the european energy climate policy: from …expansion to crisis the future of utilities in the eu...

THE EUROPEAN ENERGY CLIMATE POLICY: FROM EXPANSION TO CRISIS

The future of utilities in the EU and in the USA, Ifri, Brussels, March 22nd 2016

Michel Matheu, Head of EU Strategy

| 2European Energy and Climate Policy - March 2016

WHAT MAKES SENSE FOR EUROPE: DE-CARBONISE AT AN AFFORDABLE COST

Winning strategy = competitive de-carbonisation => electrification

| 3

LIKE ANY POLITICAL ENTITY THE EU HAS TO FIND A BALANCE

European Energy and Climate Policy - March 2016

Maintain a Sustainable Development

Ensure Security of Supply

Support Economic Competitiveness

« trilemma » ?

| 4

THE EU’S POLICY: FROM LIBERALISATION TO THE CLIMATE PACKAGE


Free circulation of electricity

• “Electricity should, as far as possible, flow between Member States as easily as it currently flows within Member States.”

Least costclimate policy

• “A coherent and co-ordinated framework [...] covering all MSs [...] will allow for significant cost-savings”

« 3 targets » climate policy

• “Development of energy efficiency and RES will enhance energy security, curb theprojected rise in energy prices and reduce [...] emissions”

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EUROPE IS FACING A CRISIS


The balance is lost

Source : EEX

Source : Eurelectric

Much of retail price increasedue to RES over-capacity

Does not send anyinvestment signal

| 6

THE MAIN REASON IS CONFLICTING TARGETS: CO2, RES AND EFFICIENCY


No investment signal, high carbon technologies at an

advantage

Too low energy and

carbon prices

Recession + oversupply

of mandated RES + EE

It is difficult to break the vicious circle

| 7

IS EUROPE ABLE TO HEAD BACK TO COMPETITIVENESS?


Maintain a sustainable

development

Ensure security of supply

Support economic

competitiveness

Liberalisation

ETS

90’s

2000’s

2010’s2030 framework

2008

RES– EE

?


THE MARKET DESIGN THAT MAKES SENSE IN THE LONG RUN IS CLEAR ENOUGH

WELL FUNCTIONING

MARKETS

Clearenergymarketsignal

Predictablecarbonprice

« Smart » capacitymarket

Infra-structure

investmentbased on

CBA

| 9

WE ARE SO FAR FROM THE TARGET THAT A TRANSITION IS NEEDED


In order to meet the 2030 targets at best cost, we must develop a full vision of: how to evolve towards a market based framework ...

...which includes fixing the ETS and optimising support to low carbon generation in the next years

WHICH TRANSITION?

Jeopardizedmarkets

Market basedframework

| 10

ETS : EUROPE MUST DO MORE – AND QUICKLY


We have lost time. The EU must act to prevent a crash of the ETS

• It took time to achieve a short term fix.

• The MSR will be in operation in a few years.

• An new draft directive is on the table.

BACKLOADING

RESERVE

CAP

NEXT?

• ETS CRISIS

• Lower cap? Adjustments? Price corridor?


THE NEEDED TRANSITION: FROM “SMART” SUPPORT TO MARKETS

Markets are the natural tool for efficient de-carbonisation

“Non market regime” for RES

Control volumes and subsidiesMake markets fit for RES and RES fit for markets

Evolve towards technology neutrality

Base investment on energy and CO2 prices

2020 Transition period Target regime

Restore markets by controlling over-supply

Has to apply to any low carbon technology

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UTILITIES THAT ADAPT WILL BE PART OF THE GAME


Content here please

More DSM & EE

More variable generation

More X-border trade

Utilities are currently at (regulatory) risk. But they are essential to the future.

« Smart » things

TSOs DSOs

Generators

Suppliers

Traders

Con- and pro-sumers

BACK-UP

14

THE CONFLICT BETWEEN THE THREE POLICIES IS PARTICULARLY DANGEROUS

European Energy and

RES and EE targets mandate investments... ...which displace more cost-efficient abatements... ...and mechanically depress the ETS price.

Abatement costs €/t

Cumulated abatements (t/year)

Reduction target

Depressed CO2 pricewith EE & RES policies

Reduced space for efficient ETS market selecting abatements at least cost

CO2 price withstand alone ETS

Mandated EE & RES investments (more costly in terms of €per ton abated)

Overcosts

THANK YOU!

the european energy climate policy: from …expansion to crisis the future of utilities in the eu...

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