Back in the USSR?

February 25, 2013 | 00:00

Back in the USSR?

This was the dream: a single European copper plate. A single dynamic innovative European energy sector with suppliers competing freely - like car manufacturers or oil companies. The State? It would have withered away. It would be present only in the background, setting the regulatory framework, but not interfering in the market.

Am I exaggerating? Well, I happen to know that in the Netherlands policymakers were actually planning not so long ago to abolish the Energy Department within the Ministry of Economics because they thought it would not be needed anymore. Naïve, perhaps, but it shows that hopes of a single free European energy market were high.

The reality of the energy market today, at least in the view of European electricity industry association Eurelectric, as expressed by their head of Energy Policy & Generation Susanne Nies, is rather different: "A real disconnect between the huge ambitions and the actual willingness to invest on the ground" - "Overregulation" - "Unpredictable policies" - "A Soviet-style obsession with targets".

In an interview with EER Nies says that "instead of letting the system evolve into a new equilibrium, policymakers are continually adding all kinds of distortions." The result, she says, is that the investment climate has been wrecked. Power plants (in particular gas-fired ones) are being closed down and new projects are being cancelled or delayed.

The implication is that we are headed for (in my own words) "Soviet-style electricity shortages" (although electricity was probably the one thing that the Soviet Union did not have shortages of).

Of course one might counter that these complaints from Eurelectric are self-serving. There may be other good reasons why the investment climate in the energy sector is pretty bad right now: there is a financial crisis (i.e. no money), an economic crisis (i.e. low demand). What is more, we are in a "transition" to a "decarbonized" power sector that inevitably entails "adjustment problems". So stop complaining utilities - get used to it!

This was - to some extent - the message Philip Lowe, Director-General for Energy at the European Commission, gave in the most recent interview EER had with him, in December last year. "Get real!", said Lowe. "There's a recession out there and a financial crisis and there's capital rationing in the long-term institutions. They will re-engage in the energy sector when the economy recovers."

The question is, though, will they "re-engage" quickly enough?

Last week, an authoritative but impartial voice made itself heard in this debate. Alistair Buchanan, the departing head of UK energy regulator Ofgem, gave a presentation about the outlook for the UK electricity sector. The title alone was slightly hair-raising: "Will GB's lights stay on and will the gas keep flowing?"

Buchanan's conclusions are positively alarming. He states that the UK's energy policies have "collided with the financial crash". He notes that power plant closures are being speeded up, in advance of the EU's Large Combustion Plant Directive (LCPD) which will take effect in 2016. Renewable energy capacity will come, says Buchanan, but too late. He even discusses whether the UK could "opt out" of the LCPD.

Buchanan concludes that new gas-fired power capacity is urgently needed to fill the gap and avoid a crisis, but this capacity is as yet nowhere in sight. Indeed, he noted that last January Britain narrowly escaped a blackout that would have hit a million homes.

And the Ofgem head pointed to another problem, which we have not even mentioned yet: rising energy prices. They are going up, up, up, Buchanan acknowledged. "Fuel poverty" has become a big issue in Britain.

True, Buchanan's analysis applies only to the UK - but other countries are facing similar problems. Investment is lagging everywhere. And prices are going up everywhere - and not just in countries like Bulgaria. "Affordability", says Susanne Nies, "is becoming a big problem. We hear this from all our members."

The message is clear. A spectre is haunting European energy markets. The ruling classes would be wise not to ignore it.

PS
My comments on electric cars last week elicited several responses. I quoted a Reuters report that said that Estonia had become "the first nation in the world to install a nationwide system of fast chargers for electric vehicles".
A reader from Estonia noted, however, that the project is not the breakthrough that it seems to be at first glance. It is part of a deal with Japan, in which Japan will buy CO2 emission credits from Estonia in return for the purchase of electric cars from Mitsubishi and the rollout of a Japanese-built charging system. Only 93 cars have been bought under the scheme, this reader says.

On a more encouraging note, another reader wrote that Ireland is working hard on the rollout of a charging infrastructure for electric cars, see this presentation. As this reader suggests, perhaps small countries are best suited to make the electric car revolution happen. 

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