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EUROPE’S ENERGY CHALLENGES: SECURING SUPPLY CONFERENCE ROYAL UNITED SERVICES INSTITUTE

EUROPE’S ENERGY CHALLENGES: SECURING SUPPLY CONFERENCE ROYAL UNITED SERVICES INSTITUTE. THE ENERGY MIX. Alistair Buchanan, CE Ofgem - 21 May 2007. CONTENTS. Introduction: Meet my dolls!: Britannia, Europa and Russia. “Britannia”: Markets working but increasingly reliant on Europe.

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EUROPE’S ENERGY CHALLENGES: SECURING SUPPLY CONFERENCE ROYAL UNITED SERVICES INSTITUTE

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  1. EUROPE’S ENERGY CHALLENGES: SECURING SUPPLY CONFERENCE ROYAL UNITED SERVICES INSTITUTE THE ENERGY MIX Alistair Buchanan, CE Ofgem - 21 May 2007

  2. CONTENTS • Introduction: Meet my dolls!: Britannia, Europa and Russia. • “Britannia”: Markets working but increasingly reliant on Europe. • “Europa”: Big pro market changes both at local and pan Europe levels but can Europe stand alone? • “Russia” (ROW): How will the relations with Europa and Britannia work? • Low probability/High Impact: Do networks and regulators help/hinder de facto markets?

  3. BRITANNIA: MARKETS ARE WORKING • Looking into 2007 and 2008: • Markets deliver on assets. • Competition is in good health. • Sustainable/renewables push ahead. • Prices reacting as expected. • But lessons learned in last 4 years: • The value and power of information. • The need to involve and alert market participants. • Britannia cannot “deal” in isolation

  4. BRITANNIA: CAN’T GO IT ALONE • It could try! • Electricity - Interconnection low. • Gas - Majority still from North Sea. • But realistically • Increased interconnection (gas, electricity)… local gas in decline. • EU ETS trading. • DG Tren/DG Comp impacts on structure behaviour and prices. Future of Britannia linked to Europe

  5. EUROPE – BIG PRO MARKET MOVES Kroes and DG Comp: •Dawn raids – await results. •Reviewing Spanish and French “low” tariffs… IEA criticises Hungary’s tariffs. •Keen on re-structuring solutions … but Unbundling and Corporate deals. Pielbags and DG Tren: •Information “The Big Three” •Unbundling. •Regulatory structures Post 10 January 2007 – very encouraging

  6. EUROPA – LOCAL LEVEL: BIG STRIDES • Structures - Belgium and Distrigas. • - Holland and Unbundling legislation. • - Germany and new competition law. • Better information –In 2007 big improvements in France, Belgium and Germany. • More local regulatory impact and powers - France. Maybe one step back … but two forwards

  7. EUROPA: TEST CASE GERMANY 4 years ago: Barriers to entry, no incentive for competition, legacy contracts etc. 2005 – 2007: Major moves on network regulation, trading, information. 2007: Retail competition re-launched: (E.ON in electricity and EnBW in gas) more market information released, gas zones reduced and simplified, new entrants. Fear or Principle?: The end result is better

  8. BUT IS BRITANNIA’S AND EUROPA’S MARKET VISION REALISTIC? • Exposed to global LNG trends? • Exposed to small number of key suppliers? • Reliant on key pipelines? • Players not used to markets? Russia (ROW) will dictate?

  9. MARKETS CAN WORK EVEN WITH RUSSIA (ROW) • LNG players attracted to UK market. • Ofgem has insisted that players agree to pro-market rules. • Gazprom – global trading base at Hampton Court, London. • Keep the “umbilical cord” risk in perspective: • UK – Norway, Qatar … indeed very low reliance on Russian gas by 2020 in UK • Only Hungary and Slovakia over 30% reliant on Russian gas. • Russia/Gazprom need EU and EU markets • New LNG facilities … Rotterdam/Wilhemshaven … new local coal projects … new nuclear … more renewables… contain reliance on pipelines Britannia an Europa have to ensure Russia (ROW) dances with them.

  10. EVEN RUSSIA LOOKING AT WORKING WITH “GRAIN OF MARKETS” • Pielbags/Khristenho agree “way forward” on April 26. • Market developments in Russia • ETP (gas, electronic trading exchange) • Power Auctions set for September and December 2007. • Limited market opening further out. • Deals tie both sides closer: • E.ON/Gazprom swap in 1st half 2007 • Nordpool developments The test comes on Corporate deals or macro issues

  11. ENERGY SECURITY IS ABOUT HIGH IMPACT/LOW PROBABILITY EVENTS • Arguably the focus should be on networks and not the product. • UK has met the challenge – RPI-X = save to RPI-X = spend. Also Ofgem assists new grid configuration (renewables, local generation) on gas and electricity. • Europe also focused on networks – DG Tren and the European Regulators pushing forward new plans … focus on interconnection. Strong networks assist markets

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