Power battle over UK-France trade

Date: 10/12/1998

By Chris Johnstone

FRANCE is coming under mounting European pressure on two fronts to boost free trade in electricity.

The mounting clamour for action by Paris stems from British anger that a two-way electricity link between the UK and France is only being used to export cheaper power from France to the UK and wider criticism of the French government for holding up part of an international treaty aimed at removing barriers to energy trade and investment.

British unhappiness over the operation of the electricity link has been highlighted by French electricity monopoly Electricité de France's (EdF) controversial plans to buy UK regional power supplier London Electricity for around 1.4 billion ecu.

London Electricity distributes around 10% of the UK's electricity, and has a large enough turnover to ensure that the deal will be scrutinised by European Commission competition officials. Representatives of companies involved have already begun to consult the institution on its position before they make formal notification of the deal.

The EdF takeover itself does not appear to pose any particular problems given that American power groups have already bought up large swathes of the UK power sector, with London Electricity itself put up for sale by US group Entergy.

"Most people are taking it as a done deal," said one source close to London Electricity, although another added that some conditions could be attached to the takeover by the Commission to prevent any sweetheart power supply deals between EdF and its new subsidiary.

However, the planned takeover has woken British politicians up to the fact that Europe's electricity liberalisation could fail to deliver new markets to its companies.

As well as pointing out that UK companies are not allowed to buy into EdF and other state-owned power companies in Europe, London is threatening to raise 'technical' points about the way the undersea electricity interconnector operates. EdF jointly owns this connection with the UK's National Grid.

"With the link fully in use by French exporters of electricity to the UK, there is no possibility for British generators to try to export power to markets where it is even more expensive, such as Germany," said a British government official. Industry analysts and the national grid are, however, at a loss to suggest solutions to the one-way flow of electricity from France.

EdF makes daily bids in competition with rival UK power producers to supply electricity to British regional distribution companies and only keeps up its levels of interconnector use because its prices are more competitive, claimed a spokeswoman for the National Grid.

However, British officials expect that clarification from the Commission of what advantages can be offered to renewable energy could blunt the attractiveness of some power imports into the country.

A Commission paper due out this month is expected to suggest that hydro-electric power from very large plants should not benefit from preferential treatment to power grids or outright subsidies.

An important part of EdF's basic power production comes from such hydro plants, but London has long questioned the French company's claim that most of its electricity exports to the UK come from renewables - an argument which has allowed it to duck payment of British energy levies aimed at supporting other types of renewables.

Paris is also coming under pressure to relax its opposition to parts of an EU-backed international treaty aimed at preventing national governments from blocking foreign investment in local energy companies. The accord which is attached to the Energy Charter Treaty would, for example, ensure that privatisations were open to non-national investors and undermine government golden shares in energy companies.

Progress on an investment chapter to be added to an existing code guaranteeing non-discriminatory trade in and transport of energy has been delayed since France linked the measure to the ill-fated Multilateral Accord on Investment and withdrew its support for both.

However, Paris has so far refused to bow to pressure to change its stance and looks set to maintain its hard line. "We are seeing no signs of change," said Peter Schutterle, secretary general of the Brussels-based Energy Charter Secretariat.