Brussels Energy Brief - April 2007
April 2007
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KEY DEVELOPMENTS
Commission Market Tests Distrigas’ Proposed Commitments for Long-Term Gas Sales Contracts in Belgium
Frank Schoneveld
On 11 April 2007, the European Commission published a notice to market test commitments designed to meet its concerns that Distrigas could abuse its dominant position under Article 82 of the EC Treaty. The concerns are that the Belgian gas supply market could be foreclosed due to Distrigas' long-term downstream gas supply agreements with industrial consumers and electricity generators. Under the commitments, Distrigas would ensure that on average 70 per cent of the gas it, and connected undertakings, supplied to industrial users and electricity producers in Belgium would be contestable for competitors each year. In addition, no contract with industrial users and electricity producers in Belgium covered by the commitments could have a duration of over five years. To protect Distrigas from having to re-open existing long-term gas supply agreements if the volume of gas it supplied decreased, the commitments allow Distrigas to tie, under long-term contracts, a certain fixed volume of gas representing less than 20 per cent of the market concerned.
The net effect of these two provisions is that Distrigas can tie at most 30 per cent of its existing gas supply volumes under long-term gas supply contracts, or 20 per cent of the market, whichever is higher. The commitments also take into account the potential effects of the GDF/Suez merger. If the merger goes ahead and Distrigas is divested in line with the remedies proposed by the parties in the merger procedure, then the commitments will apply to sales in Belgium of Distrigas and those of its purchaser (unless the purchaser's sales in Belgium can be considered de minimis). If the GDF/Suez merger does not go ahead and Distrigas is not divested, then the commitments will apply to Distrigas and the other members of the Suez group active on the Belgian gas market. In the meantime, Distrigas is being managed as a separate undertaking under the control of an independent trustee and the commitments only apply to Distrigas itself. The notice requests comments from interested parties within one month
Taxation of Electricity – Infringement Procedure Against Poland
Michal Cieplinski
The European Commission has sent Poland a reasoned opinion, thus commencing a second stage of the infringement procedure against the Polish electricity taxation system. Under EU law, excise duty on electricity is chargeable at the time of supply by the distributor or redistributors, making them liable to pay the tax. In Poland, however, excise duty on electricity is charged to the producer at the time of supply. By not aligning its electricity taxation system by 1 January 2006, Poland failed to meet its obligations under the Energy Tax Directive (Directive 2003/96/EC). In November 2006, the Commission formally opened an infringement procedure against Poland by sending a letter of formal notice. Due to the fact that Poland’s reply was not satisfactory the Commission has issued Poland with a reasoned opinion. If Poland does not comply with this opinion, the Commission will place the matter before the European Court of Justice.
E.ON Drops Endesa Bid Amid Protectionism Concerns
Elena Kostadinova
The German energy giant E.ON AG has agreed to withdraw its bid for Endesa, thus ending an 18-month battle that saw E.ON’s bid thwarted by repeated government intervention. If, as expected, Enel and Acciona take control of the Spanish utility Endesa, E.ON will still receive a portfolio of assets in Spain, Italy, France, Poland and Turkey. The portfolio, valued at EUR 10 billion, includes the Spanish power utility Viesgo from Enel. According to E.ON this acquisition will make it the fourth largest player on the Spanish market by 2010. E.ON's bid for Endesa was approved a year ago by the European Commission but stalled due to barriers arising out of Spanish legislation. Consequently, as already reported in Brussels Energy Brief of March 2007, the Commission referred Spain to the European Court of Justice on 28 March 2007 for violating EU merger rules.
EU and US Head for Clash on Climate Change
Benoît Keane
A joint EU – US strategy on climate change was thrown into doubt when diplomats failed to come to an agreement following meetings in Washington. Climate change was to form one of the central themes to the EU – US summit in Germany later in April. The EU wants to see transatlantic commitments to limit global warming to 2°C, to expand and deepen carbon markets and to invest in clean technology projects. The EU also wants to develop joint standards for carbon capture, biofuels, clean technologies, energy efficiency appliances, buildings and power plants. However, the US has focused on technological change as the primary means to reduce carbon emissions – measures which the EU sees as wishful thinking without the concrete requirements of emissions trading schemes.
Increase in CO2 Emissions in 2006
Bróna Heenan
According to preliminary data, the vast majority of heavy industrialised plants covered by the European Emissions Trading Scheme (ETS) recorded an overall increase in CO2 emissions in the order of 1-1.5 per cent in 2006. The credibility of the ETS relies on creating a scarcity in the market for pollution allowances leading to high carbon prices and greater incentives for companies to cut their emissions. Where there is an over-allocation of pollution allowances carbon prices fall, so the European Commission is assessing all national plans to ensure the necessary scarcity in the European carbon market. Fully verified data for 2006 is not expected until mid May 2007.
Hungary Dissatisfied with Decision on its NAP for 2008-2012 Emissions Trading Period
Elena Kostadinova
Hungary is dissatisfied with the changes that the European Commission has imposed on its national allocation plan (NAP) for the 2008 – 2012 period. In particular, the Commission rejected allocation of allowances to sectors which did not report emissions in 2005. This is the 19th NAP assessed by the Commission. NAPs determine (i) each Member States’ “cap” on the total amount of CO2 emitted by national installations and (ii) the number of emission allowances for each installation. The Commission approved Hungary’s annual allocation of 26.9 million tonnes of CO2 allowances, 12.4 per cent less than proposed. Hungary is considering whether to challenge the Commission’s decision before the European Court of Justice, a step already made by Slovakia and also being contemplated by the Czech Republic and Poland.
Commission to Act Against Shipping Industry Emissions
Jérôme Cloarec
The European Commission will propose including shipping companies in the emissions trading scheme (ETS), the EU's principal tool for fighting global warming. In doing so, the Commission is reacting to the lack of concrete measures that it was thought should have been taken by the International Maritime Organisation to fight CO2 emissions. It is not yet known how and when the industry will be included in the ETS, but the Commission should draft legislation by the end of 2007. Global CO2 emissions from shipping are expected to increase by 75 per cent in the next 15 to 20 years. It is also becoming the biggest source of air pollution in the EU, which controls 41 per cent of the world's fleet.
IPCC Report Supports EU Goal of Limiting Global Warming to 2°C
Abigail Cohen
The Intergovernmental Panel on Climate Change (IPCC) Working Group II report on climate change confirms that global warming of more than 2°C above current levels will result in widespread negative impacts. The report therefore endorses the Commission’s policy of limiting global climate change to 2°C. Following the release of the report, Stavros Dimas, European Environment Commissioner, stated that by summer 2007 he intends to launch a Green Paper on adaptation to climate change. The Commission’s policy will inevitably focus upon the energy sector, with one of the principal strategies in reaching the 2°C target being the reduction of emission profiles. However, the Commission envisages that this goal can be achieved in a cost effective way. It is projected that the costs incurred as a result of investments in low carbon technologies are less than 0.5 per cent of global annual GDP up to 2030. Additionally, even with an emissions profile that is compatible with the 2°C objective, World GDP is still estimated to double over the next 25 years.
Study on Electricity Market Supports Results of Commission's Electricity & Gas Sectors Inquiry
Frank Schoneveld
The European Commission has published a study on EU electricity markets, carried out for it by an external consultant. The study finds that fuel costs have contributed to the increase in EU electricity prices since 2003, but that wholesale electricity prices are significantly higher than would be expected on perfectly competitive markets. The differences are highest when only a few generators with available capacity are needed to meet demand, especially at peak time. The results of the study broadly support the conclusions of the Commission's Final Report of the Energy Sector Competition Inquiry, that competition in the EU wholesale electricity markets is not yet functioning effectively.
The study is a detailed analysis of the wholesale electricity markets in Belgium, Germany, Spain, France, the Netherlands, and the United Kingdom (excluding Northern Ireland) from 2003 to 2005. The study is based on a database of more than one billion points essentially provided by market operators themselves, and analyses hourly data on virtually all power plants in each market.
The study considers: (i) how many operators are effectively competing on the market on an hourly basis; (ii) the difference between what the price on some of the markets was and what it would have been if the markets had been perfectly competitive (the difference being the "mark-up"); and (iii) the relationship between the number of operators competing at a given time and the "mark-ups".
Commission Launches New Co-operation Initiative with Black Sea Region
Marta Becerra
On 11 April 2007, the European Commission launched the new “Black Sea Synergy” initiative, aimed at developing cooperation within the Black Sea region and between the region and the EU. “Black Sea Synergy” will complement other bilateral policies directed at countries of the region, for example the European Neighbourhood Policy, the pre-accession strategy with Turkey and the Strategic Partnership with Russia. The new co-operation initiative will focus on areas such as good governance, border management and customs co-operation, transport, trade, environment and, most importantly, energy. The Black Sea region is a major transit route for oil and gas coming into Europe from Russia and Central Asia. As such, the fostering of good relations between the region and the EU is of strategic importance for energy supply security.
EU to Call for Common European Energy Strategy in Response to Gas-OPEC Project
Jérôme Cloarec
At a meeting in April 2007 in Doha, the Gas Exporting Countries Forum (GECF) decided to establish a group of experts to study how to reinforce their alliance. This follows declarations by certain large gas exporters, such as Russia and Qatar, and holders of large gas reserves, such as Iran and Venezuela, to create a gas-OPEC. The study group will focus on pricing, infrastructure and relationships between producers and consumers. Nevertheless, European experts stress that the project is unlikely to succeed. In contrast to oil, gas is not sold through trading but under contracts that allow buyers to control prices on a long-term basis (15-25 years). GECF also remains an unstable group with no concrete achievements as yet. However, the EU remains concerned as it increasingly depends on gas imports (40 per cent of its needs today and 70 per cent by 2030), especially from Russia which supplies 32 per cent of the EU’s needs. Experts have therefore backed the call from Mr Barroso, President of the European Commission, for a common European energy strategy.
MERGER NOTIFICATIONS
End March – April 2007
M.4545 - STATOIL / HYDRO (23 March 2007)
