Capgemini releases European Energy Markets Observatory Report

by Editor 3/27/2009 4:03:00 PM
Capgemini, a leading global consulting firm, has released the results of its ninth edition European Energy Markets Observatory (EEMO) report.

The results highlight significant security of supply issues which are impacting the European energy markets including, the security of future electricity supply in relation to Europe’s CO2 emission targets, the security of the supply of European gas being threatened by a clash between Russian and European Union’s strategies and little progress towards fully fluid and competitive markets.

Will the new “Unbundling” EC package be more effective than the previous Directives?

By assessing the results of the two first Directives, the reports analyses whether the new “Unbundling” European commission package, will be effective at creating fluid and competitive European energy markets. The report finds that with a few exceptions, all EU Member States that have opened their electricity market to competition for more than three years are facing above EU average electricity retail prices. Therefore, the question remains as to whether a 3rd Directive will improve competition in Europe as there are no observed results on price decrease from the two previous Directives. Capgemini advises that other measures such as simplifying administrative procedures to decrease investors risk, providing financial incentives (notably; through adequate tariffs) to enable investment in interconnection electrical lines and pipelines, and extending new transmission and wholesale exchanges management schemes need to be implemented in order to reap tangible benefits.

Colette Lewiner, Energy, Utilities and Chemicals Global Sector Leader at Capgemini believes that: "Any proposal must guarantee electricity and gas security of supply and unbundling is in itself not sufficient to create a fully fluid European market."

Is improvement in the security of electricity supply compatible with EU CO2 emissions reduction targets?

The report shows an improvement in the security of electricity supply in Europe but, progress seems incompatible with the EU CO2 emissions reduction targets. On the positive side, in 2006, Utilities have continued to invest in new power plants to meet the increase in electricity consumption however, the situation is much less rosy when comparing these projections to the EU Climate Change 2020 objectives as 81% of the intended new plants will use fossil fuels thus, increasing the CO2 emission volumes. Capgemini advises that in order for future investments in new power plants to be consistent with European Climate Change objectives, EU, National Governments and Utilities companies need to realign their policies.

Is gas security of supply threatened?

Finally, the Capgemini EEMO report warns that the security of the gas supply is being threatened by a clash between Russian and EU strategies. The EU, in its ownership unbundling measures published in September 2007, has included a “reciprocity” clause. This would prevent foreign investors, including Russian companies, from taking over European gas and electricity transportation assets, thus responding to fears that Gazprom might grow to dominate these EU networks as it is already controlling an increasing number of gas pipelines entering into the EU. However, as the unbundling measures are aimed at giving easier market access to the new retailer entrants, it could even help Gazprom in its strategy aimed at dominating the end to end gas value chain. With divergent strategies, one can easily predict that the EU/Russia battle for gas supply and value chain control is only the beginning.

Commenting on the report, Colette Lewiner said: "The report highlights the fact that in 2006 and 2007, security of supply remains of concern and that investment in infrastructure needs to be boosted in coherence with the new environmental targets set by the EU. The latter will be difficult to meet without strong political support, stringent National Allocation Plan and a long term scheme for CO2 emissions rights,” She concludes that; “Many of the key players across the sector need to change in line with the present tense oil supply situation and the new regulatory and competitive environment, by optimising their asset portfolio, adapting their client relationships and fully implementing new energy and information technologies." 

For a copy of the abstract report, please visit: http://www.capgemini.com/eemo

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