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Europe's Changing Energy Future - MSLGROUP Energy Report July 2014

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A few years ago, who would have imagined a world where shale is rewriting geopolitics, where solar and wind are supplanting coal in Germany, or where there are serious concerns over the lights …

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

To find out more about MSLGROUP’s services, please contact Nick Bastin on nick.bastin@capitalmsl.com | Share your feedback with us on twitter @msl_group.

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  • 1. 1 ENERGY REPORT July 2014 Issue 5 | July 2014 INSIDE THIS ISSUE France Energy transition and COP 21 : French ambitions stand the test of reality PAGE 6 Brussels 3rd EU attempt to boost a common strategy for energy security PAGE 12 Italy National resources and missed opportunities PAGE 8 Sweden Increased Swedish electricity requirements in the future PAGE 15 Germany Politicians must get their hands dirty for a successful Energiewende PAGE 4 United Kingdom Does the UK need to be better energy interconnected with mainland Europe? PAGE 10 ENERGY REPORT Europe’s Changing Energy Future
  • 2. ENERGY REPORT July 2014 Contents Politicians must get their hands dirty for a successful Energiewende 4 Energy transition and COP 21 : French ambitions stand the test of reality 6 National resources and missed opportunities 8 Does the UK need to be better energy interconnected with mainland Europe? 10 3rd EU attempt to boost a common strategy for energy security 12 Increased Swedish electricity requirements in the future 15 The Dutch quest for European LNG leadership 17 Crimean gas shadow 19 MSLGROUP can make the difference 21 Where we are 22 2
  • 3. 3 ENERGY REPORT July 2014 Rising to the challenge The European energy landscape is evolving at a rapid pace and many of the accepted norms have been challenged and abandoned. A few years ago, who would have imagined a world where shale is rewriting geopolitics, where solar and wind are supplanting coal in Germany, or where there are serious concerns over the lights starting to go out in the UK. One thing is clear – the European Energy landscape is changing at a pace that has never been seen before. Similarly, the events in Ukraine and the Crimea have pulled Europe’s re-liance on Russian gas into greater focus. While that may be unpalatable for some, the reality is that with nuclear off the agenda in much of Eu-rope, coal on the decline, and renewables too intermittent for baseload power, Russian gas is likely to remain a key feature in Europe’s energy mix for years to come. This throws up a diverse series of communications challenges; from ex-plaining to people that they should learn to love wind turbines and solar panels, that nuclear could be part of the solution and, perhaps most im-portantly, that energy saving can make a bigger difference than any fuel switch to reducing carbon emissions, enhancing energy security and re-ducing demand. One thing that never changes is that energy projects are big, expensive and long term. Change requires huge investment of capital, as well as regulatory and legislative time and resource. Communications and en-gagement will have a critical role to play across multiple stakeholder audiences to help Europe navigate this transition – a challenge that we relish! Nick Bastin Managing Director, Capital MSL and Head of MSLGROUP EMEA Energy Practice Introduction
  • 4. 4 ENERGY REPORT July 2014 Germany Corrects Its Failing Policy on Re-newables With Germany’s new grand coalition government in place, the Energiewende seems to be back on track: A far-reaching, and long-overdue, reform of the country’s Renewable Energies Act or Erneuerbare-Energien-Ge-setz (EEG) has just been passed by the German parlia-ment. It will right some of the most significant wrongs which have been dogging Germany’s energy regime in recent years. One of the key problems has been this: Germany has seen an almost uncontrolled increase in renewable energy generation, from around nine per cent of total energy production five years ago, to just under 24 per Politicians must get their hands dirty for a successful Energiewende Vital reform passed, but mixed signals by politicians continue to pose a threat to the Energiewende. Florian Wastl MSL Germany florian.wastl@mslgroup.com cent last year. Due to the system of fixed feed-in tariffs for energy from renewable sources, this has led to an ever-widening gap between wholesale energy prices, which have been falling, and the guaranteed tariffs for renewables. As a result, the country’s green ener-gy levy (EEG-Umlage), paid by consumers in order to bridge this gap, has risen from just over one euro cent per kilowatt hour in 2009 to a staggering 6.24 euro cents this year. Much of this will now change: Under the reformed EEG, the uncontrolled growth of renewables will be reigned in, guaranteed feed-in tariffs will be reduced and renewables will face more market-like conditions whereby they will need to become more competitive. It could have been a lot worse. In many ways, Germany’s Energiewende has been pulled back from the brink. Communication Challenge Remains But things are far from well. This is because German politicians have been sending very mixed signals about the Energiewende. There is a widening gap between what they have been saying about the Energiewende 16% 24% 40-45% 2009 2013 2025 Germany has seen an almost uncontrolled increase in renewable energy generation, from around sixteen per cent of total energy production five years ago, to just under 24 per cent last year. 60% 50% 40% 30% 20% 10% 0%
  • 5. 5 ENERGY REPORT July 2014 as a whole, and what they have been saying about the implementation of its parts. On the one hand, there is widespread agreement about the need for a speedy transformation of Germany’s energy system. Ambi-tious targets, albeit slightly reduced, remain in place: By 2025, 40-45 per cent of Germany’s power is sup-posed to come from renewable sources. On the other hand, in the wake of local opposition, pol-iticians often backpedal when it comes to executing vital Energiewende-related projects on the ground. For example, Horst Seehofer, prime minister of Bavar-ia, Germany’s largest federal state, and leader of the CSU, Angela Merkel’s CDU’s sister party, recently con-founded the pundits by publicly questioning plans for expanding the national grid. His remarks came after an 18-month consultation process and a cabinet decision in favour of the plans. However, faced by a poor show-ing in local elections in March and at the European elections in May, Seehofer was trying to woo NIMBY voters in his federal state. For short-term electoral gain, he deliberately jeopardised a central pillar of the Energiewende and created confusion and insecuri-ty for local residents, investors and political partners alike. This is just one example of a politician playing the populist card when it comes to the Energiewende. There are many more. For instance, instead of allay-ing residents’ fears about onshore wind farms in their neighbourhoods, politicians have been quarrelling over whether setting the minimum distance between residential homes and windmills should be the prerog-ative of the federal government or the 16 German fed-eral states. If the states had their way, it would create a plethora of different regulations, varying from one federal state to another – a nightmare for investors. But the point is a different one: What we are seeing are politicians outdoing each other in playing to people’s fears, instead of leading the way on tough decisions. The debates about shale gas exploration and the much-needed pumped storage hydro power stations follow along very similar lines. In fact, some vital de-bates are not even taking place at all, such as the one about carbon capture and storage technology (CCS). Admittedly, CCS will not turn conventional power sta-tions into beacons of green energy overnight. Never-theless, it could help industry to capture its own emis-sions and thereby make an important contribution to Germany’s climate goals. Similar to nuclear power, however, CCS has become the pariah of German pol-itics. No one wants to get their hands dirty and touch it. Politicians will need to stop paying lip service to the Energiewende as a whole, and start leading the argu-ment on its implementation where it will be most felt. Instead of playing to people’s fears, they will need to make the case for action, even if this means taking unpopular decisions or advocating controversial tech-nologies. If they do not do this, EEG reform may have made the Energiewende’s regulatory framework a lot more sound, but the political rhetoric will continue to sow fear, insecurity and false expectations. The ramifications for the Energiewende could be dis-astrous: If grids are not extended fast enough, storage facilities are held up indefinitely, and ever-changing regulations designed to please local protest groups make it impossible for investment to go into vital pro-jects, progress in the Energiewende as such could stall. By continuing to question its parts, politicians are increasingly putting the project at risk as a whole. What we are seeing are politicians out-doing each other in playing to people’s fears, instead of leading the way on tough decisions. “
  • 6. 6 ENERGY REPORT July 2014 Two intertwined milestones This April’s cabinet reshuffle has had a major effect on decisions that will be taken in the upcoming months regarding France’s energy plan : Since her appointment in April 2014, Ségolène Royal has undertaken the role of French En-ergy and Environment Minister. Despite her loss as presidential candidate in 2007, Royal has a charismatic personality, a high media profile, undeniable political clout, and is well-known for her commitment to envi-ronmental issues during her time as President of the Poitou-Charentes region in France. Her pragmatic po-sition in terms of sustainable development was reflect-ed in her first speech as a minister, during which she reminded the audience of her opposition to “punitive ecology”. At the same time, the French Green Party an-nounced their decision of nonparticipation in the new Manuel Valls’ government, denouncing Valls’ “excessively free-market” policies. While continuing their support of the presidential majority, the environ-mentalists now place all of their hopes in the future energy transition law. Should this law disappoint them, they may finally rupture with the socialist government. From now on, it is under the guidance of Ségolène Royal that the long-awaited energy transition law will be discussed. Initially scheduled for the end of 2013, the law should finally be presented by the Government before the summer and discussed by the French par-liament during autumn 2014. Together with the French Minister of Foreign Affairs, Laurent Fabius, Ségolène Royal is in charge of organ-izing the other crucial event of Hollande’s five-year term: the 2015 Paris Climate conference (COP 21) which is scheduled for December 2015. Challenges surrounding this conference are twofold : for France, to advance as an environmental model on the interna-tional stage; and for Europe, to avoid the “double pen-alty” by diminishing even further its competitiveness compared to emerging countries. Though often understood as disconnected, these two projects are in reality intertwined. Laurent Fabius, the French minister of Foreign Affairs, has claimed that the ability of France to bring participants to a consen-sus during COP 21 will rely heavily on the success of the French energy transition law. Should the law be voted in without opposition, France will gain credibility and will be able to frame the French energy model as an international example. An impossible consensus? Both the energy transition law and COP 21 will be the subject of tough negotiations: even though there is consensus on the stated objectives, namely the re-duction of CO2 emissions and the movement towards a carbon-free energy, the methods that are chosen to reach these objectives are contested. How do we get there? Unlike other countries, energy policy in France is not a consensual topic. While in Germany, Angela Merkel’s decision to cease using nuclear ener-gy met strong support of the Germans, François Hol-lande’s commitment to shut down the Fessenheim nuclear power plant by 2017 and to diminish the share of nuclear energy in the French energy mix from 75% to 50% is divisive : • French public opinion is divided : two different surveys carried out in 2013 showed, for one, that a narrow majority for French people (36% in favour, 14% against, the rest inconclusive) support nuclear energy and, for the other, that 53% of French peo-ple were in favour of a gradual withdrawal of nucle-ar energy. These results offer little understanding when considered together other than showing the current division of the French public opinion. Energy transition and COP 21 : French ambitions stand the test of reality Mathieu Slama France mathieu.slama@consultants.publicis.fr 2 1 1
  • 7. 7 ENERGY REPORT July 2014 • French politicians are also divided. Unsurprisingly, the right wing party, Union pour la majorité prési-dentielle, is opposed to a reduction of nuclear ener-gy’s share in the French energy mix. At the same time, the French Green Party often criticizes “a lack of conviction of the socialists” for environmental issues because of multiple delays in the discus-sions of the energy transition law, and the lack of a clear position on the future of nuclear energy in France. French socialists themselves, especially at the Parliament, do not have a clear position on the future of nuclear energy in France. Negotiations before and during the COP 21 promise to be complex as well, and the task to lead those negotiations a hard one. On one hand, the COP 21 talks is supposed to lead to a new agree-ment on climate change in order to keep global warm-ing under 2°C. On the other hand, the talks push for a legally binding agreement applicable to all countries, which is an ambitious task. The main challenge lies in finding a “level playing field” that will satisfy all States, and also agreeing on provisions which will not destroy further European competitiveness, which is already under pressure from emerging countries. A burden or an opportunity? Energy and climate: on both topics, French officials have tried to highlight economic opportunities they represent. Ségolène Royal insists on “positive ecol-ogy” and the “100,000 jobs” which could be created by the energy transition. The French ministry of For-eign Affairs stresses the need to understand the fight against climate change not as a necessity “to share the burden” of emissions, but as an opportunity to create jobs and growth and to invent new means of produc-tion and consumption. All on the condition, of course, that an agreement is reached. 2 Since her appointment in April 2014, Ségolène Royal has un-dertaken the role of French Energy and Environment Minister. Photo: Matthieu Riegler
  • 8. 8 ENERGY REPORT July 2014 National resources and missed opportunities How to unchain Italian energy strategy through consensus generation Energy supply is notoriously one of the thorniest issues in Italy. Debates have been dragging on year after year, legislature after legislature, amidst energy crises and international tensions, to these very days, yet energy supply is still a polarizing issue far from been settled. The divide cuts across all sections of society, citizens and policy makers, all looking for the right solution. If we were – at long last – to reach an agreement, we could use energy as a powerful lever to stoke the long-awaited recovery of our economy. Not to men-tion related geopolitical issues. The current situation in Ukraine calls for a review of our relations with Rus-sia, Italy’s number one supplier of natural gas. After the invasion of Crimea there have been ongoing fights, chaos and unrest in the region. There has been un-rest also in other countries that supply energy to Italy. Amongst our southern Mediterranean energy suppli-ers, Libya, to name but one, has become a powder keg after the fall of Colonel Gaddafi. This kind of situations does not help economic relations nor trade and Italy needs to look elsewhere for its energy supplies. For the first time though, instead of looking far afield, to the Middle East or to its US ally, Italy may turn its eye to homeland and discover it can produce energy do-mestically instead of importing it. Our country has con-siderable energy resources: natural gas, oil and met-als. Take black gold, for example. We are looking for oil supplies around the world, yet we have oil fields in our seas. The same holds true for other resources that we continue to buy from foreign countries while we have Alessandro Chiarmasso Alessandro Paoletti Italy Alessandro.chiarmasso@mslgroup.com Alessandro.paoletti@mslgroup.com Communication as the way forward. After all the years experts, environmental activists and or-dinary people have spent debating the energy supply issue without finding an agreement, this may seem mere wishful thinking. Yet, digging a little deeper, it becomes apparent that commu-nication can put an end to decades of disagreement and help solve the issue.
  • 9. 9 ENERGY REPORT July 2014 them within our borders. Unlike other countries where obstacles and limitations are much fewer, in Italy re-sources that could be used remain unexploited. While some concerns are understandable and some claims right – and need to be taken in due consider-ation - other concerns and arguments in the ongoing energy debate are biased and unfounded, standing in the way of a rightful exploitation of our domestic nat-ural resources. Communication can valuably dispel false beliefs by providing accurate information to the public. This is not a naïve approach, quite the opposite. Clear, accu-rate information allows the public to form an opinion in a more mature and conscious way instead of being played on by politicians that often use environmental and health issues to win votes. Lack of communication or misinformation has been often played on by jour-nalists, too, fueling people’s emotional reactions after tragic events or incidents just to sell more newspaper copies or win larger TV audiences. All this brings about even more confusion and provides people with further arguments to oppose change, including change for the better, and maintain the status quo. Much too often projects for the exploitation of domes-tic resources have been bogged down by the opposi-tion of local communities unwilling to accept energy installations in their backyard, de facto vetoing any initiative with their various protests and demonstra-tions. This is of no advantage to anybody. If not entirely eliminated, these situations could at least be reduced in number if the public were to receive accurate infor-mation through appropriate communication channels and media. Non-sensationalist, non-partisan communication made for the sole purpose of informing the public, fa-cilitating the circulation of correct information and the formation of a public opinion based on facts, not myths or misconceptions as, alas, much too often happens today. Communication that delivers information as much objectively as possible, using data and figures, as numbers provide firm evidence. Data and figures showing the extent of unexploited natural resources in Italy, a country that has the fourth largest gas reserves in Europe yet ranks only sixth among europe’s top pro-ducers. Numbers that help people understand that many of their fears are unfounded, and that yes, there are haz-ards, but doing nothing is not the answer. The answer is moving forward managing hazards, and let exploita-tion of natural resources be the solution, especially for our economy, and no longer a problem. Let numbers speak for themselves. Italy’s 2013 data show oil ex-ploitation amounted to 5.5 million tons of oil equiv-alent (MTOE) and gas exploitation to 6.4 MTOE, the industry employed 140,000 people, generated €6.4 billion revenues and nearly €5.5 billion in energy bill savings. These figures would be much stronger if Italy were to double its energy production. To attain this goal it is essential to communicate accu-rate information with the assistance of experts in the field for comprehensive coverage of the matter and delivery of exhaustive answers to the public. What’s at stake is not only the choice that will be made but also on what basis people are going to make their decision. Proper communication is key to have people make in-formed, conscious decisions, whatever their choice will be. Oil gas 140,000 people €6.4 billion Italian Energy Industry in Numbers 2013 employed revenues 5.5 MTOE 6.4 MTOE
  • 10. 10 ENERGY REPORT July 2014 All too often we hear the argument that UK energy prices are out of control, and that the lights may ‘go out’ in the not too distant future. UK energy consumers have faced a constant increase in the cost of electricity, up 36% in three years. With the UK energy supply market constrained by a diminishing domestic power generation infrastructure, and its ability to meet future de-mand in doubt, the future for UK energy consumers looks bleak. However, since the 1970’s the UK has had a form of power grid interconnection with our European neigh-bours – Ireland, France, and the Netherlands. An ar-rangement whereby lower cost electricity can be trans-mitted cross border from European neighbour grids. The levels of such interconnection is currently limited. Only 3.5 MW, or 4% of installed power in the UK, is sourced via electrical interconnection. Energy availability and pricing varies across Europe, based on supply sources, surplus and the operating environment. This means that cheaper and more read-ily available power is available, if only the UK consumer could access it. So has the case for further power supply integration been properly communicated to the UK consumer? Why does the UK remain in relative power market isolation? The case for increased levels of electrical interconnec-tion with Europe has, in recent times, been voiced, but perhaps too quietly, in isolation or ineffectively. There is a strong case for Interconnection, which would allow available energy to be moved between countries, in turn assisting in driving down the cost of electricity in the UK. Interconnection could benefit both business and con-sumers in the UK. According to UK Energy Minister Ed Davey, interconnection could knock more than 10% off the typical UK electricity bills. In an ever more glo-balised energy market, it would appear that the UK consumer is being punished by the UK’s lack of con-nectivity. Additionally, as the UK and Europe’s energy supply is increasingly made up of renewable sources, a system is needed that is capable of absorbing and utilising the available energy when it is available. By its nature, renewable energy’s availability is intermittent. So for example, solar electricity is produced when it is light, wind power when it is windy, and so on. In a better inter-connected market, electricity that is generated could be more efficiently directed to areas of consumer need and the system could be better balanced during times of low demand or low renewable generation. Does the UK need to be better energy interconnected with mainland Europe? Michael Kinirons UK michael.kinirons@capitalmsl.com There is a strong case for Interconnection, which would allow available energy to be moved between countries, in turn assist-ing in driving down the cost of electricity in the UK.
  • 11. 11 ENERGY REPORT July 2014 Ensuring that the UK grid is provided with a balance of power sources, including a better connection into the available power of our neighbours and moving the available resources from low demand places to ones of higher demand, would assist the UK in ensuring that the lights remain on in future years. But it would appear that the message, simply, is not making its way to the consumers. They seem to re-main unaware of the potential financial savings that increased electrical interconnection with Europe could offer to them. It must be remembered that greater interconnection with Europe would require large scale investment in infrastructure and come with both associated levels of pricing risk and geopolitical risk. Interconnection pro-jects have high capital requirements and the pricing in a more open market could be susceptible to increased fluctuation. However, with the UK government in support of in-creased interconnection and a number of third parties queuing up to finance and coordinate the projects, why is greater progress not being made? It is widely accepted that electrical interconnection with countries such as Iceland and Norway offer a com-pelling case for implementation. They offer efficient sources of generation, which would allow the UK to meet demand at reduced energy costs. Such arrange-ments would provide greater security of supply, provid-ing a pool of energy, which could cushion the UK from supply shortages. However, the case for increased interconnection has largely failed to make the news agenda in a meaning-ful way. It would seem that the argument for intercon-nection is simply being overshadowed by the constant noise around energy price increases, renewables, fracking etc. It is a busy market place, with lots of news items vying for the general public’s attention. There are a number of additional, and very specific communications challenges, which the industry will have to overcome if it is to succeed. Those addition-al communication elements will not be addressed by one broad brush approach. But if the industry can use that broad brush approach to garner the wider public’s opinion and support, then these specifics will also be-come a lot more achievable. Interconnection clearly will not be the solution to all of the UK’s future power requirements. However, it does have a valid and potentially significant place within the UK’s future energy mix. If a more electrically intercon-nected UK is to be achieved, the industry must work together to ensure that it better communicates the benefits of that interconnection to the UK consumer.
  • 12. 12 ENERGY REPORT July 2014 Next October, EU energy Ministers and Heads of State or Government are due to discuss short and longer term policy orientation for energy following the pro-posals put forward by the Commission, and in particu-lar the newly proposed plan for a European Energy Se-curity Strategy. After the attempts and some progress made on the front of energy security to tackle the temporary disrup-tions of gas supplies in 2006 and 2009, recent geo-political events in Ukraine have accelerated the need for bolder and coordinated action at the EU level, well beyond the initiatives launched few years ago. The EU’s energy dependence from abroad has been on the rise since the mid-1990s topping now a fifth of the overall EU import bill and half of EU’s energy needs. In 2013, EU countries spent 400 billion euros to import en-ergy, mainly crude oil (88% of EU consumption) natural gas (66%) and solid fuels (44%). With Russia being by far the main supplier for oil and gas. The vulnerability of a certain area depends on sever-al factors, in particular on the reliability of its external suppliers; the diversity of its energy sources; the size of its domestic production; and on the level of integra-tion into the European pipeline network. To address the short, medium and long-term energy security chal-lenges, the Commission set out eight priority areas where decisions need to be taken and concrete actions implemented at the EU and national levels. These are: Increasing the EU’s capacity to overcome a major disruption during the 2014/2015 winter; Strengthening emergency/solidarity mecha-nisms, including the coordination of risk assess-ments and contingency plans; and protecting strategic infrastructure; 3rd EU attempt to boost a common strategy for energy security Moderating energy demand; Building a well-functioning and fully integrated internal market; Increasing energy production in the European Union; Further developing energy technologies; Diversifying external supplies and related infra-structure; Improving coordination among EU member in ex-ternal energy policy. A snapshot of the main actions proposed is provided below. Immediate actions on energy security To ensure uninterrupted supplies this winter, the Com-mission proposes comprehensive risk assessments (stress tests). These would be conducted on the re-gional or EU level by simulating a disruption of the gas supply. The aim is to check how the energy system can cope with security of supply risks and based on that develop emergency plans and create back-up mech-anisms. Such mechanisms could include increasing gas stocks, decreasing gas demand via fuel-switching (in particular for heating), developing emergency in-frastructure like, for example, completing reverse flow possibilities and pooling parts of the existing energy security stocks. The Commission plans to review the existing provisions and the implementation of the Security of Gas Supply Regulation before the end of 2014. In this respect, the Commission will analyse the potential for a more pre-cise EU wide definition of “protected customers” and increase the number of days during which companies have to ensure deliveries to these protected custom-ers under severe conditions. Leonardo Sforza Brussels leonardo.sforza@mslgroup.com Energy policy is now recognised, more explicitly than ever, as one of the top two priorities for EU action over the next five years. The commitment taken by Jean-Claude Juncker, the newly elected Commission’s President, couldn’t be more explicit: “I want to reform and reorganise Europe’s energy policy in a new European Energy Union. We need to pool our resources, com-bine our infrastructures and unite our negotiating power vis-à-vis third countries. We need to diversify our energy sources, and reduce the energy dependency of several of our Member States”. 1 3 4 7 8 5 6 2
  • 13. 13 ENERGY REPORT July 2014 Interconnectivity According to the Commission’s strategy paper, com-pleting the internal energy market and building miss-ing infrastructure links is essential to quickly respond to possible supply disruptions by directing energy flows across the EU as and where needed. The Com-mission has identified 33 infrastructure projects which are critical for the EU’s energy security. Moreover, the Commission proposes to extend the target for inter-connection of installed electricity capacity from the current commitment of 10% to 15% by 2030. Diversification In 2013, 39% of EU gas imports by volume came from Russia, 33% from Norway and 22% from North Africa (Algeria, Libya). While the EU will maintain its rela-tionship with reliable partners, it will seek ties to new partner countries and supply pathways. For example, by further expanding the Southern Gas Corridor in the Caspian Basin region; by developing the Mediterrane-an Gas Hub; and by increasing LNG supplies. EU wide gas purchases platform Poland has been pleading for the establishment of a new EU mechanism to strengthen the bargaining power of Member States and the EU vis-à-vis external suppliers. The original proposal that was put forward by Polish Prime Minister Tusk envisages several pos-sible instruments to do so, ranging from an ex ante screening of IGAs, over enhanced transparency of com-mercial terms, to joint purchase agreements between undertakings or an Agency acting as single buyer. The proposal also underlines the importance of antitrust enforcement against abusive practices by dominant suppliers. The Commission seems to be quite prudent, if not reticent, towards the establishment of a new EU agency for this purpose. A working group (comprising experts from Poland and the Commission) has been set up to analyse joint purchasing initiatives or mecha-nisms that could be beneficial to supply security in the EU. External policy coordination Improving coordination of national energy policies and speaking with one voice in external energy policy con-tinue to be one of the most challenging objectives for the EU. The Commission reaffirms its aims to be in-volved at an early stage in expected intergovernmental agreements with non-EU countries that could have a possible impact on security of supply. The Commis-sion’s stick here is given by its empowerment to scru-tinise the compliance of all such agreements with the relevant EU legislation. A working group (comprising experts from Poland and the Commission) has been set up to analyse joint purchasing initiatives or mechanisms that could be beneficial to supply security in the EU.
  • 14. 14 ENERGY REPORT July 2014 Moderating energy demand According to the Commission, the already agreed EU energy efficiency target of 20% by 2020 can be achieved if the measures foreseen in the relevant leg-islation are implemented rigorously and without de-lays. In particular, this applies to the Energy Efficien-cy Directive (“EED”) and the Energy Performance of Buildings Directive (“EPBD”). The building sector is the main industry target identified by the EC. It is re-sponsible for about 40% of energy consumption in the EU and a third of natural gas use could be cut by up to three quarters if the renovation of buildings is speed-ed up. The EC plans to incentivise the mobilisation of private financial resources leveraging the European re-gional funds made available for this purpose. Increasing indigenous energy production This includes further deployment of renewables, the safe use of nuclear energy, where this option is cho-sen by the Member State, and sustainable production of fossil fuels. According to the Commission, Member States should increase coordination of their national renewable energy support systems, while facilitating access to finance for renewable projects with the sup-port of both the European Investment Bank and na-tional investment banks. More importantly, the Commission calls Member States to assess the potential of unconventional hydro-carbons, taking into account the highest environmental standards. On its side, the European Commission will launch a European science and technology Network and facilitate the exchange of information between Member States on unconventional hydrocarbon ex-traction. In other words, this means that shale gas ex-ploitation is not ruled out and is still seen as an oppor-tunity to consider. The Commission will also review the Carbon Capture and Storage Directive in the coming months to further promote the market uptake of these environmentally-friendly technologies. Conclusions In conclusion, the latest plan proposed by the Com-mission on energy security has the merit to provide an updated analysis of the scope and nature of problems hindering the European market. The paths for action proposed, some of which are bolder than what has been proposed in the past, will rely on national political will for better pan-European coordination and on the Commission’s ambition to implement and make better known what is agreed. The forthcoming Commission, to be appointed during the autumn, and the reshuffled European Parliament now in office, will undertake a thorough scrutiny of the proposed plans and their fol-low up. They will also influence future focus and ori-entations and may challenge Member States inactivity. The forthcoming Commission, to be appointed during the autumn, and the reshuffled European Parliament now in office, will under-take a thorough scrutiny of the proposed plans and their follow up.
  • 15. 15 ENERGY REPORT July 2014 Increased Swedish electricity requirements in the future The results show that Sweden’s electricity require-ments in 2030 will be 5-10 TWh greater than current levels. Electricity use within the industrial and hous-ing sectors will remain at around current levels, with new data centres and electric cars accounting for the increase. The report’s findings come as a surprise to those who thought that electricity requirements would be reduced through energy efficiency improvements. The Confederation of Swedish Enterprises says it is not surprised by the finding that electricity requirements will increase; this is a natural consequence of contin-ued economic growth and increased business sector production. Neither does the organisation believe that there will be an electricity shortage in 2030, although it does caution that Sweden may have problems with output availability in the electricity system. If nuclear reactors are phased out as a result of political decisions or due to old age, investments will be needed in new, weather-independent electricity production. But there are many obstacles to these types of investments – one of which is the low price of electricity. The issue of Sweden’s future baseload power supply has recently become more controversial. SKGS, the energy-intensive industry organisation, presented a Per Ola Bosson Sweden perola.bosson@jklgroup.com Contrary to what many believe, electricity requirements will increase in the future according to a recent report presented by the Confederation of Swedish Enterprises. The report examined developments within various areas of the economy through 2030 and added developments in the household sector and new fields of application such as electric vehicles and the establish-ment of data centres.
  • 16. 16 ENERGY REPORT July 2014 study on the options available when existing nuclear power needs to be replaced. The study presents four alternatives for new baseload power production: • Nuclear power • Hydropower • Natural gas • Coal Of these alternatives, the study found that new hydro-power and new coal are impossible to implement in view of environmental legislation and the upcoming tightening of climate provisions. Hydropower produc-tion will probably be somewhat reduced rather than increased. So Sweden has two alternatives: nuclear power and natural gas – both of which face major po-litical challenges. Nuclear power is controversial in all countries, but in Sweden new natural gas power plants are nearly as controversial as new nuclear plants. Sweden has al-ways opted out of natural gas as a form of energy and has declined connection to the Russian-German gas pipeline that runs along Sweden’s economic border in the Baltic Sea. Following recent events in Ukraine and Russia’s rearmament in the Baltic area, natural gas has become less palatable in Sweden. The Swedish National Grid (the Transmission Grid Op-erator, or TSO) recently estimated that an additional 32,200 MW of wind power would be needed in south-ern Sweden (approximately south of Uppsala) to meet peak load requirements during a normal winter, in the event the three oldest reactors are phased out. There is currently 4,500 MW of wind power in the entire coun-try of Sweden. These figures have added fuel to the growing debate on future electricity supply. So far, though, there has been no political response as to what will replace the existing nuclear plants once their time is up. A general election will be held in Swe-den in mid-September, and it is expected that the red-green parties will have an opportunity to form a gov-ernment. The Green Party wants to start an immediate phase-out of nuclear power, so the issue of future electricity production will be a hot topic this autumn. An additional 32,200 MW of wind power would be needed in southern Sweden to meet peak load requirements during a normal winter, in the event the three oldest reactors are phased out.
  • 17. 17 ENERGY REPORT July 2014 The Dutch quest for European LNG leadership The Dutch, through their position as a gas producing country, are currently not as reliant on Russian fossil fuels (about 25%) as other European countries (up to 100% in parts of Eastern Europe), but time is running out: gas reserves are decreasing swiftly and the esti-mate is that within the next 10 years, the Netherlands will become a net gas importing country. So, how does the Dutch government go about addressing this issue? For now, shale gas is out of the question: the govern-ment has declared a moratorium for the next few years, while numerous local governments and NGOs have al-ready spoken out against test drilling – let alone real production locations. This also makes the exact shale gas reserve figures uncertain: there is no sure way of knowing without testing it. Sustainable sources of energy (wind, solar) have also been on the rise in the Netherlands, but not as much as in Germany or Sweden. From a European perspec-tive, the Dutch rank somewhere near the bottom of the list. The Dutch Energy Accord that has been estab-lished, consisting of numerous stakeholders, tries to break this deadlock but has been quite ineffective so far: fierce public debates were sparked by the focus on wind energy, while several coal-fired energy plants that were supposed to shut down, remained operating. One of the less debated developments from a Dutch perspective is the role of liquefied natural gas (LNG). Rotterdam is one of the few ports in Europe which has Erik Martens Timen van Haaster Netherlands erik.martens@msl.nl timen.van.haaster@msl.nl Similar to several other European countries, the Netherlands have for some years been trying to diversify their mix of fossil fuels in order to reduce (future) dependency and supply risks. The Crimean and Ukrainian crises once more showed Europe the possible, far-reaching implica-tions. GATE terminal in the port of Rotterdam.
  • 18. 18 ENERGY REPORT July 2014 a large LNG import terminal, set up by Gasunie and Vopak. This suitably named GATE (Gas Access To Eu-rope) terminal enables huge tankers from all over the world (for example Nigeria, Norway, Qatar, Algeria) to supply Rotterdam and North-West Europe with LNG. But what are the advantages of this type of fuel? LNG is a very cost efficient and relatively clean way of trans-porting natural gas by ship, as it is cooled to minus 162 degrees Celsius and, as a consequence, is com-pressed. Moreover, it is also a cleaner fuel for ships and trucks than natural gas or fuel oil, which is the fuel of choice for the majority now. The use of LNG could lead to a 20% reduction of CO2 emissions and other harm-ful emissions. In addition, one of the obstacles for the successful in-troduction of LNG as a valuable part of the total fuel mix in the Netherlands has been removed. The GATE terminal will be expanded with a break bulk facility, en-abling it to supply small LNG ships and giving a boost to the use of ships with LNG engines. Shell has already signed a contract to set up multiple LNG supply facil-ities along the coast of the North Sea and the rivers Rhine, Main and Danube. LNG thus looks like a potential success story in Rot-terdam, and could make the Netherlands into a Euro-pean leader in this area. Several serious issues remain though. For example, the extension of the GATE ter-minal was sorely needed as demand for gas and LNG from Dutch gas-fired power plants plummeted. This is because of structurally high gas prices in Europe. It is even more the case for LNG, as Japan has turned into the largest importer of LNG in a matter of years after the Fukushima nuclear disaster. At the same time, coal-fired power plants became more profitable due to the low price of coal. This situation is unlikely to change much in the near fu-ture, so these Dutch initiatives remain limited in scope and impact. It is not yet contributing to a more bal-anced fuel mix, but more of an attempt to prevent LNG from being driven out of the mix altogether – while at the same time trying to explore possible structural solutions (also on a European or international level) to the issue of high gas and LNG prices and the increas-ing gas dependency. LNG thus looks like a potential success story in Rotterdam, and could make the Netherlands into a European leader in this area.
  • 19. 19 ENERGY REPORT July 2014 Crimean gas shadow This change is in response to the threat, perceived or otherwise, of losing of a stable gas sources and is fue-ling several game changing initiatives. From a resur-gence of coal to the main energy debate, a more friend-ly approach towards unconventional gas resources or a far more optimistic view on nuclear, to even a chance to turn Germany from the banishment of the atom, it seems change is coming. Due to the nature of the industry, business decisions in energy are not made on the basis of current conflicts or crisis situations. At least, they should not be. For the German atomic sector, what is currently happening in Ukraine is not of the same magnitude as the Fukushi-ma disaster– it won’t change the general policy direc-tion. Nevertheless, this regional instability is a signal of potential trouble with the reliability of the supplier, i.e. Russia. It is for this reason that Essen and Düssel-dorf- based companies have made efforts to underline the stability of this EU-Russia supply partnership. Gas driven economies would only need to omit the 2009 drop in deliveries in order to fully accept these asser-tions, though. Actions connected to Russia that would be deemed acceptable or, at least, quite understandable among old European countries do not appreciate the same treatment among nations in CEE. Any business action or declaration toward their Russian counterpart during this political crisis immediately and irrevocably takes on a heightened political context. Regardless that Łukasz Kowalski Poland lukasz.kowalski@mslgroup.com The Crimean crisis and continued unrest in Eastern Ukraine have had a profound impact on the politics among the border countries of the European Union. As is to be expected, such an event has resulted in a change of climate toward both energy projects and supply strategies.
  • 20. 20 ENERGY REPORT July 2014 these partnerships are unavoidable, journalists and decision makers tend to view these actions as political statements as much as they are business dealings. When LetterOne Energy, the investment fund of Rus-sia’s fourth-richest tycoon Mikhail Fridman, agreed to buy RWE’s oil and gas company, RWE DEA, gaining as-sets in the North Sea, no one in RWE’s headquarters could have seen the communication crisis potential. RWE DEA’s Polish assets – that is, inactive convention-al gas concessions – seemed, at that time, irrelevant. This perspective proved mistaken and failed to take into account the political landscape surrounding the local, Polish market since discussions on natural gas deposits as well as disappointment with the govern-ment’s shale policy had been quite hot for some time. In effect, every positive aspect of the company’s corpo-rate communications activity was overshadowed by the negative context that developed even though it was far from the facts surrounding the actual deal being nego-tiated. Only a swift and decisive crisis operation mini-mized the harm to the reputation of the company and its relations with decision makers. A few weeks following this crisis, the same company witnessed the same situation again, albeit from the other side. By signing a deal on reverse gas transfer with Ukraine, RWE successfully regained its momen-tum in the market and reaffirmed its support. In turbulent times, it is critical to seek dynamic insight into the local market in order to track potential crisis scenarios in real time. It is important to note here that the energy market is slowly adapting to this new polit-ical environment which is still, at the moment, rather unstable. Natural gas has been a headliner in the con-text of unrest in the East. However, though the topic of oil supplies has remained somewhat off the crisis radar, it could easily become one in an instant. De-pendency on Russian sources for oil in the region is far higher than those for gas. Volatility, it seems, is an aspect of the oil and gas indus-try that plagues more than just the cost of hydrocar-bons. In the communications field, we would do well to remember it.
  • 21. ENERGY REPORT July 2014 personer MSLGROUP can make the difference MSLGROUP is Publicis Groupe’s strategic communications and engage-ment group, advisors in all aspects of communication strategy: from consumer PR to financial communications, from public affairs to rep-utation management and from crisis communications to experiential marketing and events. With more than 3,500 people across in over 100 offices worldwide, MSLGROUP is also the largest PR network in Europe, fast-growing China and India. The group offers strategic planning and counsel, insight-guided thinking and big, compelling ideas – followed by thorough execution. MSL GROUP’s EMEA Energy Practice is a leader in advising companies from Europe and around the world on communications issues in the en-ergy sector. Across 19 countries and 40 offices, our European network supports clients that range from large publicly listed Fortune 500 organ-isations, to small, privately held companies. We currently advise a third of the energy companies in the Eurotop 100. From attracting the best talent, to communications with investors; from crisis preparedness, to corporate reputation management; and from nu-clear to renewables: we understand the key communications issues that keep energy companies awake at night. With both breadth and depth of energy communications expertise across Europe’s key markets, we know that effective, best practice communica-tions can deliver value to stakeholders across the energy value chain. If you want to find out more about the work we do, or enquire as to how we might be able to help, don’t hesitate to contact our team member in your market – or contact Nick Bastin at nick.bastin@capitalmsl.com Anders Kempe Regional president MSL-GROUP EMEA anders.kempe@mslgroup.com Nick Bastin Head of Energy MSLGROUP EMEA nick.bastin@capitalmsl.com Per Ola Bosson Sweden per.ola.bosson@jklgroup.com Alessandro Chiarmasso Italy alessandro.chiarmasso@ mslgroup.com Liam Clark UK liam.clark@capitalmsl.com Seth Goldschlager France seth.goldschlager@ consultants.publicis.fr Helmut Kranzmaier Germany helmut.kranzmaier@ cnc-communications.com Peter Steere Belgium/ Sweden peter.steere@jklgroup.com Łukasz Kowalski Poland lukasz.kowalski@mslgroup. com Erik Martens Netherlands erik.martens@msl.nl Florian Wastl Germany florian.wastl@mslgroup.com OUR TEAM 21 Leonardo Sforza Brussels leonardo.sforza@ mslgroup.com
  • 22. 22 ENERGY REPORT July 2014 Where we are VENEZUELA COLOMBIA MEXICO PUERTO RICO ECUADOR PERU PARAGUAY BOLIVIA URUGUAY ARGENTINA CHILE BRAZIL UNITED STATES OF AMERICA CANADA INDIA NEPAL BANGLADESH BURMA LAOS VIETNAM CAMBODIA SHRI LANKA MALAYSIA BRUNEI INDONESIA AUSTRALIA NEW ZEALAND PAPUA NEW GUINEA PHILIPPINES SOUTH KOREA NORTH KOREA JAPAN CHINA MONGOLIA KAZAKHSTAN IRAN KYRGYZSTAN TAJIKISTAN AFGHANISTAN PAKISTAN TURKMENISTAN UZBEKISTAN DENMARK SWEDEN NORWAY UNITED IRELAND KINGDOM FINLAND ESTONIA RUSSIAN FEDERATION LATVIA LITHUANIA BELARUS POLAND CZECH REPUBLIC AUSTRIA HUNGARY ROMANIA BULGARIA GREECE GEORGIA BAKU ALBANIA MONTENEGRO ITALY SERBIA MOLDOVA GERMANY FRANCE SPAIN PORTUGAL UKRAINE EGYPT SAUDI ARABIA IRAQ JORDAN ISRAEL TURKEY SYRIA LEBANON YAMEN OMAN MOROCCO ALGERIA LIBYA CHAD SUDAN CENTRAL AFRICAN REPUBLIC ETHIOPIA SOMALIA KENYA UGANDA DEM. REP. CONGO ANGOLA ZAMBIA TANZANIA MOZAMBIQUE ZIMBABWE BOTSWANA NAMIBIA SOUTH AFRICA SWAZILAND MADAGASCAR CONGO BENIN NIGERIA IVORY GHANA LIBERIA COAST GUINEA SENEGAL MALI BURKINA NIGER MAURITANIA WESTERN SAHARA TOGO GABON Ahmedabad Mumbai Pune New Delhi Bangalore Chennai Kolkata Hyderabad Hong Kong Macao Chengdu Guangzhou Shanghai Tokyo Seoul Singapore Beijing Chicago Seattle Toronto New York Boston San Francisco Los Angeles Detroit Washington DC Atlanta Helsinki Warsaw Stockholm Gothenburg Oslo Copenhagen Breda Amsterdam London Brussels Geneva Paris Monaco Cologne Frankfurt Hamburg Milan Munich Rome Berlin Sao Paulo Rio De Janeiro Dubai Abu Dhabi Taipei MSLGROUP Office Affiliate Office over 100 Offices / 59 Affiliates / 22 Countries / 100 Markets 3,500+ Staff The largest agency in Greater China, India and Europe
  • 23. 23 ENERGY REPORT July 2014 www.mslgroup.com To find out more about MSLGROUP’s services, please contact Nick Bastin +44 (0) 20 3219 8814 nick.bastin@capitalmsl.com ENERGY NEWSLETTER