EU seeks new power balance

Date: 06/03/1997

By Michael Mann

THE EU faces a tricky conundrum and the European Commission knows it.

It has to ensure European business enjoys a reliable long-term supply of competitively priced energy, while respecting increasingly tough limits on emissions of the 'greenhouse gases' blamed for causing global warming.

“The choice is stark. We have either got to develop the discredited nuclear sector, or invest heavily in renewables, or hang on to our hydrocarbon capacity for as long as we can. Failing this, we will become increasingly dependent on a number of potentially unstable countries,” says one energy industry analyst.

As a mark of how seriously the problem is being taken, leading experts representing both generators and users will gather in Strasbourg next week under the auspices of the World Energy Council to discuss whether western Europe faces the prospect of energy shortages.

“Western Europe's energy dependence on regions like the Middle East and the ex-USSR can only grow. In these regions where political stability may be turned on its head, the European consumer will be confronted with ever-increasing competition from the emerging countries, particularly in south-east Asia,” says Gaz de France president Pierre Gadonneix.

Energy Commissioner Christos Papoutsis has reacted with a three-pronged policy, big on theory but small on detail.

Some progress has been made towards achieving more competitive energy costs, one of the three priorities outlined in a Commission White Paper published last year.

But the tortuous eight-year struggle to open just a third of the European electricity market to competition is still not over.

Although ministers polished off a compromise agreement last June (albeit one with which none of them were truly happy), the European Parliament has still to give the plan its blessing.

Such a lengthy gestation period was hardly a surprise, considering the wide divergence of views between the 'liberal' member states and the protectionists, who felt the energy sector was too strategically important to be left to market forces and were afraid of the highly unionised workers in the sector.

For the Commission, there was no alternative. How could major users be expected to compete on a par with their rivals in other countries where energy costs were significantly lower? “Energy is so critical to the competitive position of our industries because it represents, on average, 20&percent; of our manufacturing costs. We cannot afford to waste more time,” Dow Europe president Yves Bobillier told Commission President Jacques Santer in an attempt to speed up the process.

Opening up the market to competition is one thing, but ensuring the energy sector can meet growing demands emanating from the 1992 Earth Summit is another.

There are those, however, who believe liberalisation will bring with it significant environmental benefits.

COGEN Europe, which campaigns for increased efficiency by using the heat generated in powerplants for industry, commerce and home heating, thinks liberalisation “will lead to a reduction in environmental emissions in Europe as a whole”.

But the benefits will be varied. COGEN believes that liberalisation will have a positive impact on decentralised co-generation systems, but that it will damage centralised, large-scale co-generation. It wants competition to be extended further and the true environmental costs of energy production to be built into pricing systems.

But others go further, believing real progress can only be made if the Union completely rethinks its power generation policies.

This will be particularly important after the next meeting of the signatories to the Rio climate convention in Japan in December. The EU is likely to commit itself to significant cuts in industrial emissions of greenhouse gases.

One loser from this is coal. Soaring production costs from mining increasingly deep deposits have slowly killed off the traditional coal industries in Germany, France and Spain. Restructuring and mine closures have halved the workforce as the industry struggles to compete with cheap alternative ways of producing electricity with nuclear energy and gas.

The industries in these countries have been kept afloat by massive subsidies; 10 billion ecu was cleared by the Commission last April with most of this going to German pits.

But the pattern of generation remains very different across the Union. France is now something of a maverick, relying heavily on the nuclear sector for power generation. In the face of public suspicion, Sweden will start phasing out its nuclear capacity next year.

This raises the problem of how to replace the nuclear sector's contribution, a dilemma reflected around the EU as policy-makers wrestle with how to produce 'cleaner' power.

To some, nuclear is the only way forward; to others it is a potential time bomb whose days have been numbered since the Chernobyl explosion 11 years ago.

European industry also has to reckon with the considerable appeal of the environmental lobby in the age of global warming.

Unsurprisingly, environmental pressure group Greenpeace believes energy efficiency and investment in renewables are the key to stable energy supplies for Europe. “There is a major contradiction between the way our energy policies are designed and what EU governments have agreed on cutting CO2 emissions. The only energy policies with specific legal provisions are in the coal and nuclear sectors. This demonstrates we do not have our priorities right,” said a spokeswoman for Greenpeace, Aphrodite Mourelatou.

Clearly, there is a need to ensure secure supplies for the next century. Commission estimates suggest dependence on third countries could reach 70&percent; of total consumption by 2020.

Hopes are being pinned on the 1991 Energy Charter Treaty. Its clear priority was to guarantee long-term energy security in Europe by guaranteeing foreign investment and fuel transit in its signatory states.

But this is not enough for Papoutsis, who is pressing Union governments to include a separate chapter on energy in the revamped EU treaty being negotiated at the Intergovernmental Conference.

This would ensure security of supply, “in particular by strengthening the crisis management measures and ensuring increased diversification of energy sources”.

Aware of the sensibilities of certain governments, Papoutsis stresses he is not looking for new powers, but merely trying to “ensure overall coherence”.

A group of southern countries is known to be enthusiastic, principally for the likely benefits it will bring in supply terms, while the Nordic countries are stressing the environmental factors. But the bigger players - the UK, France and Germany - are noticeably less keen.