MSLGROUP EMEA Energy Newsletter April 2012

ENERGY NEWSLETTER Volume 1 - Issue 1 | April 2012 Europe’s Energy - At A Crossroads INSIDE THIS ISSUE PAGE PAGE PAGE 03 04 06Introduction MSLGROUP can Energy issues in Brussels – What’s in the pipeline? make the difference A competitive internal energy market in the EU is paramount to give European consumers a choice between different gas and electricity suppliers and make the market accessible for all suppliers.PAGE The European Energy Transition - PAGE Poland stands on shale16 Who will pick up the bill? In most European countries green energy sources currently 21 The Environment Ministry has so far granted over 100 concessions for shale gas exploration. The ﬁrst drilling provide a very small amount of electricity, generally results have been encouraging and Poles are very contributing less than 2 to 5% to the overall pool. enthusiastic about this potential new energy source.

ContentsIntroduction 03MSLGROUP can make the difference 04Where we are 05Energy issues in Brussels – What’s in the pipeline? 06Political Gains: Why Chancellor Angela Merkeldecided to phase out nuclear power in Germany 10Renewable migration: What drivesﬁnancial investment in renewables around the world? 12Back to the Future in Europe’s Offshore Centre 14The European Energy Transition -Who will pick up the bill? 16What effect will the presidential elections haveon energy issues in France in 2012? 18Why politics will control energy 19Poland stands on shale 21 2 Energy Volume 1 issue Newsletter April 2012

IntroductionThe world’s growing desire for energy is relentless and its safe and equitableproduction and distribution is one of the key challenges for the world in the 21stcentury. While in many parts of the globe the challenge is how to generate powerand deliver it to people, in Europe the challenge is how can we meet demandcheaply in a climate of growing societal unease with some of the sources that havepowered our growth for the last century and more.Many in developing markets still have no access to power, for example 45%of Indians have no access to power at all, while in Europe we are highly energyconsumptive on a per capita basis. How can we help those countries to securethe energy they need in the most sustainable way? The differing challengesof climate change, growing fuel poverty and security of supply are testing theresourcefulness of our leading energy companies to find affordable new solutionswhile keeping the lights on.As has been seen in recent years, no source of power has undisputed hegemonyover the market. There is no single answer to Europe and the world’s energyneeds. Post-Fukushima, we have seen Germany pull back dramatically fromnuclear power, creating a ripple of reflection across Europe – as even France,Europe’s nuclear industry leader, paused to review its position. In the Netherlands,we have seen a new coal fired plant blocked, while in Britain the concerns oversecurity of supply are growing, combined with a fear of over reliance on importedgas. Meanwhile, although other European countries have banned fracking,Poland has heartily embraced the shale gas revolution as a means of lesseningits reliance on energy from Russia. But, if we are to give up all these sources ofsupply, what will fill the void they create?It is not just the raw materials for the generation of power that is posing anincreasing headache for Europe’s leading politicians and companies, but also howto get that power to the consumer. With ageing transmission grids, often situatedin the wrong location to accommodate new sources of power such as hydro inEurope’s north, or solar from the south, or even wind from Europe’s Atlantic rim,there is much rethinking and investment required if our dreams of a lower carbonfuture are to be realised.As communications professionals, MSLGROUP’s dedicated energy team has toconfront these issues every day on behalf of our clients and in this, our inauguralnewsletter, we wanted to share some of our thoughts on these issues. With agrowing footprint across Europe and beyond, MSLGROUP has a fantastic team inplace to help our clients rise to the challenge of communicating effectively withstakeholders around the world on these and other critical issues.Nick BastinManaging Director, Capital MSL,Head of Energy, MSLGROUP EMEA 3 Energy Volume 1 issue Newsletter April 2012

Our team Anders Kempe Regional president MSLGROUP EMEA anders.kempe@ jklgroup.com Nick Bastin Head of Energy MSLGROUP EMEA nick.bastin@ MSLGROUP can make the difference capitalmsl.com Per Ola Bosson Sweden per.ola.bosson@ jklgroup.com Alessandro MSLGROUP is one of the world’s top five PR and events networks, Chiarmasso employing more than 3,400 people in 22 countries around the world. Italy The Group offers the best regional and local cohesion and integration - Alessandro.chiarmasso@ on-line and off-line - across a range of communications disciplines. We mslgroup.com specialise in Social Media, Public Affairs, Brand and Talent, Financial Communications, Corporate Comms and Reputation Management, George Godsall Consumer and Events. We work for a quarter of the top-100 most UK valuable brands globally. George.godsall@ mslgroup.com MSL GROUP’s EMEA Energy Practice is a leader in advising companies from Europe and around the world on communications issues in the energy sector. Across 15 countries and 27 offices, our European network Pierre-Samuel supports clients that range from large publicly listed Fortune 500 Guedj organisations, to small, privately held companies. We currently advise a France third of the energy companies in the Eurotop 100. guedj@ publicis.com From attracting the best talent, to communications with investors; from crisis preparedness, to corporate reputation management; and from Niklas Proksch nuclear to renewables: we understand the key communications issues Germany that keep energy companies awake at night. Niklas.proksch@ mslgroup.com With both breadth and depth of energy communications expertise across Europe’s key markets, we know that effective, best practice communications can deliver value to stakeholders across the energy Peter Steere value chain. Belgium/ Sweden Peter.steere@ If you want to find out more about the work we do, or enquire as to how jklgroup.se 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 Pawel Tomczuk Poland ptomczuk@ publicrelations.pl Jan van Ingen Netherlands jan.van.ingen@ msl.nl 4 Energy Volume 1 issue Newsletter April 2012

Where we are EMEA NA 800 775 EMPLOYEES EMPLOYEES Helsinki Warsaw Stockholm (2) ASIA SWEDEN Gothenburg FINLAND 1335 Oslo (2) NORWAY RUSSIAN EMPLOYEES FEDERATION Boston CANADA Copenhagen (2) ESTONIA LATVIA DENMARKNew York (6) LITHUANIA UNITED IRELAND KINGDOM Breda BELARUS Toronto GERMANY POLAND UKRAINE CZECH REPUBLIC Seattle (2) FRANCE AUSTRIA HUNGARY MOLDOVA KAZAKHSTAN MONGOLIA ROMANIA London (5) SERBIA MONTENEGRO BULGARIA GEORGIA UZBEKISTAN Chicago (2) UNITED STATES Paris (8) PORTUGAL ITALY ALBANIA GREECE TURKEY BAKU KYRGYZSTAN NORTH KOREA OF AMERICA SPAIN TURKMENISTAN JAPAN TAJIKISTAN SYRIA SOUTH CHINA KOREA Brussels (2) MOROCCO LEBANON ISRAEL JORDAN IRAQ IRAN AFGHANISTAN Tokyo (2) Amsterdam PAKISTAN NEPAL Seoul (2) ALGERIA Geneva WESTERN SAHARA LIBYA EGYPT SAUDI ARABIA INDIA BANGLADESH Taipei MEXICO PUERTO RICO MAURITANIA BURMA LAOS Shanghai (4) Beijing (4) OMAN Los Angeles (2) MALI NIGER Monaco SENEGAL CHAD YAMEN Hong Kong (2) SUDAN VIETNAM San Francisco BURKINA CAMBODIA PHILIPPINES VENEZUELA Cologne GUINEA TOGO BENIN NIGERIA ETHIOPIA Dubai SHRI LANKA Chengdu IVORY GHANA CENTRAL AFRICAN Frankfurt LIBERIA COAST COLOMBIA REPUBLIC SOMALIA Abu Dhabi MALAYSIA BRUNEI Guangzhou (2) Atlanta ECUADOR Hamburg GABON CONGO UGANDA KENYA DEM. REP. Detroit CONGO INDONESIA Milan (2) TANZANIA Ahmedabad PAPUA NEW GUINEA Arlington PERU BRAZIL Munich Mumbai (2) Singapore ANGOLA Washington DC Rome ZAMBIA Pune (2) Kuala Lumpur BOLIVIA MADAGASCAR MOZAMBIQUE Berlin NAMIBIA ZIMBABWE New Delhi (3) BOTSWANA Johannesburg PARAGUAY AUSTRALIA CHILE SWAZILAND Bangalore (2) URUGUAY SOUTH AFRICA Hyderabad (2) ARGENTINA Chennai (2) NEW ZEALAND Sao Paulo Kolkata Buenos Aires LA 65 EMPLOYEES MSLGROUP Office Affiliate Office 5 Energy Volume 1 issue Newsletter April 2012

Energy issues in Brussels – What’s in the pipeline? A competitive internal energy market in the EU is paramount to give European consumers a choice between different gas and electricity suppliers and make the market accessible for all suppliers. According to the European consumption. Proposals included a Commission, a competitive internal legal obligation to establish energy Henrik Bernitz energy market in the EU is paramount saving schemes in all Member States, MSL Brussels to give European consumers a choice major energy savings for consumers, henrik.bernitz@jklgroup.com between different gas and electricity the Public sector to lead by example, suppliers and make the market etc. accessible for all suppliers, especially the smallest and those investing in The draft EED was discussed at renewable forms of energy. ministerial level in Brussels mid- February 2012, at which point most The first liberalisation Directives were Member States were politically willing adopted in 1996 (electricity) and 1998 to commit to the movement, but (gas), with the objective of opening unwilling to spend, refusing binding up the electricity and gas markets by targets for energy savings, only gradually introducing competition. accepting flexible “measures”. The second liberalisation Directives were adopted in 2003 and included However, after added pressure within ‘unbundling’, whereby energy the Parliament from MEP Claude transmission networks have to be run Turmes (Greens, Luxembourg), the The draft EED was discussed independently from the production rapporteur for the draft Directive, the at ministerial level in Brussels and supply side. These directives committee for Industry, Research and mid-February 2012, at which have allowed businesses and private Energy (ITRE) voted on 28th February customers to choose their power and to jump start negotiations with the point most Member States were gas suppliers freely in a competitive EU Council as soon as possible, politically willing to commit to the marketplace. before the vote in the Parliamentary movement, but unwilling to spend, plenary session mid-March. In order However, a competition enquiry to succeed, the directive will have refusing binding targets for energy in the electricity sector, published to find ways of appeasing national savings, only accepting flexible in January 2007, revealed some governments that are less supportive “measures”. “serious malfunctions” in the market of binding efficiency legislation. The for industrial consumers. After long Danish Presidency is then willing to find negotiations, a new Directive on market a compromise at Council level before liberalisation was adopted in 2009. This the end of June as it is one of its main was to be transposed in Member States priorities. by March 2011, but Bulgaria, Cyprus, Spain, Luxembourg, the Netherlands, Energy Roadmap 2050 - Presented Romania, Slovakia and Estonia are yet by Energy Commissioner Günther to do so. Oettinger in December 2011, it aimed at achieving the EU goal of reducing Key dossiers in the pipeline greenhouse gas emissions by 80-95% from 1990 levels by 2050. The Energy Efficiency Directive The Roadmap sends a strong message (EED) - In June 2011 the European that decarbonisation efforts in the Commission proposed a new set energy sector would be generally of measures as a new Directive on beneficial, with a shift from imported increased Energy Efficiency. This fossil fuels to domestic investments. brought forward ways of stepping up The Roadmap 2050 puts forward Member States’ efforts to use energy several illustrative scenarios combining more efficiently at all stages of the the four main decarbonisation routes, energy chain – from the transformation namely energy efficiency, renewable, of energy and its distribution to its final nuclear and carbon capture andphoto by -Tripp- on flickr 6 Energy Volume 1 issue Newsletter April 2012

According to Davies, “even in the absence of a binding international treaty of the kind that we seek, Parliament accepts that the EU should accept the role of first mover, and must take the steps necessary to build a low carbon economy by 2050. storage (CCS); these include: stronger To reap the benefits of a low-carbon commitments to high energy savings, economy, the EU would need to invest, diversified supply technologies, high on average, an additional 1.5% of renewable energy sources, delayed its GDP annually over the next four CCS and no new nuclear reactors. decades. The extra investments will spur growth within a wide range of While the EC reiterates Member Europe’s sectors and services, and 1.5 States’ responsibility in determining million additional jobs could be created their energy mix, it highlights the need by 2020. for an effective and greater policy framework to ensure a solid ground for The European Parliament’s committee energy security and competiveness. for Environment, Public Health and Gas is seen as critical for the Food Safety (ENVI) recently adopted a transformation of the energy system in report by MEP Chris Davies (ALDE, UK) achieving emission reduction as it can backing the Commission’s low-carbon be a substitute for coal and oil in the roadmap, before the vote in plenary in short to medium term. March. According to Davies, “even in the absence of a binding international The Roadmap was criticized by some treaty of the kind that we seek, at its publication for its lack of policy Parliament accepts that the EU should recommendations and interim targets accept the role of first mover, and must for 2030 (to be proposed by the EC take the steps necessary to build a low in the coming months). The Energy carbon economy by 2050.” Roadmap 2050 dossier is currently inphoto by ‫ | قرب ةكبش‬B.R.Q on flickr the preparatory phase at the European Energy Taxation - In April 2011, the Parliament, under the responsibility of EC presented its proposal to revise the committee for Industry, Research EU rules on the taxation of energy and Energy (ITRE). products. They find the current Energy Taxation Directive to be outdated and Low Carbon Roadmap - The EC is of unable to address the EU’s higher On 29th February, the proposal the position that Europe could cut most ambitions in energy and climate was passed in the European of its greenhouse gas (GHG) emissions change policies. With the revised by 2050, thus making the European Directive, the EC wants to promote Parliament, with a majority vote economy more climate-friendly and energy efficiency and consumption of in favour from the committee for less energy-consuming. Reducing more environmentally friendly products Economic and Monetary Affairs GHG emissions to 20% is one of the and to avoid distortions of competition EU’s goals by 2020. The Roadmap for in the Single Market. (ECON). Moving to a Competitive Low-Carbon The revision to the Directive would Economy in 2050 (March 2011) looks change the way energy products are beyond this time period, setting out taxed, in order to eliminate current a plan to meet the long-term target imbalances and take into account both of reducing domestic emissions by CO2 emissions and energy content 80 to 95% by mid-century, as agreed of products. It would end diesel’s tax by European Heads of State and advantage over petrol. governments. It shows how the sectors responsible for Europe’s emissions - On 29th February, the proposal was power generation, industry, transport, passed in the European Parliament, buildings and construction, as well as with a majority vote in favour from the agriculture - can make the transition to committee for Economic and Monetary a low-carbon economy over the coming decades. 7 Energy Volume 1 issue Newsletter April 2012

Affairs (ECON). As the new Directive When it comes to security of energy would price diesel more highly than supply, even though the Commission petrol (the opposite being the case for tries to reconcile Member States’ most EU countries) there have been diverging positions and ensure that certain conflicts. The EPP abstained the principle of common interest is from the vote, whereas the Socialists, maintained, it nonetheless proves to Liberals and Greens have been more be a contentious topic. For instance, supportive of the move. The EU Danish complications of rivalry exist Presidency is expected to present fresh between supply channels, such as compromise proposals to the Council the Nabucco project and the South committee of national experts on Stream project. Furthermore, some Monday 5th March. Member States’ agreements with third- country suppliers are not necessarily Infrastructure - A strong EU internal compatible with EU regulation. For energy market with security of supply instance, the Commission is stressing depends on a reliable and coherent the need for Russian oil to observe energy network in Europe, and EU rules on competition and non- therefore on infrastructure investment. discrimination. Moreover, among When it comes to security of The Trans European Energy Networks the European community there are (TEN-E) are considered important conflicting opinions as to the extent to energy supply, even though the to the EU’s overall energy policy which Europe should focus on moving Commission tries to reconcile objectives, increasing competitiveness away from energy dependence on Member States’ diverging in the electricity and gas markets, Russia, looking to domestic resources. reinforcing security of supply, and positions and ensure than the protecting the environment. The EU is Unconventional Resources of principle of common interest is currently financing electricity and gas energy - Over the past ten years or maintained, it nonetheless proves transmission infrastructure projects of so, discoveries of unconventional European interest. Most of the projects fuel sources, such as oil shale and tar to be a contentious topic. are cross-border or have an influence sands, look to revolutionise the global on several Member States. Last energy market. There have been major November, the European Commission discoveries in the USA of these kinds presented its energy infrastructure of sources and extractions have already priorities for the coming two decades been carried out on large commercial which included: electricity grids (e.g. scales. In Europe, the matter is more an offshore grid in the North Sea and complicated – many say this is because interconnections in South Western of population density, which makes Europe) and gas connections (e.g. the drilling problematic, and because of Southern Corridor and the North-South stricter regulations around energy corridor in Western Europe). production. New guidelines for trans-European Discoveries of significant shale energy networks list and rank resources have been made in certain projects eligible for financing. The EU countries (Poland, Ireland, UK, dossier is currently awaiting the first Bulgaria and Ukraine), but there has Parliamentary reading, under the been a huge amount of opposition to responsibility of the committee for the process of extraction – hydraulic Industry, Research and Energy (ITRE), fracturing – believed by many to with António Fernando CORREIA be dangerous for the environment DE CAMPOS (S&D, Portugal) as and for human health. There has rapporteur. been pressure on EU institutions tophoto by kismihok on flickr 8 Energy Volume 1 issue Newsletter April 2012

investigate further with the hope of tar sands are assigned a default formulating tighter policy around shale greenhouse gas value of 107g of gas exploration. The Commission carbon/MJ, advising buyers it has more has carried out studies on current climate impact than conventional crude regulatory frameworks on the matter with 87.5g. in Member States and continues to research the possible effects of Canada has engaged in a battle with hydraulic fracturing, and the Parliament Europe over the proposal, as it is a is also producing reports on the country rich in tar sand resources, and subject. has been aggressively lobbying for the plans to be rejected. The EU has also Emissions Trading System - The been subject to heavy lobbying from Commission believes the EU Emissions the other side of the debate. The vote Trading System (EU ETS) to be a finally took place in the Fuel Quality cornerstone of the European Union’s Committee on Thursday 23rd February, objectives to combat climate change but there was no qualified majority, and reduce industrial greenhouse which means the vote will be passed gas emissions cost-effectively. It onto the Council of Environmentphoto by ell brown on flickr covers some 11,000 power stations Ministers on 11th June. and industrial plants in 30 countries (the 27 EU Member States, Iceland, Liechtenstein and Norway). The ETS will be expanded to airlines in 2012 and the petrochemicals, ammonia and A series of important changes aluminium industries in 2013. will also be taking effect as to A series of important changes will the way the EU ETS works. For also be taking effect as to the way instance, on 28th February, a vote the EU ETS works. For instance, on 28th February, a vote in the European in the European Parliament for Parliament for an amendment to the an amendment to the EU Energy EU Energy Efficiency Directive will Efficiency Directive will allow allow permits in the Emissions Trading System (EU ETS) to be withheld. The permits in the Emissions Trading move is designed to reduce the surplus System (EU ETS) to be withheld. of allowances currently on the carbon market produced by a combination of uncertainty over the eurozone crisis and stalled economic activity as a result of the recession. Fuel Quality Directive - In October 2011 it was proposed that the EU Fuel Quality Directive be revised, in terms of the implementation of the labelling and pricing of fuels according to their carbon emission. One area that has been particularly contentious has been the treatment of tar and oil sands, which are believed by many to be highly polluting. Under the proposal, 9 Energy Volume 1 issue Newsletter April 2012

Political Gains: Why Chancellor Angela Merkel decided to phase out nuclear power in Germany Despite some initial criticism, Merkel’s decision proved to be a tactical masterpiece. Merkel’s decision to It is inconceivable that any German government would go back on the accelerate the phasing- Florian Wastl accelerated phase-out decision. Even if MSL Germany out of nuclear energy in there were a significant shortfall in the florian.wastl@mslgroup.com Germany energy supply, the government would consider other options first (imports, Within the industrialised world, fossil energy) before considering even Germany’s energy policy is the odd a modest extension of the lifetime of one out. While many industrialised the last remaining German reactors. countries are extending their nuclear programmes, Germany has not only A challenging way ahead decided to stick to its original decision to put an end to nuclear energy, but In addition to the decision to accelerate last year it even opted to accelerate this the phasing-out of nuclear power, the process. The decision sparked some government decided to implement a initial criticism in Germany, but now a very ambitious programme designed broad consensus has been reached. to transform Germany’s energy system, commonly known in Germany as the At the heart of the decision to do “Energy Shift” (“Energiewende”). At the heart of the decision to do away with nuclear energy at an even The programme entails a substantial away with nuclear energy at an earlier date than originally planned, increase in renewable energy, was a successful tactic by Chancellor improving energy efficiency and, most even earlier date than originally Angela Merkel to snatch the topic away importantly, a considerable extension planned, was a successful tactic from the Greens. Going against public of the energy grid. As it stands, the by Chancellor Angela Merkel to opinion, Merkel’s conservative-liberal “Energy Shift” suffers from a number coalition had extended the lifetime of of weaknesses which could endanger snatch the topic away from the Germany’s nuclear reactors by up to its chances for success. Greens. 14 years in late 2010, thereby watering down an earlier decision to phase The institutional challenge: out nuclear power by the Schröder Uncertainty in the political process government. With the Fukushima nuclear accident in March 2011, Merkel Since Germany has still no energy faced a massive media backlash and ministry, competences and outpouring of popular sentiment. She responsibilities between the two quickly declared a moratorium during ministries in charge (economics and which the oldest nuclear reactors were environment) are not clear, leading switched off. Within the following three to uncertainties and delays in the months, the government decided to planning process. There is considerable decommission all German nuclear wrangling between the liberal plants by 2022. economics minister, Philipp Rösler (FDP), and the “greener” and more Despite some initial criticism, Merkel’s progressive environment minister, decision proved to be a tactical Norbert Röttgen (CDU). masterpiece: The Greens reached unforeseen highs in the polls of up to 25 per cent shortly after the Fukushima accident. However, they quickly dropped back and now stand at 13 per cent.photo by World Economic Forum on flickr 10 Energy Volume 1 issue Newsletter April 2012

Once citizens themselves have taken a democratic decision, it will be far more difficult for them to go back on it. The logistical challenge: Huge investments vs. long distances and citizen protests The proposed shift to renewable energy relies heavily on offshore wind power. The building of wind parks in the North Sea and the Baltic Sea will be very expensive and requires enormous capital expenditure by investors. The energy produced there will also need to be transported to Germany’s industrial centres in the south and west. No precise and promising plan for the large-scale construction of grids is yet photo by brewbooks on flickr in place, and NIMBY-protests along any new power lines could cause major mission or purpose which could give delays and produce additional costs. it the status of a national project. A national campaign needs to provide The political challenge: Coal/lignite the necessary patriotic emotion tophoto by bagalute on flickr vs. natural gas serve as a unifying theme from above and to provide momentum for the The “Energy Shift” requires fossil political and regulatory process. This “bridging” technologies such as coal/ would not just incline federal politics to lignite and natural gas. There are continue to treat the “Energy Shift” as significant differences between the a matter of national importance, but it The “Energy Shift” requires fossil political parties over the way forward would also make it easier for individual on this. While CDU und SPD favour politicians to sell hard choices and to “bridging” technologies such as the building of new coal-fired power stand firm in the face of protest – all coal/lignite and natural gas. There stations, the Greens are strictly against the way down to the local level, thereby are significant differences between coal or lignite which they say is dirtier paving the way for the successful and less flexible than natural gas completion of individual projects on the political parties over the way when combining it with power from the ground. forward on this. renewable energy sources. However, communication is also key at The role for the local level itself. To prevent endless stalemates with regard to important Communication building projects, local citizens need to be involved in the planning process While communication is only part of the at an early stage. There needs to be problem and can therefore only be part clear, transparent and continuous of the solution, it is key to the success information, and participatory elements of Germany’s “Energy Shift” in two throughout the entire process are important ways: Communication needs essential. While citizens cannot be to provide momentum from above, and involved in every detail, they must be it is important in facilitating progress on given the opportunity to participate the ground. in real decisions. Once citizens themselves have taken a democratic While there is much talk of the “Energy decision, it will be far more difficult for Shift” in the media and politics, the them to go back on it. term has not so far been filled with a 11 Energy Volume 1 issue Newsletter April 2012

Renewable migration: What drives financial investment in renewables around the world? Within this global revolution there are plenty of spaces for the participation of private investors alongside governments and international institutions. The General Assembly of the United energies and the environmental Nations has designated 2012 as awareness of the population has grown Alessandro Chiarmasso International Year of sustainable significantly in a few years. MSL Italia energy. According to Secretary General alessandro.chiarmasso@ Ban Ki-moon, we need a global clean The energy mix of each country is mslgroup.com energy revolution: a revolution to make also important because it determines energy available and accessible to the payback period required for the all; to minimize climate risks; to fight investment. For example, while poverty and improve the health of the biomass is a good choice in the planet, enhancing economic growth, absence of other resources, particularly peace and security. as it stimulates employment in economically weak rural areas, and it Within this global revolution there are is essential in reducing greenhouse plenty of spaces for the participation emissions, the technology is slower in of private investors alongside producing profits. governments and international institutions. But how are investors Thirdly, the geopolitical position of being encouraged to support this the country is important. The financial collective effort to transform the community knows that any country The energy mix of each country planet? What are the factors which which relies on Middle Eastern oil, is also important because it affect their preference of one country Russian gas or Algerian methane or a geopolitical area over another? may suffer supply constraints due determines the payback period to the evolution of the geopolitical required for the investment. Firstly, it is important that there is a environment. The political instability of credible and stable regulatory and some countries in the Mediterranean, political environment, to give investors Persian Gulf, and Central Asia has comfort that if there is a change in plunged Europe into periods of energy government the rules and regulations crisis before – in 1973 for example. It will not be rewritten over night. The was from moments such as this that financial community needs to know the interest in renewable energy, and that the decision to support alternative its promise of energy self-sufficiency energy is robust and is firmly supported initially developed. by the wider community, and that there is an attractive investment Fourthly, the attractiveness of a environment. country’s regulatory environment and the incentives for investment Secondly, investors will consider the are critical. Let’s take for example geography of the country and how three countries that have maintained this will impact the mix of energy - a balance between economic renewable and traditional - in which development and the environment, they will invest. For example, wind and which have considered a blend of power is attractive in France, while traditional and new sources of energy. solar is attractive in Italy and Spain and hydro in the Nordic countries. Turkey To meet its energy needs, South has developed an energy plan, which Africa launched a development is considered to be very attractive, as it plan for 50,000 MW by 2030. 42 includes assistance for infrastructure percent of which will be covered modernisation. The geological nature by renewable energy across wind, of Turkey offers the opportunity to solar / photovoltaic, biomass and develop all the main renewable hydroelectric power. This is against aphoto by mjmonty on flickr 12 Energy Volume 1 issue Newsletter April 2012

photo by Magharebia on ﬂickrbackdrop of political stability, economic The challenge for Governments isgrowth and attractive regulatory to balance incentives with a clearframework. industrial direction, to help sustain the young industries born aroundBulgaria is now attracting capital for renewables and stimulate the marketsolar and wind power, with a focus on for greater investment in R&D. Thissolar. While the duration of incentives not only helps to make the furtherare only decided at the time of development of plants more costconstruction of the plant, the typical effective, but also helps to generaterate is 25 years for solar compared with proﬁts by exporting technology to other15 years for wind. developing markets.Within four years, Italy has become aEuropean leader for solar power, dueto the incentives within the EnergyBill (Conto Energia). While muchinvestment is focused on installingequipment; that is imported fromGermany and China, Italy is clearlybuilding growing expertise in thisarea. Italy currently has about 159,895renewable energy plants, of whichthere are 2,729 hydroelectric, 487 wind,155,977 solar, 33 geothermal, 669bioenergy. Collectively, these producealmost the same amount of energy astwo nuclear power plants. 13 Energy Volume 1 issue Newsletter April 2012

Back to the Future in Europe’s Offshore Centre Europe and the UK needs to continue to develop the potential of the North Sea, which is going to remain a global centre of excellence for some time to come. Much has been written about the long of Shetland at Clair Ridge and Kinnoull standing demise of the North Sea as are two examples of where technology Nick Bastin an oil and gas production centre. With has helped to make production not Capital MSL peak production reached as far back as just possible but attractive, despite nick.bastin@capitalmsl.com 1999, the North Sea has increasingly the challenges of the location. As seemed like yesterday’s story. With more sophisticated sub-sea drilling many of the oil majors choosing to techniques are deployed, more and focus their investments elsewhere more opportunities will emerge. in exciting new finds as far afield as Angola, Azerbaijan and Brazil, it is In 2008, when the Abu Dhabi National not surprising that the North Sea has Energy Company (TAQA) bought a seemed somewhat unattractive by range of fields and assets from Shell comparison. In addition, the continuous and Exxon, many commentators development of new technologies and questioned the logic behind the techniques has meant that resources investment. However, the last few years from shale and tar sands, that were has seen TAQA double production from There is no doubt that advances previously unattainable, can now its portfolio and bring new discoveries in technology have opened be accessed more readily than ever on line in record time. By investing in before. renovating its platforms and leveraging up areas of the North Sea that its sub-surface infrastructure, TAQA were previously too difficult or A recent study by Oil & Gas UK, the has been able to bring new wells into expensive to target. UK’s trade body, highlighted that production rapidly and cost effectively. the decline in production in the UK North Sea had accelerated from With continuous production in the an average of 6% in recent years to North Sea since the 1970s some 18% in 2011 – despite a backdrop of may think that the seabed has been high oil prices. Given concerns over sliced and diced with seismic by many UK energy security, it was doubly operators, many times over. One ironic that George Osborne MP, the might assume therefore that there Chancellor of the Exchequer, decided can be nothing new to learn, no new to target North Sea producers for a fields to be identified. However, on the higher tax contribution in 2011, further contrary, recent advances in seismic destabilising the investment case. technology are allowing explorers to see through tricky structures and Does this mean that it is the end of formations, particularly salt, to the oil the road for the North Sea? With an and gas lying beneath in a way never estimated 24bn boe still remaining, considered possible before. This ever and with the unknown potential that evolving understanding of the geology new technology keeps opening up, of the North Sea, and emerging many commentators believe that knowledge of the North Atlantic, a huge amount more could still be combined with better technology for extracted. But what are the drivers for extracting hydrocarbons, means that accessing this and are they sufficiently once unattractive acreage is now being attractive. brought into production. There is no doubt that advances in The key macro driver for this trend is technology have opened up areas of – unsurprisingly - the oil price. With a the North Sea that were previously too high and relatively stable oil price, it is difficult or expensive to target. Recent possible for significant investment to new investments by BP in the area west be made and to still turn a profit evenphoto by Ken Lund on flickr 14 Energy Volume 1 issue Newsletter April 2012

photo by jkirkhart35 on flickrin a tough location like the North Sea. Global demand for energy remainsWhen the oil price was below US$70 insatiable. The International Energya barrel, the commercial rationale for Agency predicts that demand forinvesting significantly in the North Sea energy will grow by some 40% bywas limited, but with prices remaining 2030, and, despite major investmentsover the US$100 a barrel mark it is in developing alternatives, fossil fuelsclearly a lot easier to take those long are expected to make up some 80%term investment decisions. of this demand. Europe, and the UK in particular, needs to continue toDespite the smash and grab raid by the develop the potential of the North Sea.UK’s Chancellor, most producers seem It is clear is that it is going to remain ato have swallowed the increase and are global offshore centre of excellencecontinuing with their investment plans for some time to come and that the– the ability to produce significant continuous evolution of technologyquantities of oil close to key markets, will allow an ever greater proportion ofin a stable political environment is just hydrocarbons to be extracted.too attractive. 15 Energy Volume 1 issue Newsletter April 2012

The European Energy Transition - Who will pick up the bill? At a time of extreme budgetary pressure, who will foot the bill for what Greenpeace dubbed “the battle of the grids”? For Dutch consumers buying green Hydro-electricity has three major electricity has never been easier. advantages. It is a ﬂexible source of Jan van Ingen By ticking the right boxes on the electricity since plants can be ramped MSL Amsterdam application form of their energy up and down very quickly to adapt to jan.van.ingen@msl.nl provider of choice, consumers changing energy demands. The cost participate in a green energy pool, of fuel (both in terms of money and obligating their provider to buy an CO2 emissions) has been eliminated equal amount of ‘green power’ as completely. Also, hydro-energy is being used by their green power provides the only way to store electricity customers. The Dutch government on a large scale, simply by trapping exempts green power from pollution water behind a dam. Unfortunately, due taxes, which means it is hardly any to natural circumstances, European more expensive than conventional hydropower is mainly produced in the power. In several European countries Nordics and to a lesser extent in France with common carrier arrangements, and Switzerland. By ticking the right boxes on the electricity retailing arrangements make application form of their energy it possible for consumers to purchase Solar thermal power and solar provider of choice, consumers renewable electricity from either their photovoltaic power is currently utility or a green power provider. generated in substantial quantities participate in a green energy pool, on an experimental scale in the obligating their provider to buy an Paradoxically, I believe this South of Europe, most notably Spain equal amount of ‘green power’ as development will prove disastrous and Portugal. For obvious reasons, to the quality of the debate on the European solar energy generation in is being used by their green power European energy transition. Let me southern Europe and North Africa has customers. explain. the highest potential. In most European countries green Wind farms could be placed anywhere energy sources currently provide a very on the European continent and the small amount of electricity, generally British Isles. However, because better contributing less than 2 to 5% to the wind speeds are available offshore overall pool. The most important compared to on land, and also because European sources of renewable energy of the impact large wind farms have are hydro-electric, solar and wind on the natural landscape, the trend power. Whether burning bio-fuels is towards offshore wind power and biomass is a sustainable form generation. The London Array, which of generating energy is still open to is under construction off the coast of debate, while the impact of tidal, wave Kent, will be the largest offshore wind and geothermal power generation in farm in the world. Equally massive energy transition scenarios is small by offshore wind farm projects are in the any standard. process of being constructed in the North Sea, near the German coast. So, in order to make a substantial transition from conventional to What are the implications of this? To renewable electricity possible, Europe put it simply, in order to make 60% of will have to rely on water, sun and wind its electricity production green (from to replace carbon and nuclear energy just 4% today), Europe will have to sources. transmit hydro-electricity from North to South, solar electricity from South Let’s have a brief look at the economic to North and wind energy from the characteristics of these sources of coast to the mainland. Therefore key to energy. the realisation of any energy transitionphoto by infomatique on ﬂickr 16 Energy Volume 1 issue Newsletter April 2012

There is only one possible answer:European citizens, in their role astaxpayer and consumer, will haveto pay for the European energy photo by twicepix on flickrtransition. scenario is the reinforcement and sources? Or, put differently, will they expansion of the European electricity have the guts to present European grid, requiring significant investment citizens with the choice between a in cross-border interconnections and relatively rapid transition, requiring in integrating renewable energy into massive investments and huge the network. According to many recent personal financial sacrifices, and a studies, trillions of Euros are needed to long term transition scenario taking a upgrade Europe’s electricity grids and century or more, in which we will still the way they are operated over the next rely on nuclear energy and natural few decades. gas for quite some time, only to phase them out gradually in order not to To achieve this, the European disrupt our economies? Commission has calculated that half of the required capital With customers still naively believing expenditure will have to come from that all it takes to move to renewables Governments. Michael Süss, member is ticking some box in an energy of the managing board of Siemens provider’s sales form, convincing AG, calculated that the German them will prove quite hard to do. Government’s decision to phase out Arguably, this is the toughest challenge nuclear energy will cost the country European thought leaders in the field €1.7 trillion between now and 2030. of energy are facing: to obtain broad, To put this sum into perspective: this is active public support for the energy two-thirds of Germany’s GDP in 2011. transformation, across countries, sectors and political parties. Without At a time of extreme budgetary a European public debate on energy pressure, who will foot the bill for what transition scenarios and their financial Greenpeace dubbed “The Battle of the implications, citizens will never agree Grids”? on public and private money to be spent on such a scale. With the energy There is only one possible answer: companies’ reputation at an all time European citizens, in their role as low, what Europe needs most is a taxpayer and consumer, will have to pay transnational campaign “resetting” for the European energy transition. the mind of the public to implications of green energy. The public relations Will politicians be brave enough, industry would be more than happy to especially in times of economic crisis, provide the framework and methods of to explain to their voters the enormous an interactive exchange of arguments financial consequences of moving between all stakeholders involved - the away from our current dependency general public, governments, think- on carbon and nuclear energy to a tanks, activists and the energy industry. new paradigm of sustainable energy 17 Energy Volume 1 issue Newsletter April 2012

What effect will the presidential elections have on energy issues in France in 2012? A surprising aspect in this campaign is that, compared to 2007, energy issues have been at the center of the debate. With the looming first round of the economic impact this could potentially French presidential elections only a few have on France’s nuclear expertise. Pierre Samuel Guedj weeks away, France is facing a critical Of particular importance is that Publicis Consultants France decision at a time of uncertainty and despite the differences in the parties’ guedj@publicis.com fear, following a year of unsettlement stances, they have all understood the with the loss of France’s triple AAA importance of this issue. In a time of and the Euro crisis. A surprising aspect financial crisis, rising energy costs in this campaign is that, compared to directly impact a French person’s 2007, energy issues have been at the purchasing power, and with close to center of the debate. three million French homes currently facing difficulties in being able to afford It is hard to predict what lasting Most experts and observers heat and electricity, these issues are impact the French presidential remember that in 2007, during a fast becoming newspaper fodder. live, televised debate between then elections will have on this French candidates Ségolène Royal It is hard to predict what lasting impact particular issue; however, what is and Nicolas Sarkozy, both had given the French presidential elections will certain is that for once, they will erroneous numbers concerning the have on this particular issue; however, part of nuclear in France’s overall what is certain is that for once, they have an impact. Energy issues will energy consumption, a reflection of will have an impact. Energy issues be considered, weighed carefully, the belittlement of energy in that will be considered, weighed carefully, discussed, and decisions will presidential debate. Yet this year, after discussed, and decisions will be made. Fukushima, with rising oil and gas The future president will no longer be made. prices, the bankruptcy of a refinery discard the energy mix as a second- and Iran’s threats to cut off oil exports, tier subject of no importance to the most candidates have made France’s French; he or she will listen to the energy mix and its choices one of their population and take into account their priority targets. worries. When José Bové, a French environmentalist and European MP, In a matter of days following the took a stand last year against the announcement of the local refinery exploration of shale gas, France as a Petroplus’ demise, François Hollande, whole listened, and it dominated the the Socialist candidate, Eva Joly , the news for weeks. When Fukushima Environmentalist candidate, and Eric struck, the government conducted a Besson, Minister of Trade, had gone serious reflection on France’s nuclear on site to reassure the hundreds of plants, their capabilities and their employees that their fate had not gone safety. Every other month, a new study unnoticed. is commissioned by the government on renewable energy and France’s Nuclear energy has become a hot reduction of CO2 emissions. The topic, with the ruling UMP maintaining lasting impact of this presidential its stance that nuclear is a safe and election in the end will be the sudden necessary energy for France, while re-evaluation and awareness of the environmentalists vow to go the France’s energy choices; the rest German way and slowly but surely, remains to be seen. close off nuclear plants in France, with no particular consideration for thephoto by Walmart Stores on flickr 18 Energy Volume 1 issue Newsletter April 2012

Why politics will control energy The political grip on the energy market is tightening. Following deregulation, you may have expected the involvement of fewer political and democratic decisions in the market. Instead, we now see detailed RES demands from Brussels and a decision to phase out nuclear power in Germany. The energy market is regulated through partial list. The generation of politicians a series of EU directives adopted during governing Europe today was born in Per Ola Bosson the past few years. The 2006 Energy the 1960s or late-50s and brought up JKL Group Efficiency Directive was followed by the in youth organisations where the free per.ola.bosson@jklgroup.com 2009 Eco-Design Directive, the 2010 market was the watchword, Margaret Energy Efficiency Labelling directive Thatcher was the icon, and Ayn Rand’s and the 2010 Energy Performance books were elevated nearly to the of Buildings Directive. A new Energy status of the Bible. Efficiency Directive is expected in June. On the national level as well, more How can this development be taking political decisions and regulations place in a European Union that many are affecting the energy markets. voices on the left are constantly touting Thresholds for entering the energy as a market-liberal project? We see market remain high. In many places, four possible explanations behind the it is virtually impossible to obtain a actions of Europe’s leaders – and these political decision for a new power plant, are coherent rather than disparate. including wind power, or a permit to The desire to regulate, monitor extract oil or gas. Politicians’ backgrounds in ideologically-driven youth and control the energy market is This is not a coincidence, and may organisations have not made any deep stronger than ever. It seems that actually look like a pattern when impression. White certificates, nuclear there are no limits to what can be you put them next to each other: a decommissioning and government clear and consistent trend towards subsidies for renewable energy are controlled by political decisions. regulation, subsidies and political political tools used with dedication deadlock in European and national and joy rather than with ideological level energy politics. The desire to difficulties. Today’s political leaders regulate, monitor and control the are pragmatists. Teachings on political energy market is stronger than ever. It handicraft have set deeper traces seems that there are no limits to what than ideological training. Especially can be controlled by political decisions. in energy matters, politicians seek solutions in science rather than The political landscape of the 2010s ideology. is framed by issues relating to climate change, the financial crisis and the Fukushima and the long-running euro crisis. Solutions are sought in debate about how to create a politicians’ toolboxes rather than sustainable community have set the the market. In terms of energy, limits. Public opinion does not accept politicians want to do more than cap the market as a solution ... so the emissions with a trading scheme. market is no solution for anyone who They want to control all aspects of the wants to win elections. Public opinion transformation of the energy system, controls politicians. Today’s politicians including the prohibition of ordinary listen to voters rather than trying to light bulbs. bring them round. The big paradox is that most of The stronger the European Union Europe is controlled by centre-right becomes, the greater the opportunities governments: Cameron (UK), Rutte to legislate, govern and regulate. (Netherlands), Reinfeldt (Sweden), Energy has always been a safe haven Coelho (Portugal), Rajoy (Spain) and for fine-tuning. But energy policy has Tusk (Poland) … and this is only a now been extended to the commonphoto by TVA Web Team on flickr 19 Energy Volume 1 issue Newsletter April 2012

photo by tsuda on ﬂickrEuropean level. Politicians are This will not end. Europe is only at themeddlesome by deﬁnition. Not even beginning of its mission to transformfree-market liberals can resist when the energy system and decreaseopportunities pile up. emissions. Like all major changes, there will be winners and losers. AndPeople are worried about the climate, politicians – through regulations,and politicians want to appear active in incentives and taxes – will decide whoclimate issues regardless of decision- will win and who will lose.making level. This is why we nowhave municipal climate investmentprogrammes, regional climate taskgroups, national climate incentiveschemes and common energy andclimate policy. Global warming isbehind the revival of energy regulationon all levels. 20 Energy Volume 1 issue Newsletter April 2012

Poland stands on shale The Environment Ministry has so far granted over 100 concessions for shale gas exploration. The first drilling results have been encouraging and Poles are very enthusiastic about this potential new energy source. How did it start The Government is supportive In April 2011, the U.S. Energy Such huge potential shale gas deposits Marcin Roszkowski Information Administration (EIA) have drawn interest from international mroszkowski@publicrelations.pl announced that Poland has 5.3 trillion companies, including such global cubic meters of recoverable shale gas players as ConocoPhillips, ExxonMobil resources. This is the largest amount or Chevron. Polish companies are and among the 32 European countries also involved and get encouragement where geological surveys for shale gas from the Government which would Małgorzata Halaba have been conducted. According to the like to see a consortium of the largest mhalaba@publicrelations.pl EIA, these reserves are large enough state-owned companies — crude oil to meet Poland’s demand for natural refiners PKN Orlen and Lotos; gas gas for 300 years. If these calculations monopoly Polskie Górnictwo Naftowe prove correct, the country could I Gazownictwo (PGNiG); power become a major player in shale gas. companies Polska Grupa Energetyczna (PGE), Tauron, Enea and Energa, or Poles are in favour even copper producer KGHM Polska The Environment Ministry has so far MiedÐ SA. According to the EIA, these granted over 100 concessions for shale gas exploration. The first drilling reserves are large enough to meet However, analysts are sceptical about results have been encouraging and Poland’s demand for natural gas Poles are very enthusiastic about this the idea, for a number of reasons. potential new energy source. They Firstly, all the companies have their for 300 years. If these calculations own massive, long-term investment hope that shale energy might solve prove correct, the country could many of countries problems, enabling programs in their respective core them to catch up with their western businesses. Secondly, while the scale become a major player in shale neighbours more quickly, or guarantee of necessary investment into shale gas gas. higher pensions in the future. exploration and excavation is more or less known, potential revenues are still According to a September report by difficult to establish. CBOS (polling institution), most Poles are in favour of shale gas exploration In the meantime, shareholders will in Poland. 73% of respondents support have to brace themselves for a share shale gas production against only 4%, price roller-coaster ride – for example who say ’no’ to drilling for the new the case of Dublin-based and London- energy source. Since then, opposition listed San Leon Energy Plc. San Leon to shale is increasing, but over 50% is focused on the exploration and of citizens still support it. The reason production of oil and gas projects is simple – at present Poland is in Poland, Ireland, Italy, Morocco, dependent on Russian gas and crude Netherlands and North America. oil and has been desperately looking In Poland, the company holds six for ways to diversify the list of its concessions and hopes they have suppliers in recent years. the potential to change the shape of gas supply in the future. At present, New law San Leon’s share price performance In January 1, 2012, the new Geological remains volatile, depending on market and Mining Law came into force. The new bill aims to help companies to reports of recent finds—or lack of them: get easier access to potential shale over the last year the share price swung gas reserves. It also introduces the between a high of £39.50 and a low possibility of maintaining mandatory of £7.76. This neatly showcases how reserves of natural gas in storage great the market’s expectations are and installations located outside of Poland how closely it is following shale market (in EU and EFTA countries). The Law participants – particularly in Poland. also states that if a company finds a gas deposit it will have precedence inphoto by USFWS Mountain Prairie on flickr receiving the production concession. 21 Energy Volume 1 issue Newsletter April 2012

www.mslgroup.comTo ﬁnd out more about MSLGROUP’s services,please contactNick Bastin+44 (0) 20 7255 5117nick.bastin@capitalmsl.com

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MSLGROUP EMEA Energy Newsletter April 2012

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