 6,400 MW of gas
stations or 25% of the nation’s gas
plants capacity by 201525. In a recent
study IHS estimates that about
130,000 MW of gas plants across
Europe, around 60% of the total
installed gas-fired generation in the
region, are currently not recovering
their fixed costs and are at a risk
of closure by 201626. These plants
– that are indispensable to ensure
security of supply during peak hours
– are being replaced by volatile
and non-schedulable renewable

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A dynamic debate is occurring
around the future long-term contracts
indexation to oil prices. In the past,
gas production was closely linked
to oil production (gas was very often
a by-product) and the gas price
indexation to oil could seem logical.
Thanks notably to shale gas, it is no
longer the case and US gas spot
contracts evolve independently of the
oil price. As wholesale gas market
places have developed in Europe and
improved their liquidity, they become
credible alternatives for long-term gas
contracts prices index as is the case in
nearly all commodity markets.

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However, gas suppliers such as
Gazprom who want long-term visibility
to develop the needed heavy pipelines
infrastructures are inclined to defend
oil price indexation (especially when it
leads to high prices22).
One can forecast that the share of gas
price indexation on spot prices will
increase in long-term contracts.
As an illustration, in November 2012,
Norway’s Statoil signed a 10-year
agreement with Germany’s Wintershall
to supply gas linked to EU wholesale
spot prices. Presently about 40% of
Statoil’s gas exports to Europe are
based on the EU spot gas price.

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Shale gas development in Europe
will probably take time and while the
cost due to the different constraints
listed above will be higher than in the
US, they should be still cheaper than
today’s oil-indexed long-term contracts.

surpassing coal market share and
nearing oil share.

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However, German Utilities followed by
others have successfully re-negotiated
their long-term contracts indexations
notably with Gazprom and obtained a
share of around 50% of spot price in
the indexation. These contract prices
are now “only” about three times more
than the US spot price.

difference, this impact stays small as
it represents less than 6% of existing
European NBP price.

©

shale gas, prices are low in the US.
In Japan, the March 2011 Fukushima
accident and the consequent closure
of nearly all nuclear plants resulted in
increased gas importations and high
prices. In September 2013, these
prices were more than four times the
US price. However, if some nuclear
plants were given the authorization to
restart, following the new government
position, these prices would decrease.
European Utilities are supplied mainly
through long-term contracts indexed on
oil prices. As the oil price has remained
high (see above), European gas prices
are much higher than in the US.

Short-term gas market
situation in Europe
In 2011, the IEA was quite optimistic
on gas development. In its Golden Age
of Gas scenario, it forecast that gas
consumption would reach in 2035 a
25% market share of primary energy,

Global impact of LNG Exports from the United States, 2013 report by Deloitte Center for Energy Solutions

20

To be compared with the total US market (65 bcfd) and the UK gas markets (9 bcfd)

21

UK NBP reference

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Long-term prices have not always been higher than spot prices: between 2002 and 2006 these prices were similar, however with spot prices spikes as in
January 2006. Source: ”The future European Long-Term Natural Gas Contract” by Kjersti Hegde -Eirik Fjeldstad

23

For an aggregated group of countries comprising France, the UK, Spain and Italy, and representing almost 50% of European total gas consumption

24

JP Morgan Cazenove study, 2013

25

Deutsche Bank study March 2012

26

IHS May 2013 study

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Triggered by the Energy-Climate
package objective of 20% renewable
energy sources (RES) in the final energy
consumption mix by 2020, renewable
projects have continued their
development in the EU that accounted
in 2012 for 45% of renewable energy
used worldwide.

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stayed more or less constant: 13%
increase in 2012 over 2011 and 11%
increase in 2011 over 2010.
There is a debate around the cost
competitiveness of onshore wind
electricity generation. A direct
comparison with schedulable electricity
generation costs is not correct as
wind energy requires additional grid
investments and new management
rules. Up to a wind penetration rate in
the electricity mix of 15%, no additional
generation back-up is needed. It is also
generally accepted that up to a 20%
penetration rate, the needed adaptation
solutions are at a reasonable additional
cost32. Beyond this threshold, back-up
generation (usually gas-fired plants) and
investments in grids allowing to operate
them in a smarter way are needed. Just
as an illustration and without including
the additional costs mentioned earlier,
in France the cost of the electricity
generated by onshore wind farms (at
€80/MWh) is similar to the Flamanville
EPR33 (that is a first in kind) future
probable cost.

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enewable
energies

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Renewable electricity generation should
continue to grow in Europe and in
developed countries and they should
provide 60% of the electricity production
growth during the next six years30.

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Because of the crisis, triggering
reductions in subsidies, the growth
path of renewables has slowed down:
RES installed capacities grew by 21%
in 2012 compared to 2011 while this
growth was 29% between 2010 and
2011. Many European governments
including Germany31 are looking at
reducing the RES subsidies. For
example, in July 2013, the Spanish
minister for industry has introduced
an energy reform allowing a €1.5
billion reduction in renewables and
cogeneration subsidies.

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A few short-term measures should be
taken including:
• Launching capacity markets allowing
rewarding available generation
capacity even if the plants don’t
run. A few countries including
France have decided to launch
such markets, however they will be
in place only in a few years, their
mechanism is complex and there is
no uniform approach in Europe thus
distorting the competition,
• Restoring the ETS29 market
credibility: The July 3, 2013 EU
parliament decision to backload not
more than 900 Mt CO2 certificates
to the end of the phase III period,
resulted only in a very small price

increase.
In August 2013, CO2 certificates
prices stood at around €4.4/t.

©

energy installations that are heavily
subsidized,
• In addition, the low gas spot price
in the US has resulted in more gas
and less coal utilization in fossil fuel
plants. It has pushed coal prices
down, creating overcapacities that
were exported to Europe, where coal
prices dropped by 30% between
January 2012 and June 2013. As a
result, the utilization rate of coalfired plants is far better than for gas
plants27,
• These low coal prices combined
with the low level of CO2 certificates
prices, have made coal-fired plants
more competitive than gas-fired
plants, with a clean dark spread28
reaching €20/MWh while the clean
spark spread stood at -€7.3/MWh in
Germany in February 2013,
• Measures should be taken to
restore a more satisfactory situation
regarding the EU priorities i.e. to
favor low carbon energies and to
ensure security of energy supply.

Status of wind and solar
energy development
After hydropower, wind energy
represents the largest share in
renewables (11% of total installed
capacity in 2012) and wind farms
installed capacity growth rate has

As many coastal regions in Europe are
already equipped with onshore wind
farms and as local populations are
opposing these installations, the new
projects are moving offshore. During
the first six months of 2013, more than
1,000 MW new wind offshore capacity
was connected to the grid34. This is
twice as much as for the same period
in 2012. But the financing of new
projects has slowed down, reflecting
regulatory uncertainty in key offshore
markets (including Germany and the
UK) and highlighting the significant
challenges faced by the offshore
wind sector.

For example, in Germany in 2012, coal-fired plants utilization rate was in the 43-71% range; a far better utilization than gas plants

28

See glossary for the definitions of Clean dark spread and Clean spark spread

29

ETS: Emission Trading System

30

IEA International Energy Agency June 2013 publication

31

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27

German Chancellor Angela Merkel promised in July 2013 to scale back Germany’s generous system of subsidies to the renewables sector if she is re-elected in
September

32

L’intermittence et les aléas météorologiques, un frein au développement de l’électricité renouvelable ? L’exemple de l’éolien 04 / 2007

33

EPR: European Pressurized water Reactor (3rd generation French nuclear reactor)

34

EWEA (European Wind Energy Association) July 2013 publication

8



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Moreover, the massive importations
of solar panels, mainly from China,
have accentuated this decline and
it is forecast that in the short-term
at least half of those European

13

should not reduce significantly the
Chinese importations and the European
manufacturing industry is dissatisfied.

i

20

Thanks to cheap imported solar panels38
and to technology improvements, the
price of electricity generated by solar
PV has significantly decreased. For
example, in the sunny US State of New
Mexico, the Macho Springs project
(owned by First Solar) agreed to sell
power to El Paso electricity at
$57.90/MWh (compared to less than
$65.6/MWh for an advanced gas
plant39).
If this price decrease trend continues,
if there is a real breakthrough in solar
panel efficiency and if affordable large
scale electricity storage solutions
finally emerge, solar energy could
provide in the long-term a significant
share of electricity generation mainly in
sunny regions.

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Moreover, as solar PV projects are
small and geographically dispersed, it
is difficult to assess the right installed
capacity and even more difficult to
forecast it. For example, in Germany in
2006, solar energy installed capacity
was forecast to reach around
5,000 MW in 2011: the reality was in
excess of 20,000 MW, four times more!
This has led to wrong estimations of
the needed extra power capacity and
thus to increase the power generation
overcapacity.

ht

As for wind energy, the installed
capacity growth has slowed down
mainly because of changes in public
policies resulting in decreased
subsidies. For example, the recent
German solar power feed-in tariffs were
reduced by 1.8% a month between
May 1, 2013 and July 31, 2013 because
solar expansion is proceeding more
rapidly than specified in the Renewable
Energy Act (EEC). These changes are
putting at risk the European solar panel
manufacturing industry.

Investing in upstream photovoltaic
Research and Development would
have been a much better trade off.

ap

Solar energy is growing faster than
wind energy but it represents a
smaller installed generation capacity
in Europe’s generation capacity share
(7%). It is much more costly even
than offshore wind. In 2012, solar
photovoltaic (PV) energy cost in France
was estimated between €240 and
€400/MWh compared to onshore
wind at €80/MWh and offshore wind
between €150 and €200/MWh36.

In a snapshot, the huge amounts of
subsidies given by Member States
to the solar industry and paid by the
European citizens, have helped the
Chinese industry to develop instead
of triggering the emergence of a solid
European first class solar industry. This
waste of financial resources is linked to
the short time imposed on EU Member
States to reach 20% renewable energy
share in their end consumption while
these generation modes are not mature
and need to be heavily subsidized.

C

On the positive side, thanks to these
new large projects, an offshore wind
turbine industry is developing in
Europe: Alstom is building a new plant
in France (Saint Nazaire) and Areva is
building new plants in France (Le Havre)
and Scotland.

Manufacturers could be taken over or
go bankrupt globally37.

©

The cost of electricity produced by
offshore wind farms should be around
three times larger than for onshore
wind. Series effect should push this
cost down; however the gap is very
important. Moreover there is a need to
build the electrical link to the continent
using HVDC35 new cable technologies.

Under the pressure of its solar
manufacturing industry, the EU decided
in June 2013 to follow the US example
and to impose duties on imported solar
panels. In reaction, China has decided
to take retaliatory measures against
EU products. So negotiations with
China have been opened and resulted
by July 2013 in an imposed minimum
sale price of 0.56 per watt for Chinese
solar panels. This minimum price is
25% lower than the average sale price
of panels in 2012. So this agreement

Even if many governments are now
less bullish on renewable subsidies,
the increased share of these energies
in the energy mix is triggering higher
and higher subsidies amounts. This
is becoming a burden for heavily
indebted countries, and the higher
electricity prices paid by consumers
are damaging their standard of living
already threatened by the economic
crisis. For example in France the CSPE40
that includes the increasing RES cost
amounted to €3 billion in 2002, it should
reach €10 billion in 2013 and grow to
€20 billion in 2015.
In Germany the EEG Levy41 increased
from ct€1.31/kWh in 2009 to
ct€5.28/kWh in 2013 and represents
a 18% share of residential electricity
prices compared to 10% for France.
This significant electricity prices
increase is triggering a political debate
in Germany that could be tackled after
the September 2013 general elections.

35

HVDC: High Voltage Direct Current

36

French Energies 2050 Commission report published on February 13, 2012

37

Ernst & Young and BNEF, May 2012

38

Solar panel prices dropped by 80% over the last 5 years

39

Financial Times, June 3 2013

40

CSPE: Contribution au Service Public de l’Electricité. Tax contributing to public service of electricity, created by the French government in 2003.

41

EEG Tax for the promotion of renewable energy

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In the present market conditions,
very high consumption on cold, dry
and dark days with no wind could
lead to supply disruptions.

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The question is how long this
chaotic market created by the
combination of the European
market deregulation, the
Energy-Climate package and
the economic crisis will last
This is a vital question for the financial
health of European Utilities.
In the near future, capacity will be
withdrawn from the market as a result

20

13

There will be a dual flow on these
smarter grids: energy and information.
Data gathering, exchanging and
managing will be of utmost importance
and thus TSOs44 and DSOs45 will have
to evolve towards Digital Enterprises.

i

Many stakeholders are involved in
this new market design: Utilities,
customers, equipment manufacturers,
standardization bodies, national and
European regulators.

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However, extra capacity is continuing
to be built, notably through renewable
and thermal plants. For example, in
Germany, from 2013 to 2015, the
renewable energies installed capacity
should grow from 80 to 100 GW and
an additional cumulative 9 GW installed
thermal capacity (mainly coal) should
be built. Moreover the European
economy could stay slow, with flat
consumptions, thus prolonging the
erratic and low wholesale prices for
a few years.

S

ht

The price difference between “peak
hours” and “off peak hours” has
also considerably flattened making
investments in hydraulic storage much
less attractive.

If the economy rebounds, we could
get a similar situation to 2000-2006
when, after an overcapacity period,
generation capacity was withdrawn
from the market (2000-2004) by
the Utilities. In 2005 the economy
rebounded and – thanks also to high oil
and CO2 certificate prices – wholesale
prices grew significantly.

C

As a consequence of this generation
over-capacity, prices on wholesale
markets have decreased and become
erratic. Positive price spikes (in winter
for example) have nearly disappeared
and new type of negative prices spikes
have appeared during some hours
interval (in 2012 there were more than
70 hours during which wholesale
European prices were negative42).

of gas plants closure and of old coalfired plants withdrawal from the market
in 2015 following the implementation
of the “Large Combustion Plants“
Directive43.

©

Impact on wholesale markets
Renewable energies have high
investment costs (that are subsidized)
and very low operational costs, as sun
or wind cost nothing. Thus they come
first in the power generation plants
merit order and they are operating all
hours when they can produce. With
growing renewable production and
relatively low consumption (due to the
crisis), the utilization rate of gas-fired
plants (that come after RES in the merit
order) has dramatically decreased.
Many of them are not covering their
fixed cost and will be closed (see
above).

marter
grids

Because of the increase of RES
share in the electricity mix and in
the absence of large scale storage,
grid management is facing new
challenges. Balancing demand and
supply becomes more complex as RES
provides volatile power generation that
is difficult to schedule (despite progress
in modeling) and, in addition, customers
can become momentarily generators.
So bi-directional and unforeseeable
flows have to be managed and, for
that purpose, there is a need to better
equip the present transmission and
distribution grids.

Despite many technical and economic
pilots launched in Europe46, very little
progress has been achieved on the
new market design and financing rules
for the new equipment and systems.
Regulators have a key role to play.
The first step in smart grids
implementation is smart
meters deployment.
According to the EU Third Energy
Package, 80% of electricity customers
in EU should have smart meters by
2020, unless the analysis performed
by the Member States proves that the
cost/benefit is uneconomic.
Smart meters implementation impacts
all value chain segments:
• Generation: by triggering a better
demand response, they contribute
to decrease investments for peak
capacity and decrease hence CO2
emissions (as the fossil-fueled plants
are providing the peak generation),
• Distribution: by improving field
service management, reducing meter
reading activities, reducing technical
and non-technical electricity losses
on the grid and allowing a better
outage management,
• Retail: all meter-to-cash processes
(including cash management) can be
digitally optimized allowing a better
service,

42

Dr Torsten Amelung presentation at Montel Energy Days, Düsseldorf 5-6 June, 2013

43

Adopted on October 23, 2001

44

TSO: Transmission System Operator

45

DSO: Distribution System Operator

46

According to the EC, during these last ten years more than €5.5 billion have been invested in around 300 projects in Europe.

10



In August 2013, the French government
approved the 11 million gas smart
meters47 deployment to take place on
the 2016-2022 period.

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48

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In fact the financial and economic crisis
that started in 2008 was not anticipated
and too many certificates were
allocated in National and European
Permit Rights Allocation, leading to an
over-allocation of around 1,500 Mt of
CO2 equivalent53 for the third period
(2013-2020) This surplus is even
increased by numerous rights resulting
from the CDM54 mechanism (created by
the Kyoto protocol) that are traded on
the European market.
Back loading the auctioning of a
maximum of 900 million CO2 permits
was backed by the European
Parliament on July 3, 2013.

In the absence of this ETS structural
revision, carbon prices will stay low in
the future.
In March 2013, the EC adopted
a Green Paper to launch a public
consultation on the content of a 2030
framework in order to give visibility to
investors and to stimulate demand for
low carbon technologies. The aim is to
build the path to meet the “necessary
long-term goal”55 of cutting emissions
by 80-95% by 2050. The new energy
policy framework is intended to take
into account the consequences of the
economic crisis.
It is indispensable that this new
framework takes into account all
lessons learned regarding the flaws in
the present system, as the ETS system
design and the EU directives impacts
on the energy markets. The present
policy has notably led to:
• Chaotic wholesale markets with
negative prices giving the wrong
economic signal for the needed
investments in energy infrastructures,
• Very high and growing renewable
energy subsidies that will become
unsustainable in the future,
• No clear financing of the smart grids
that will be indispensable when
renewable electricity output share
grows over 20%,

Gazpar project

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47

This decision is not sufficient to allow
the ETS to deliver the right economic
signals in a sustained way. A deep
reform is needed as for example,
there is no mechanism allowing the
limitation of emission rights in case of
an economic crisis.

in

Presently, the ETS49 is not effective
in giving the right economic signal
for investments in low carbon
technologies. In five years, the CO2
price has decreased from around
5/t
€20/t in 2007 to less than €5/t in
August 2013. This very low price is
to be compared with: the floor price
of £16/t (announced by the British
government in 2011 and introduced on
April 1, 2013), the shadow carbon value
€45/t
estimated at around €45/t in 202050
and prices enabling competitive CCS51
systems to be implemented that are
estimated at €40-55/t for coal plants
€40-55/t
and €80-110/t for gas plants52.
80-110/t

ht

As a conclusion smart grid
implementation is slow and no clear
economic model has emerged.
With the increase of RES share in
the electricity mix, it is urgent to
accelerate the industrial development
of large scale competitive electricity
storage solutions and funds should be
re-directed to these developments.

Thanks mainly to the economic crisis,
the 2020 European target of 20%
reduction in greenhouse gas (GHG)48
will be achieved and even exceeded
as in 2012, the EU GHG emission
reduction is already at 19.9% compared
to 1990.

ap

Nevertheless, smart meters rollout is
progressing. In addition to Sweden and
Italy that have already fully deployed
electrical smart meters, many Nordic
countries, Spain and the UK have
started their deployment.
The decision to install 35 million smart
meters in France was taken in early
July 2013 with a first phase of 3 million
meters to be installed by 2016. The
deployment cost for the 35 million
smart meters is estimated between €5
and 7 billion.

While the CO2 prices increased
immediately by 11.6%, they are staying
at a very low level (less than €
€5/t).

C

However with the present unbundled
situation, return on Investment is only
relevant on the grid part of the value
chain which is not as good as on the
whole value chain.

C

limate
change

©

• Customer retention: smart meters
implementation enhances the Utility’s
competitiveness and provides better
customer information and notably
more accurate bills.

Greenhouse gases include many gases in addition to dioxide carbon CO2 such as methane (CH4), (N2O) and CFCs. Their toxicity on the global temperature
increase varies from one gas to the other. For simplicity, we will refer to CO2 as CO2 equivalent for all Greenhouse gases (GHG)

49

ETS: Emissions Trading System

50

Rapport Quinet « valeur tutélaire du carbone », Documentation Française, 2009

51

CCS: Carbon Capture and Storage

52

ZEP « Zero Emission Platform » estimations

53

Berghmans in Club Tendance Carbone, CDC Climat Recherche, April 11 2013

54

CDM: Clean Development Mechanism

55

If this goal would be met, our planet temperature increase would be limited to 2°C

11

13

Japanese nuclear status
According to recent reports56, it is
unlikely that there will be any serious
immediate or long-term health effects
from radiation exposure following
the March 2011 Fukushima accident
to either the general population or
workers at the nuclear plant. However,
the report also says that the evacuation
had a “very significant impact” on
the social and mental wellbeing of
the population.

in

The good news is that other large
nations are expressing their intention to
cut their emissions.

20

Moreover, until recently, Europe was
isolated in its desire to limit emissions,
as atmospheric pollution is global;
EU efforts were a drop of water in
the ocean!

Nuclear energy
Despite the slowdown in its
development after the Fukushima
accident, nuclear energy is still a sizable
part of the needed energy technologies
for reducing CO2 emissions.

i

• Low carbon prices enabling coalfired plants to regain share in the
electricity mix!

ap

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It is the case of China where Shenzhen
has become the first city to pass a
bill that will cap CO2 emissions from
factories and power plants. Shenzhen’s
emissions market, one of seven pilot
schemes to be rolled out in the nation
over the next two years, began CO2
trading in June 2013.

According to the climate plan
released by the White House, the
US will make continued progress in
reducing pollution by leading the way
in the development of clean energy
technologies such as efficient natural
gas, renewables, clean coal technology
and nuclear.

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©

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In June 2013, President Obama
announced an ambitious plan to deal
with climate change by directing the
Environmental Protection Agency to
establish carbon pollution standards
for both new and existing power plants.
These new standards will almost
certainly face legal challenges.
The American goal is to reduce carbon
pollution by at least 3 billion tons
cumulatively by 2030, more than half
of the annual carbon pollution from
the US energy sector, through these
efficient standards.

56

57

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The situation at the Fukushima
site57 is still challenging. Although a
relatively stable cooling of the fuel in
the reactors and spent fuel pools has
been established and is adequately
removing decay heat, there are several
challenges to achieve a sustainable
situation including the treatment of
enormous amounts of radioactive
liquids that have accumulated.
To draw lessons from the accident – its
root causes and its management – the
Japanese government has created
an independent Nuclear Regulation
Authority (NRA).
In June 2013 the latter approved the
final draft of the New Safety guidelines
which cover three main areas: safety
standards, severe accident measures
and emergency scenarios for
earthquakes and tsunamis.
Nuclear plant operators will be obliged
to take concrete steps to mitigate the
possibility of serious accidents. Until
now, such actions were voluntary.

The United Nations Scientific Committee on the Effects of Atomic Radiation (Unscear) report, which is
currently being finalized.
IAEA: International Atomic Energy Agency reports



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There are 65 nuclear reactors under
construction around the world. Of
these, 47 are being built in Asia: China
(26), Russia (10), India (7), and South
Korea (4). Many countries such as
China changed their plans to focus on
safety. New projects are also emerging
in the Middle East (Emirates, Saudi
Arabia), Turkey and South Africa.

58
59

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Difference”59, is a central point of the
discussions. A decision could be taken
by EDF in 2013.

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As investments amount to 80% of the
total nuclear electricity cost there is
a real need to master new nuclear
plants construction delay and costs
as these plants will have to compete, in
the future energy mix, with renewable
energies (that are experiencing cost
decreases) and, in the US, with gasfired plants using cheap shale gas.

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However, with this delay the total
Flamanville construction time should
amount to 8-9 years which is not
extraordinary long for a first-in-kind
“generation 3” project when compared to
the average construction time for French
“generation 2” reactors of 7.5 years.

ht

The longer-term global impact of
the Fukushima nuclear accident on
the nuclear industry will be less than
was anticipated in the immediate
aftermath of the disaster. Presently, the
International Atomic Energy Agency
forecasts that global expansion of
nuclear power post-Fukushima will be
moderately slowed, but not reversed.
Before the Fukushima accident,
there were 484 planned or proposed
new reactors; in July 2013 this figure
was 478.

In February 2013, Olkiluoto delay was
estimated at 7 years and costs overrun
at €5 billion.
Flamanville is now forecast to be
operational in 2016 (instead of
2012/2013) and its cost is estimated at
€6 billion (instead of €3.3 billion initially
6
€3.3
forecast).

ap

It is clear that Japanese nuclear reactor
restart and, in the longer run, potential
new reactors built would have a big
impact on the gas markets as presently
Japan is importing large amounts of
LNG in order to compensate for its lack
of nuclear energy. These importations
have deteriorated Japan’s commercial
balance and the country posted in 2011
its first trade deficit in 31 years.

A few reactors are being built in Europe
including two EPRs: one at Olkiluoto in
Finland and the other one at Flamanville
in France. While the same reactors
built in China at Taishan (Guandong
province) should to be on time and
within initial investment projections,
the European EPR reactors are
experiencing delays and cost overruns.

C

In March 2013, Japan’s prime minister,
Shinzo Abe, told parliament that idled
nuclear reactors will be restarted if it
is proven safe to do so. In July 2013,
four power companies submitted
applications to the nuclear regulation
authority to restart 10 nuclear reactors.

As a consequence of the very long
freeze on new nuclear reactor58
construction in Europe, human
competencies are missing including
the ability to master very large projects.
Also the eco-system of nuclear
quality level subcontractors has to
be upgraded.

©

Only two of Japan’s 50
operable reactors, Ohi-3 and
Ohi-4, have restarted since the
Fukushima accident.

Negotiations are going on between
EDF and the British government for
the construction of 2 EPRs at Hinkley
Point (Somerset). End June 2013, the
UK government announced a bid to
encourage investment in nuclear power
by offering £10 billion (€11.6 billion)
of guarantees.
The electricity price level at which this
nuclear electricity would be sold, that
is defined by the new “Contracts for

No existing nuclear plants were
stopped except in Germany (for
political reasons) and in Japan.
In order to implement the lessons
learned from the Fukushima accident,
Nuclear Safety Authorities required
design upgrading and revisited
operational practices. These additional
safety measures are resulting in new
investments that can be sizable, as
in France, where EDF will spend an
additional €10 billion to upgrade its 58
nuclear reactors.

Some existing plants were awarded
lifetime extension as Asco 1&2 in Spain
and Fessenheim, Tricastin and Bugey
2&4 in France. In 2012, EDF Energy in
the UK announced that it expected 7
years life extension on average across
all AGRs60, including the recently lifeextended Heysham 1 and Hartlepool.
Even if their costs are increased
by these safety upgrades, existing
nuclear plants are competitive. In
France for example their total cost of
electricity generation, including life time
extensions, dismantling and radioactive
waste management & storage, has
been estimated at €57/MWh, which is
lower than electricity costs generated
by gas-fired plants and RES61.

More than one decade
Contracts for Difference (CfDs) are intended to stabilize revenues for investors in low-carbon electricity generation projects - renewables, new nuclear or Carbon
Capture and Storage

60

AGR: Advanced Gas-cooled Reactor

61

Cour des Comptes study « Les coûts de la filière nucléaire » January 2012 and « Energies 2050 Commission » conclusions February 2012

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in

After the Fukushima accident, many
European countries decided to revise
their energy policy in order to decrease
or to phase out nuclear energy.
Even if two years later, confidence in
nuclear energy is improving, those
debates are continuing.
Italy decided by referendum in 2011, not
to build the four nuclear reactors that
were planned.

This energy transition plan requires
Germany to:
• Build more generation capacity to
replace the nuclear reactors. The
plan forecasts a strong increase
of renewable share – from 20%
presently to 35% in 2020 generation
mix share,
• Redesign the whole grid to cope with
more and smaller electricity injection
points in addition to solving grid
balancing issues and building HVDC
lines to connect large offshore wind
farms,

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nergy
transition

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In June 2011, the Swiss parliament
resolved not to replace any reactors
after the end of their lifetime, and hence
to phase out nuclear power by 2034
(with the assumption of a 50-year
lifetime for the newest unit).

©

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ap

Belgium‘s position is to phase out
nuclear energy by limiting the reactors’
lifetime to 40 years: so Doel 1&2 should
close in 2015, Tihange 1, although
reaching 40 years operations in 2015,
should be prolonged until 2025 and the
remaining 4 reactors will reach 40 years
lifetime between 2022 and 2025.

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ht

We will examine in more detail the
French and German cases:
In 2011, just after the Fukushima
accident and mainly for political
reasons, Germany decided upon an
energy transition with the following
objectives:
• Total nuclear phase-out by 2022
(8 reactors immediately shut
down after the Fukushima nuclear
accident, closure of the remaining 9
reactors by 2022),
• Greenhouse gas emissions reduction
by 80-95% before 2050,
• 80% electricity production from
renewable energy sources
before 2050.

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14

The energy transition investments
needed from now to 2040 are forecast
around €1,000 billion62, an amount
comparable to that spent on German
re-unification.
Mid-2013, there are significant
deviations from this energy transition
plan:
After the closure of 8 nuclear plants
in 2011, and in order to meet the
electricity generation needs, a number
of mothballed coal and lignite plants
were re-opened. In 2012 those
plants increased their generation
output by more than 6% leading to
an embarrassing 2% increase in CO2
emissions.
But the crucial problem resides in social
acceptance: notably the construction
of numerous wind farms, grid redesign
and the construction of new power
lines. As there will be fewer large
generation plants but more renewable
decentralized units, notably wind
farm that are in the Northern part of
Germany while the large industrial
consumption is in the South, a grid
overhaul is required.
This new grid construction is late
compared to plan as it is encountering
local public opinion opposition that is
made worse by the fragmented grid
organization in Germany.

According to M. Altmaier, German Environment Minister



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The energy transition debate that took
place in H1 2013 should lead by 2014,
to a new energy policy for France.

As in Germany this energy transition
should:
• Have a high investment cost: €592
billion of new investments are
forecasted67 among which €170
billion for energy efficiency and €422
billion for the electrical system (€262
(
billion for generation and €160 billion
for the grids),
• Lead to an electricity cost increase
by €30-40/MWh in addition to a
€30-40/MWh
similar increase linked to Grenelle’s68
commitments,
• Encounter social opposition issues
for wind mills or high voltage lines
construction,
• Deteriorate French trade balance
if no RES industrial policy is
successfully implemented.

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Similarly and despite sizable
exemptions that they are getting on
electricity transportation fees and
on the EEG levy, large industrial
consumers of electricity fear a loss of
global competitiveness. According to
a recent study66, electricity prices for
big industrial customers should grow
in Germany from €90/MWh in 2012
to €98-110/kWh in 2020, while thanks
to cheap shale gas, they should only
grow from €48 to 54/MWh on the
same period in the US, giving a global
competitive edge to US industry.

A successful French energy
transition will need to:
• Meet French energy policy
objectives: security of energy supply,
environmental performance and
competitive electricity prices,
• Consider the continued operation
of the current nuclear power plants
fleet (as long as it is economic and
subject to the authorization of the
French Nuclear Safety Authority) as a
viable option as it would be the least
costly policy,
• Maintain a competitive power
generation mix, by adopting a
reasonable pace for the development
of renewable energy,
• Finally ensure value creation for
France (growth and employment) by
implementing sustained industrial
and R&D policies.

C

Another important point is the resulting
increase in electricity prices linked
to the EEG levy and the grid costs
increases. This price increase, which
could reach 70% by 2025 for residential
customers, is becoming unpopular.

Thanks to its 58 nuclear reactors that
are run safely, electricity prices in
France are among the cheapest in
Europe and CO2 emissions per kWh are
the lowest among European countries.
However François Hollande, the new
French socialist president made the
following commitments during his
election campaign:
• Cut France’s reliance on nuclear
energy from more than 75% share in
the electricity mix presently to 50%
by 2025 and close the Fessenheim
reactor by 2016,
• Accelerate RES development,
• Improve the energy efficiency of
buildings.

©

More grid construction delays can
be expected as 10 years at least are
needed in Europe to build63 a new
high voltage overhead line. To try to
overcome these important difficulties,
the four German TSOs have decided to
cooperate on four HVDC underground
North-South network lines deemed
crucial to the success of the country’s
energy transition64. The exact pathway
of these future corridors, that will be
between 5 and 10 times more costly
than overhead lines65, is still to be
agreed with the network regulator.

C

o

p

yr

It is difficult to predict how the German
energy policy could be modified after
the September 2013 German general
elections. It is very unlikely that the
nuclear phase-out policy would change;
however RES subsidies and the EEG
Levy financial limitations could well
happen.

63

France-Spain interconnection required 20 years of consultations before being launched partially underground

64

Montel Magazine Vol 12, N02, June 2013

65

RTE: réseau de Transport d’Electricité « Les lignes souterraines et la mise en souterrain»

66

BDI (Bundesverband der Deutschen Industrie) report (November 2012)

67

UFE (Union Française de l’Electricité) estimations

68

Grenelle de l’Environnement is the Energy-Climate Directive transposition in France

15

U

tilities
situation

i

20

Even if electricity and gas demand/
supply gets better balanced again (see
above), the situation will be different
than before the RES fast development.
There is already a trend of local
demand/supply balanced clusters
(eco cities for example) and this trend
will develop.

in

As already stated in the 14th European
Energy Markets Observatory, major
European Utilities are negatively
impacted by a difﬁcult environment,
with a weak demand and low wholesale
market prices. Their revenues are
structurally decreasing69 as RWE
CEO Peter Terium stated recently, by
announcing that “80% of the company
revenues will be gone in 2-3 years”.

13

to divest – notably their RES assets or
their high margin network activities.

C

ap

g

em

Utilities EBITDA70 margins are under
pressure because of deterioration
in power generation margins, rising
overcapacity due to stagnating
consumption and the growing burden
of RES taxes. In some countries, this
situation is worsened by additional
taxes (such as nuclear taxes in
Germany, Spain and Belgium) or by
very limited tariffs increases allowed by
governments attentive to their electors’
standard of living.

©

On a sample of large European Utilities,
the average EBITDA margin has
decreased from 19.4% to 18.7%.

Incumbent Utilities present models
with large centralized generation
plants and quasi- uniform supply
offerings to residential customers
will have to evolve towards more
decentralization (including generation),
differentiated offerings and better
competitiveness. This challenge could
be met, by analyzing and exploiting
the large amount of available new data
(notably through smart meters) and
by taking advantage of innovations in
Information Technology. A courageous
human management policy aiming at
modernizing collaborators behavior at
work is for sure a key success factor.
Those companies should become lean
digital enterprises.

C

o

p

yr

ig

ht

Utilities still need to restore their balance
sheets by accelerating their operational
excellence efforts and by continuing

69

16

At normal weather conditions

70

EBITDA: earnings Before Income Taxes, Depreciation and Amortization


20
i

in

em

Paris, September 6, 2013.

Colette Lewiner
Energy and Utilities Advisor to Capgemini Chairman

C

o

p

yr

ig

ht

Energy markets have to be rethought
by:
• Reforming the ETS market or
creating (as in the UK) a CO2 floor
price,
• Creating capacity markets
coordinated at the European level,
• Designing and implementing a new
retail market enabling the financing of
smart grids,
• Establishing a more reasonable
growth pace in RES capacity
and limiting the related growth in
subsidies,
• Keeping in operation plants that are
safe and economically viable,
• Limiting the taxes and other burdens
on Utilities.

If the right reforms are not implemented
in a timely way, the physical electricity
system will deteriorate, and when
the economy and consumption grow
again, energy supply disruptions could
happen.
The needed reforms will perhaps not be
implemented until then!

g

On the wholesale electricity markets,
prices are very erratic and even
negative during some hours, CO2
emission prices have reached low
levels that give no signal to invest in low
carbon technologies and finally Europe
is impacted by the US shale gas boom
but does not benefit from it.

Regulators and governments have
to play their role and establish rules
enabling the market to evolve from a
liberalized market to a managed market
(as is happening in the UK).

ap

The deep economic crisis, combined
with deregulation of electricity and
gas markets, and with the EnergyClimate Directive that favored a
rapid renewable energies expansion,
have led to chaotic electricity and
gas markets.

C

onclusion

©

C

Without these reforms, security of
energy supply could be threatened
as there are no long-term economic
incentives to invest in new and
vital energy infrastructure, and
as the financing power of Utilities
is shrinking.

13


17

in

i

20

13

Energy Regulation
and
Policies Overview

S

ap

g

tandstill and
questions on the
European internal
energy market

©

C

The European Commission’s
discourse on the completion
of the internal energy market
becomes paradoxically stronger,
as its mandate runs to the end
In its Communication of November 15,
2012, the European Commission (EC)
insisted on the “clear deadline of 2014
for completion of the internal energy
market”, that was decided by the
market”
Council of Ministers on February 4,
2011. The EC has actually brought
Bulgaria, Estonia, the UK and Romania
before the European Court of Justice
during H1 2013, for failing to fully
transpose the Directives of the Third
Energy Package. These procedures
illustrate the EC’s willingness to respect
and implement the timetable it had
set, even though its attempt to open to
competition the award of distribution
contracts in the Concessions
Directive failed.

C

o

p

yr

ig

ht

The current market
design is more and more
criticized, not mainly
as not having achieved
the full liberalization, but
because it has created
a major uncertainty for
the economic players,
without apparent benefits
for consumers.

em

Governance and Coordination across Europe*

* This chapter has been written in collaboration
with CMS Bureau Francis Lefebvre

18

However, this may well be self-delusion.
The legal actions might mainly illustrate
the end of life of this Commission as
it faces the political consequences
of the ﬁnancial and economic crisis,
and the swing back in favor of the

Energy Regulation and Policies Overview - Governance and Coordination across Europe

Council, if not of the Member States,
in energy and climate change matters.
The complete absence of coordination
as regards nuclear production after
the accident at Fukushima, as well
as the ongoing competition between
the major European Utilities to realize
a gas pipeline between the Caspian
Sea and the heart of the EU, are just
illustrations of the discrepancy between
the ambitions of the European Energy
Policy and the growing temptation
to re-nationalize energy policies. The
Commission could not avoid either the
multiplication of projects to introduce
capacity remuneration mechanisms at
national level, including the four main
economies (Germany, France, the UK
and Italy); after having steadily opposed
what appeared as the demonstration
of a design defect in the energy single
market, and questioned in principle the
consistency with State aid regulation,
the Commission issued a consultation
paper on “generation adequacy,
capacity mechanisms and the internal
market in electricity” on November 15,
2012.
Indeed, the European Energy
Policy undoubtedly faces a
problem of market design
The current market design undoubtedly
results from the EU legislation. As
regards power, it has been summarized
by the Commission as follows: “the


Fourthly, the gas market design has
mirrored the electricity, ignoring that
85% of the gas is currently imported;
therefore, more market power has
been given to foreign producers and
to the traders. It also tends to neglect
the congestions and to discourage
investment in the networks.

13

In this growing debate, four main
criticisms are made.

The three elements
of the current market
design (market, CO2,
and renewables) have
been developed without
coordination.

C

©

Finally, the three elements of the
current market design (market,
CO2, and renewables) have been
developed without coordination, and
the interactions with the rest of the
world underestimated. As a result, the
Commission is being pressed to review
some basics of its doctrine, like the
priority to renewables and the relevant
incentives, or the prohibition of longterm supply contracts and destination
clauses (especially to avoid carbon
leakages). And energy efficiency is likely
to remain the poor cousin, at least up
to the milestone set in June 2014 by the
Directive of October 25, 2012.

C

o

p

yr

ig

ht

First, the EU intended to create a single
market by competition on supply, and
by unbundling of the TSOs/DSOs, in
order to reduce prices and ensure their
uniformity. Apart from the persistence
of numerous regulated tariffs, prices
are increasing everywhere in Europe
for end-consumers notwithstanding
low prices on the wholesale market.
The differences between domestic
and non-domestic consumers remain
significant, as does the difference
between countries (in a range from
1 to 2.5 for gas prices to domestic
customers). To the Utilities, the main
reasons for this are twofold: the
absence of the European regulation
on generation, paving the way to very
different and uncoordinated national
policies; and the absence of an
industrial strategy, in particular to avoid
carbon leakage, where the regulated
tariffs produced cross-subsidies from
domestic customers to industries.

ap

g

em

in

Thirdly, the priority given to renewable
sources of energy is more and more
disturbing electricity systems, because
of both their priority right and their
lack of flexibility, with an increasing
occurrence of negative prices on spot
markets, with peak prices sometimes
lower than baseload, and disturbance
of networks.

20

allowances. But the Commission could
neither turn the carbon emissions into
the driver of the Energy and Climate
Change policies, nor keep the price
of the ton of carbon at a meaningful
level, in a context where the EU
has convinced nobody to make the
same efforts.

i

internal market should in principle
allow the development of deep and
liquid electricity markets, both longterm and short-term that can drive the
investments for a low-carbon electricity
system”1. It is more and more criticized,
not mainly as not having achieved
the full liberalization, but because
it has created a major uncertainty
for the economic players, without
apparent benefits for consumers. This
uncertainty proves to be inconsistent
with the large investment needs. Needs
that have been postponed for more
than a decade, that are increasing with
the development of renewables, and
that may now become urgent to avoid
black-outs.

Secondly, the European carbon market
has formally survived thanks to the
European Parliament’s vote of July 3,
2013 in favor of the EC’s proposal to
backload the auction of 900 million
1

Consultation paper on Environmental and Energy Aid Guidelines 2012-2020

19

i

20

13

of its generation capacity abroad), and
the most enterprising are developing
their business in emerging countries or
in the US (GDF SUEZ, Iberdrola…). The
cross-border mergers have vanished,
and the recent buyers are setting aside
provisions for depreciation (ENEL,
Vattenfall…). More and more power
plants, mainly gas-fired, have been
closed or mothballed (9,000 MW for
GDF SUEZ, 11,000 MW for E.ON...),
even those which had been newly
commissioned. It may raise problems
in terms of security of supply, security
of the networks, or even distortions of
competition.

Indeed, some of the major European
Utilities have launched massive
redundancy plans, like E.ON, Vattenfall,
EDF Luminus, or Alpiq. Almost all
of them are concentrating on their
traditional national markets (probably
even Vattenfall, that has currently half

C

o

p

yr

ig

ht

©

C

ap

g

em

in

Alarm grows at European
Utilities over the sustainability
of their business in the
EU and the absence of
positive long-term signals
The economic crisis has deepened
the questions upon the profitability of
the energy business in Europe for the
Utilities. The absence of economic
growth, more than the efforts on
energy efficiency, has brought a
stagnation in energy consumption,
and even a decline for gas (-2.2% in
2012). At the same time, the incentives
on renewables have worsened the
global overcapacity, whereas the gap
between low wholesale prices and
retail prices was not filled: the endconsumers are not even seeing benefits
from the situation in their energy bills,
and the Utilities and investors have no
incentive to make new investments.
Finally, wholesale prices are often set
below the production cost of amortized
efficient power plants (whereas flexible
thermal plants are necessary for the
back-up of solar and wind farms),
and the low prices of coal (subsidized
or exported by the US) and CO2
allowances have reversed the merit
order between gas-fired and coal-fired
power plants, which sends out poor
economic signals.

20


On May 21, 2013, in an unprecedented
initiative, the CEOs of eight European
Utilities dramatically called on
the European Heads of State or
Governments, who met the day after in
a European summit on energy, to take
“urgent action” on EU energy policy,
which they considered “a failure” at the
moment as regards climate change,
security of supply and competitiveness.
The eight CEOs met with the Heads of
State or Governments, representatives
of the European Parliament, and the
Commission during the summer, to
argue for long-term visibility, fixed
objectives and stable common rules. In
this framework, one can hardly imagine
them deciding to invest €1,000 billion
in generation of electricity (€750 to 800
billion) and networks (at least €200
billion, according to the EU Commission
itself), which remain at the heart of the
hotly contested regulation issues.


Spanish energy reform: a high risk mission

13

20

i
Although consumers cannot support all costs related to
the development of renewable energy sources, a drastic
cut of subsidies might undermine, in the long-term, Spain’s
competitive advantage in the renewable industry.

Long-term stability of the
regulatory environment
has always been of
paramount importance
for the Utility industry
to develop efficiently; it
has been probably one
of the weakest points of
Spanish policies over the
past years.

ap

C

ht

For customers:
• Increase of 3.2% of the electricity
bill (still as a draft). An increase up
to €900 milliona in total.

©

Listed below are some of the main
changes introduced (officially or
as a draft) by the energy reform
towards the main stakeholders: the
customers, the utilities and the state.

yr

ig

For Utilities:
• Temporary suspension of all new renewable capacity
registration to deal with the excess generation capacity in
the system (Royal Decree-Law 1/2012),
• Capped profit for renewable power producers at around
7.5%. This should cut system costs by about €1.5 billion,
• Subsidies reduction by up to €1 billion (in transport
€1
and distribution of electricity, capacity payments, coal
subsidies, system operation and payments to interruptible
customers). By Royal Decree-Law 13/2012, transmission
and distribution earnings will be limited to about 6.5%,
• System cost reductions by €200 million in 2012 (in
support to small and isolated systems) and revenue
increase for 2013 (from regional taxes and additional

p

Renewable companies have been especially hit by these
measures, together with the main Utilities. Thus, after the
reform announcement, stock market valuation of energy
companies immediately went down.

g

Under severe pressure from the
European Union and the power
sector, the Spanish government
finally came up with a new and bold
reform aiming at solving the power
sector imbalance.

On the one hand, the power sector is
strongly pushing to establish market
mechanisms that would enable cheaper
and more efficient technologies to
displace more expensive ones. On
the other hand, there is no doubt that
development of sustainable renewable
energies has become predominant in
energy policy, therefore it is important as
well to establish clear incentives for future
low carbon investments.

Long-term stability of the regulatory
environment has always been of
paramount importance for the Utility
industry to develop efficiently; it has been probably one
of the weakest points of Spanish policies over the past
years. In order to avoid this pitfall again, some voices call
for decoupling energy policy from general policy. This
idea is supported by the fact that regulatory changes and
instability might worry investors, weaken industry and
endanger the external image of the country as a stable area
for investment.
The work undertaken by the Spanish government is
very challenging: balancing stakeholder economic effort
in the short and long term; prioritizing urgent financial
affairs over competence, competitiveness and industry
development; taking into consideration security of supply
and sustainability. Many opposed interests and the need for
a good solution make it a high risk mission indeed.

C

o

900
On its side, the state will cover about €900 million from
general budget.

em

To tackle the situation, several measures have been taken
already, such as the creation of new taxes for the activities
associated either directly or indirectly with electricity, and
a drastic cut in subsidies on new clean energy projects.
Nevertheless, the tariff deficit kept on growing by up to €4.5
billion per year.

access charges to transmission network) by Royal
Decree-Law 20/2012.

in

Since the beginning of 2012 the Spanish Government has
been working on a reform to manage the so-called tariff
deficit which totaled about €28 billion as of mid-2013.
This deficit has been built up from 2000 onwards when
governments from any political party set regulatory electricity
tariffs at levels which made it impossible to recover total
system costs including renewable subsidies.

a

Spanish goverment estimates that electricity bills would have risen by 40%
in the last two years to balance the current deficit if nothing had been done.

21

Jan 1 - June 30: Denmark leads the EU Council Presidency
March 11, 2011 - May 5, 2012
All 54 Japanese nuclear reactors progressively stopped
for safety reasons or for planned maintenance
December 2, 2011 - April 26, 2012

July 1 - Dec 31: Cyprus leads the EU Council Presidency

June 16
Restart of units
3 & 4 Ohi's
nuclear reactors

March 9
Endesa Distribucion Electrica
condamned by the Spanish competition
regulator (CNC) for abuse of a dominant
market position (€25 million fine)

March

April

ht

2012

Feb

January 21 - March 31

ig

2nd period of the 100-250 kWp
solar PV tender (30 MW target)

yr

March 1
Renewables FiTs
cut by 10%

p

January 1
Renewables FiTs
cut by 8%
January 1
German solar PV FiTs
cut by 15%

o
C
22

20

ap

May 3
Newly elected Romanian government
bans hydraulic fracturing for
the exploration of shale oil and gas

May

June

July

September 21
French government reaffirms
its opposition to fracking
September 11
The EP publishes the study 'Impacts of shale gas
and shale oil extraction on the environment and on
human health' calling for stricter fracking rules

Aug

Sept

2012

2012

June 4-6
Rio+20: UN Climate Change Conference
in Rio de Janeiro, Brazil

April 1 - June 30

3rd period of the 100-250 kWp

April 1
German solar PV
FiTs cut by
between 20 and 29%

May 1
Draft decree
for the 5th national
solar PV FiTs scheme

January 27
Moratorium on financial
May 30
support for all new
Solar PV FiTs cut from
renewable power
£21p/kWh to £16p/kWh
assets
(from August 1st on)

April 16
The Italian government introduces its 5th
renewable energy package
(Conto Energia V)
reducing solar PV FiTs

FITs:
EC:
EP:
MS:
Source:

i

g

ns on buildings

©

January 27
No need of new EU-wide shale gas rules
in the foreseeable future (conclusions
from a study commissioned by the EC)

Electricity in
is c
lack of tr
its tariffs
August 2009 to

June 14
Bulgarian Parliament
eases shale
oil and gas fracking ban

C

January 18
Bulgarian Assembly bans hydraulic fracturing
for the exploration of shale oil and gas

Oct
Post-Fuku
safety improve
to the EU
nuclear powe
units esti
to cost be
€1
25

Czech cabinet
stating that n
provide 50% of

June 13
Endesa condamned
by the Spanish competition
regulator (CNC) for anti-competitive
practices (€5.475 million fine)

January 1
ARENH price
increases from
€40/MWh to €42/MWh

Jan

July 4
France confirms plans
to reduce the nuclear power
share from 75% of
the generation mix
to 50% by 2025

em

April 26
All stress tests completed:
improvements to carry out
on natural hazards prevention,
safety review, containment
integrity and human/
environment protection
in case of accident

January 3
ASN (French nuclear safety
authority) calls for
safety improvements
for the 58 reactors
(€10 to 15 billion
investments required)

September 13
Similar flaws than
in Doel 3 are found in the
Belgian Tihange 2 reactor

August 11
Flaws are found
in the steel tank
housing the Belgian
Doel 3 reactor

in

Peer reviews of all nuclear stress tests

13

Table 1.1 Major energy events (2012 and H1 2013)

July 1 - September 30
4th period of the 100-250 kWp
July 1
New solar PV FiTs cut (a 20-30%
reduction in support for wind
farms and 50% for solar PV)

September 19
Bulgaria imposes retroactive FiTs cuts
to wind and solar PV projects

September 1
July 1
Bulgarian solar PV FiTs cuts by 35%
French solar PV FiT cut by
for large roof installations and 28%
between 4.5% and 9.5%
for ground mounted installations
August 1
Greek solar PV FiTs cut (-12.5% for installations < 100 kW
+ acceleration of disgression rate from 5 to 7% every 6 months)
June 14
Energy Efficiency Directive approved with
new target of 17% instead of 20% by 2020

Octo
Poland re
support to
so
install

Janua
20

Octob
Adoption o
Directive 2012/2
on energy effic

May 22
UK publishes its draft energy bill to reform
the electricity sector

Feed-in-tariffs
European Commission
European Parliament
Member States
Capgemini analysis, EEMO15


The EC open
probe in
Chinese sola

October 5
Post-Fukushima
safety improvements
to the EU's 134
nuclear power plant
units estimated
to cost between
€10 and
25 billion

July 6
Spanish Garoña nuclear reactor
is definitively shut down

January 28
Launch of UK's energy-saving Green Deal scheme
to stimulate households efficiency improvements

g

January 1
November 30
Spain approves
The Swiss Federal Office of Energy
a final draft of a new
launches the 4th public tender for 'Sustainable Energy Law'
stimulating energy efficiency
programs (budget: €15 million)

April 3
The UK regulator (Ofgem)
fines SSE £10.5 million
(€12.5 million) for misselling
(€
(€12.5

March 18
Italy ratifies new energy
strategy targeting a more
competitive and
sophisticated gas market

ap

October 24
Electricity incumbent EDF
is condamned for
lack of transparency in
its tariffs applied from
August 2009 to August 2010

April 24
Germany renounces to freeze
EEG renewable tax

March 12
Germany presents a draft second law
to speed up expanding electricity networks

November 8
Czech cabinet adopts energy policy
stating that nuclear energy should
provide 50% of electricity generation
by 2040

April 11
French court rejects progressive
energy tariffs

January 18
France’s national assembly approves
government’s amended progressive
energy tariffs

em

December 18
French government issues a
decree setting up the electricity
market capacity mechanism

in

i

April 5
The UK commits more than
€35 million to support
nuclear research and development

March 1
The Spanish government approves draft legislation
permitting shale gas exploration via fracking

Oct

2013
Dec
Jan

Nov

March 21
The UK introduces
a new tax regime
designed to promote
shale gas investments

Feb

March

ht

November 26-December 7
UN Climate Change Conference
in Doha, Qatar

October 1 - December 31

C

November 8
The EC opens a competition
probe into subsidies for
Chinese solar panel makers

April

May

June

July

2013

June 3-14
UN Climate Change
Conference in Bonn, Germany

Launch of a solar PV tender for plants
above 250 kWp (400 MW target)

ig

yr

November 15
The EU issues a Communication
on the internal energy market
reaffirming its will to have it
achieved by 2014

o

October 25
Adoption of the
Directive 2012/27/EU
on energy efficiency

November 1
German solar
PV FiTs cut
by 2.5%

p

< 100 kW
very 6 months)

November 8
Italian ministries approve
€900
€900 million/year
green heat incentives

April 5
Romanian moratorium on the
exploration and exploitation of
shale gas by fracking expires

March 13 - September 16

5th period of the 100-250 kWp
October 9
Poland reduces
support to large
solar PV
installations
(from
January 1st,
2013 on)

May 22
Regulator AEEG
proposes power
capacity payment
mechanism

April 8
Spain's northern Cantabria region
unanimously votes to ban fracking

C

February 1
German upper house
passes resolution
to tighten fracking rules

December 13
The UK lifts the moratorium
on fracking of shale gas

2012

20

May 17
Belgian nuclear safety
authority (AFCN)
authorizes Doel 3 and
Tihange 2 restart

ts of shale gas
ronment and on
acking rules

s by 35%
nd 28%
tions

July 1 - Dec 31

Lithuania leads the EU Council Presidency

er 21
firms
cking

ve FiTs cuts
cts

13

Jan 1 - June 30: Ireland leads the EU Council Presidency

©

r 13
han
the
ctor


March 5
UK solar PV FiTs
cut by 3.5%
for installations
up to 5 MWp
(from May 1st on)

December 4
Entry into legal force of
the new binding measures
to boost energy efficiency

March 6
The EC launches a competition probe on exemption
from power grid fees for German large industrial customers

July 1
Romania cuts incentives
to renewable energy producers
(hydro, wind and solar)

April 16
The EP rejects EU ETS
backloading
March 27
The EC issues its Green Paper
"A 2030 framework for climate
and energy policies"

July 3
The EP agrees EU ETS
backloading

June 5
The EU imposes
provisional anti-dumping
duties on Chinese solar panels

July 31
German government agrees to reduce power grid
fees exemptions benefiting large industrials

23

P

I

i

ap

C

Meanwhile the 2012 global land and
ocean surface temperature was
estimated to be 0.45°C above the 19611990 average. This is the ninth warmest
year since measurements started in
1850. The last 12 were all among the
top 13 hottest years ever recorded.
The IEA again sent a wake-up call,
highlighting that the path currently
followed by the world leads to a global
temperature increase between 3.6°C
and 5.3°C, well above the necessary
2°C target. In 2012, global GHG
emissions continued to increase by 1.9%.

ht

reduction of EU-27
greenhouse gas
emissions in 2012

ig

1.1%

C

o

p

yr

decrease of EU-27
primary energy
consumption in 2012

24

At European level, EU-27 GHG
emissions decreased by 1.9% in 2012
(-3.3% in 2011). Thus, they were 19.9%
below the 1990 reference year, meaning
that the 2020 objective is already met
(see table 1.2).

in

em

The outcomes of the UN Climate
Change conference at Doha in
December 2012 were poor. The Kyoto
protocol was extended to 2020,
but only the EU-27 and a few other
countries, covering no more than 14%
of the current global GHG emissions,
agreed to comply. A ﬁgure to compare
with the former 64% of global GHG
emissions covered by annex I countries
in 1990 in the ﬁrst Kyoto protocol,
which came into force in 2005. Indeed,
Japan, Russia, Canada and New
Zealand stopped their participation.

©

1.9%

20

n Europe, the economic
crisis reduced GHG
emissions and primary
energy consumption

g

The Kyoto protocol was
extended to 2020, but
only the EU-27 and a
few other countries,
covering no more than
14% of the current global
GHG emissions, agreed
to comply.

oor progress on
global climate
negotiations in
2012 – meanwhile
the planet keeps
increasingly warming

13

Sustainability and Climate Change Targets

Energy Regulation and Policies Overview - Sustainability and Climate Change Targets

Focusing on the EU ETS sector only,
emissions reached 1,867 Mt CO2 in
2012, down 2% compared to 2011. This
decrease is due more to the economic
crisis than to the CO2 quota price on
the ETS market, which collapsed. After
reaching around €8/t in 2012, the price
of the EUA quotas stayed in the €4/t
range since the beginning of 2013.
A diminution of 1.1% was observed for
the EU-27 primary energy consumption
year-on-year (see table 1.2), while the
economic crisis drove down the GDP
by 0.3%. Consequently the energy
intensity dropped by only 0.5%, after an
excellent -4.9% in 2011.


13

Table 1.2 3x20 European Union climate change objectives (status as of 2011 with 2012
provisional data)

20

Historical evolution of GHG emissions
Path to reach 2020 target
2020 target for EU-27

105

100

95

i

90

in

EU-27 GHG emissions [base 1990=100]

110

85

-20%

80
1995

2000

2005

2010

2015

g

1,800
1,750

1,650
1,600

Historical evolution of primary energy consumption
2020 target for EU-27
Projection with current measures in place
(as per the March 2011 EU Energy Efficiency Plan)
New objective defined in the October 2012 EU Energy
Efficiency Directive

1,550
1,500

1990

1995

©

1,450

-17%

2000

2010

2005

-20%
2015

22%

2020

20%

ht

20%
18%
16%

ig

14%
12%
10%

yr

8%
6%
4%
2%
0%

1995

o

1990

p

EU-27 share of renewables in final energy consumption [%]

-9%

ap

1,700

C

EU-27 primary energy consumption [Mtoe]

1,850

2020

em

1990

2000

Historical evolution of renewables share
2020 target

2005

2010

2015

2020

C

Source: BP statistical report 2013, European Environment Agency, Eur’Observer – Capgemini analysis, EEMO15

25

M

20

i

In June 2013, 22 out of 27 Member
States submitted to the EC indicative
targets of primary and final energy
consumption for 2020. They will be
evaluated in early 2014. States will then
transmit their future NEEAP2, including
the transposition measures voted in the
Directive in 2012.
Nevertheless, there is little public
information on how States plan to
implement the new Directive and
especially the 1.5% energy savings
objective for energy distributors and/
or retail energy sales companies.
Although exemptions already exist for
this 1.5% objective (enabling countries
to reduce it by one quarter), the UK
tried to further weaken this Directive
by insisting on the inclusion of energy
saving measures taken four years
before or three years after the 20142020 period. This request was finally
rejected by the Commission.
However, several experts underlined
that this Directive applies only until
2020 (a review is planned in 2016),
while some energy efficiency measures
such as building renovations provide
results during up to 50 years. Without
an extension of the Directive’s mandate,
there is a concern that Member States
might take only minimal measures to
meet the requirements of this Directive.

C

o

p

yr

ig

ht

©

C

ap

g

em

in

There is little public
information on how
States plan to implement
the new Energy
Efficiency Directive and
especially the 1.5%
energy savings objective
for energy distributors
and/or retail energy sales
companies.

13

ore visibility
is needed on
energy efficiency

2

26

Energy Regulation and Policies Overview - Sustainability and Climate Change Targets

National Energy Efficiency Action Plan


13

20

i

in

ap

g

em

This paper underlined the key issues
to be dealt with. A new target on
GHG emissions needs to be defined
(the Roadmap 2050 suggested a
40% reduction by 2030). In addition,
the question of whether having only
a GHG emission target is raised,
since the interactions between the
3x20 objectives have shown obvious
synergies but also trade-offs.

The question of whether
having only a GHG
emission target is raised,
since the interactions
between the 3x20
objectives have shown
obvious synergies but
also trade-offs.

This paper also questioned the
relevance of setting sector specific
targets rather than targets for each
Member State on energy efficiency, and
the metric to use to measure it (keeping
absolute energy consumption or switch
to a relative target like the energy
intensity).

C

o

p

yr

ig

ht

In 2012, investments in renewables4
were down 29% year-on-year in
Europe, reaching $79.9 billion.
This drop was mainly driven by the
economic downturn and the growing
uncertainty about support policies and
mechanisms, but also by the sharp
fall in the price of solar PV panels. The
European drop was in line with the
worldwide decrease in investments:
$244 billion in 2012, down 12% from
the previous year‘s record. However,
this downward trend is not evenly
distributed. While investments in
developed countries decreased by 29%
to $132 billion, they continued to grow
steadily in developing countries (+19%),
reaching $112 billion5.

On March 27, 2013, the Commission
adopted a Green Paper entitled “A
2030 framework for climate and
energy policies”. The aim is to build
an intermediary step toward the 2050
Energy Roadmap, which has been
drafted in line with the objective of
reducing GHG emissions by 80 to 95%
by 2050 compared to 1990 levels.

C

Partly thanks to low levels of energy
consumption, renewables accounted
for a 13% share in final energy
consumption in 2011, and EU-27 looks
on track to achieve the 2020 objective
of 20% (see table 1.2). However, this
objective is at risk3: if Member States
do not implement new measures,
the economic crisis, the remaining
administrative barriers, the infrastructure
and market design problems, and the
disruption of the support mechanisms
and politics may delay or cut future
investments.

2

030, a new
horizon in sight

©

R

enewables
presumably on track
with the objective – but
is there still a consensus
on the target?

On May 21, 2013 the European
Parliament approved a non-binding
resolution calling for a mandatory share
for renewables in 2030 greater than the
current working assumption of 30%.
However, a proposal to set this target
between 40 and 45% failed. Numerous
Member States opposed the idea.
The EU is therefore sending out
conflicting messages, at a time when
the international negotiations on climate
change mitigation are stalling, pending
the discussions on a possible new
international agreement to be signed in
2015 at the COP 21 climate conference
in Paris.

3

Renewable energy progress report, European Commission, March 2013

4

Excluding large hydro

5

Trends in renewable energy investment 2013, BNEF. Excludes large hydro projects >50 MW

27

em

in

i

20

13

Electricity Markets

g

Electricity Generation

I

C

ap

n 2012, security of supply
was guaranteed in a
decreasing EU electricity
consumption market

C

o

p

yr

ig

ht

©

Although exceptional weather
events stressed the electricity
system in 2012 leading to
higher peak loads, security
of supply was guaranteed
After a 1.5% drop in 2011, European
electricity consumption continued to
fall by 0.2%6 in 2012. Corrected by
the additional 0.3% increase that a
leap year like 2012 adds to the annual
electricity consumption, the fall reaches
0.5%. Temperatures were globally
milder than average (+0.9°C) and the
economic environment remained rather
subdued with EU-27 GDP shrinking
by 0.4% over the year. Experiencing
low demand from energy-intensive
sectors such as manufacturing and
construction, most countries reported
electricity consumption decreases,
for example: Belgium (-1.9%), Bulgaria
(-3.0%), Germany (-4.6%), Italy (-2.5%),
the Netherlands (-1.6%), Portugal

6

28

Electricity Markets - Electricity Generation

Non-weather corrected

(-2.9%) and Romania (-0.9%). Due to
the February 2012 cold wave as well as
unusual cold temperatures in Northern
Europe in December 2012, France
(+2.4%), Norway (+4.2%) and Sweden
(+1.7%) reported a noticeable electricity
consumption surge. Large amounts of
electricity in these countries are used
for heating.
These exceptional weather events
put considerable stress on the EU
system as most countries reached their
peak load either in February 2012 or
December 2012. Security of supply was
ensured thanks to effective mobilization
of reserve generation capacities and
close cooperation between TSOs.
Nevertheless, while total EU electricity
consumption slightly fell over the year,
signiﬁcant peak load increases were
reported compared to 2011 (see table
2.1), e.g. in Bulgaria (+6.8%), Czech
Republic (+6.7%), France (+11.2%),
Germany (+7.1%) or Poland (+3.6%).
While France and Poland reached their
historical consumption peak, Bulgaria
reported its highest peak ever in
twenty years.

European Energy Markets Observatory 2013

European Energy Markets Observatory 2013

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