ENERGY REPORT

Issue 4 | January 2014

Keeping the lights on

- Europe's energy challenge

INSIDE THIS ISSUE

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Poland
A report on Polands tricky navigation between coal dependence, a need for independence from Russia and calls for more renewables.

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France
Frances energy giants look elsewhere for investment opportunities, while the push for more renewables is at a standstill.

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Germany
Trouble in Europes green energy powerhouse. Too fast, too expensive? Will the grand coalition be able to provide an answer?

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UK
The big energy companies get no love from the public. Heres why.

ENERGY REPORT January 2014

Contents

Contents
Introduction The dark winter of 2015? Back To The Future: Is German Energy Policy Becoming More Normal? Keeping the lights on: What energy policy for France? ENIs Scaroni leads the discussion on the future of Europes energy and industry The merchant and the preacher try to bridge their interests Cold headwinds for the UK Whats next for European energy networks? A formative moment for energy policy? MSLGROUP can make the difference Where we are 3 4 6 8 10 12 14 16 19 21 22

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Introduction

Welcome to MSLGROUPs report into the European power market and the communications challenges that are threatening the industry.
While each European country has a very different structure to its energy market, with France leading on nuclear and Germany increasingly focused on renewables for example, there has been growing unanimity among power producers that something needs to change. In September, nine of the EUs largest power companies came together to warn that Europes energy security was under threat. In particular, they highlighted that unrealistic renewable energy subsidies were creating a major problem pushing up prices for consumers while destroying the financial model their business was built on. In an era of rising consumer prices, the general public may have little sympathy for these claims. However, no one can deny that with over 500,000 employees and 900bn of annual sales, these companies carry huge economic clout and are critical to delivering the energy infrastructure that Europe needs. There is no question that power companies need to respond to the dynamic situation they find themselves in. With fuel poverty finding its way into front line politics, as in the UK, power producers cannot afford to allow themselves to be tarred with the banker bashing brush. Momentum is building and needs to be addressed, before sentiment runs away from them. Communications undoubtedly has a key role to play, not only explaining to customers why their bills are going up and how the cost elements break down. But, perhaps more importantly, in trying to re-establish trust and build empathy between producers and their customers. This will be critical to the long term relationship power producers have with society and, ultimately, to their licence to operate. At MSLGROUP, we represent a wide range of power companies across Europe, ranging from large scale utilities to small scale renewables; from nuclear to solar and all points in between. We are actively engaged in helping our clients communicate around these issues and relish the challenge! We hope that you enjoy this report and welcome your feedback. So dont hesitate to contact us with your thoughts.
Nick Bastin Managing Director, Capital MSL and Head of MSLGROUP EMEA Energy Practice

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The dark winter of 2015?

If the European Unions energy security is to be ensured, it must use all the resources at its disposal. For Poland, resources are coal and shale gas - if it is confirmed. However, this should be done with use of latest technologies to protect the environment .
Jerzy Buzek, former President of the European Parliament.1

Jakub Zajdel
Poland jakub.zajdel@mslgroup.com

The production of electricity by Polish power plants decreased by 2% (159.853 GWh) in 2012, from 163.153 GWh in 2011, while energy consumption also slightly decreased during the year from 157.910 in 2011 to 157.013 in 20122. From an analysis of this data, one might assume that Poland is far from being short of energy supply. However, a growing economy, the decommissioning of obsolete units and delays to new investment may quickly turn the tables. According to a report by the Polish Ministry of Economy3 in August 2013, the first capacity deficit may appear in the winter of 2015. Furthermore, the problems with the power supply, which may influence not only the Polish economy but the quality of life of its citizens, will last up until the summer of 2018 always assuming that all planned investments are completed. If key projects are delayed or significant failures of old units arise, the stability of the power supply will be threatened. Another important characteristic of the Polish market is the share of different fuels used in energy production4. Coal is the main source of energy, with hard coal having a share of 50.6% and lignite 33.5%. Renewable energy sources account for 10.4% and natural gas only for 3.3%.

forced capacity of 37,720 MW as at the end of 20125. Although installed capacity has risen by 6.4% between 2010 and 2012, it was mainly due to the commissioning of one power plant in Belchatow (858 MW) and a number of small renewable energy projects. One of the biggest problems is that almost 55% of installed units are over 30-years old6, a number of them may be modernized, but some need to be shut down. The future of each unit will depend on their efficiency, emissivity and maintenance costs; however, operating periods cannot be extended indefinitely. Over the long term, we should not worry, because, according to a Ministry of Economy report7, new capacity of 13.2GW will be built by 2020 and 14GW more by 2030. However, apart from a number of small renewable energy sources, only two large units are currently being built in Stalowa Wola (450 MW) and Wocawek (460 MW) - both should be finished by 2015. There are several other investment projects at different stages of preparation, but the next large power plant is to be connect-

FuEls uSed iN eneRgy pRoducTion

Renewable energy sources 10.4% Lignite 33.5% Hard coal 50.6% Natural gas 3.3%

New projects will barely replace the old ones

Poland has one of the biggest electricity grids in Europe with 38,046 MW of installed capacity and un-

Part of Jerzy Buzek inauguration speech of the X Congress of the New Industry magazine, 16th October 2013 http://www.pse.pl/index.php?modul=8&y=2012&m=12&id_rap=212 3 The Ministry of Economy report (http://bip.mg.gov.pl/files/upload/14223/PL_MG_DE_sprawozdanie_2011_2012_20130731_SKAN_w_ost.pdf), page 53 4 Data of the Energy Market Agency from 2012 - http://www.are.waw.pl 5 The Ministry of Economy report, page 6
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ed in 2017. Any nuclear power plant project is still at a very early stage and only optimists believe that the first unit will start production before 2025.

level in order to ensure the stable development of the energy sector. Regulations - creating an economic environment in which foreign and domestic companies will want to invest in the energy project:
Renewable energy sources - stable regulations that allow investment projects and support systems to be planned and to ensure the development of the industry Shale gas exploration - transparent tax system that will encourage companies to explore for shale gas in Poland

Fuel - creating a comprehensive strategy for the development of each fuel

Nuclear power - decision whether to build a nuclear power plant, which partners to attract and where to locate it Coal - how to manage current assets, whether to support new projects and how to limit the negative impact on the environment Gas the role of gas in the Polish economy as an energy source, usage of LNG terminals and the responsible extraction of shale gas in the future

Driven by renewable energy sources

An initial estimate of the Ministry of Economy8 from August 2013 assumes that from 2014 onwards new capacity of approx. 0.5 GW from renewable energy sources will be built each year. However, in September 2013 the same Ministry published support mechanisms for producers of electricity from renewable energy sources9. The renewable energy industry has been waiting for this proposal for some time, because lack of a clear support system for green energy has affected their ability to plan their business. The proposal involves replacing certificates with an auction system; however no ratios or data are specified. Representatives of foreign and Polish energy companies are complaining about the lack of regulations for renewable energy more and more investment projects are put on hold.

Matched renewable energy type creation of a renewable energy mix (wind, biomass, biofuels) that will address political and geographical location of Poland

Poland, as a European Union member, needs to deal not only with internal problems, but also face the common European goals. Unwanted energy resources - discussion on the future of coal and shale gas in Europe The climate and energy package - discussion regarding the impact of the package on the development and competitiveness of the EU economy Common energy market - usage of opportunities offered by cooperation in the energy fields between countries example in the Visegrad group (Poland, Czech Republic, Slovakia and Hungary) The article describes the main challenges facing the Polish energy market. However, due to the complexity of the issue and uncertainty related to ongoing legislative changes, each sector of Polish energy industry should be subjected to separate, in-depth analysis.

Facing the future

The short term outlook of the Polish energy market leads to a long list of potential challenges in different fields. Some solutions need to be created on a country

Data of the Energy Market Agency from 2011 - http://www.are.waw.pl The Ministry of Economy report, page 39 8 The Ministry of Economy report, page 38 9 http://www.mg.gov.pl/files/upload/19072/Prezentacja%20na%20strone.pdf
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Back To The Future: Is German Energy Policy Becoming More Normal?

One thing that cannot be said about Germanys supposed quantum leap in energy policy is that it has been taking great leaps forward or, in fact, that it has been moving anywhere at all recently. Progress in the countrys much-hailed Energiewende has all but come to a standstill. Election years dont usually help to speed things up, and they are particularly drawn out in Germany. A year of inaction and paralysis in the run-up to polling day was replaced in the autumn by three months of painstaking negotiations between Angela Merkels CDU/CSU and the Social Democrats (SPD) about the formation of a new coalition government.

Florian Wastl
MSL Germany florian.wastl@mslgroup.com

Too much, too quickly

It is plain for everyone to see that the current model is not working. The problem at the core of Germanys energy woes is a very simple one: The huge increase in renewable power generation in Germany over the past few years has led to excess energy flooding the market. This has not only forced power generation at conventional plants to be cut back, making these plants economically less viable, but it has also created an ever-widening gap between wholesale energy prices, which have been falling, and the guaranteed feed-in compensation for energy from renewable sources. This dilemma at the core of the system causes a whole raft of other problems. The following are just some of the most pertinent ones:

Low wholesale prices continue to put pressure on energy suppliers such as RWE and Eon. RWE chief executive Peter Terium just announced plans for another cost-cutting programme in which the companys power plant division alone will need to save more than 500m. Terium also signalled that RWE may be forced to merge with another power supplier to return to profitability.

The countrys green energy levy (EEG-Umlage), designed to bridge the gap between wholesale prices and the fixed feed-in compensation for renewables, continues to rise: Following last years increase from 3.59 to 5.28 cents per kilowatt hour, it was announced in the autumn that the levy will rise to 6.24 cents this year. The levy is paid by consumers, and this years increase will add another 34 to the average households annual energy bill, bringing the total yearly cost of the levy for the average household to 218.

Energy-intensive companies have been (partially) exempt from paying the green energy levy (EEG-Umlage) and grid charges. This could amount to an inadmissible subsidy under EU law, and is currently subject to an investigation by the European Commission. In the best-case scenario, the Commission could ban the subsidy. However, the worst case could see Brussels demanding that companies pay back the money they have saved as a result of the exemptions. The commissions ruling on the matter has been postponed several times, giving rise to rumours that it was deliberately putting the decision off until after a new German government was formed and the Renewable Energies Act (EEG) could be reformed.

Many companies are now installing their own on-site power stations. They are not only worried about rising prices, brought on by the possible abolition of exemptions, but also about the quality of service, as supplies and grids are becoming more volatile. This is an additional threat to the market shares of power suppliers such as RWE and Eon.

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Changing priorities, and one loser

While negotiations to form a new government may have been long and protracted, they have also produced a marked shift in energy policy at last. Hannelore Kraft, Prime Minister of Germanys industrial power house North Rhine-Westphalia and head of the SPDs negotiating team on energy policy, made this very clear, saying that jobs, low energy prices and energy security mattered more than ambitious targets for renewables. Following the coalition talks between CDU/CSU and SPD, a number of key changes are likely to be enacted early on in this parliamentary term: The most important ones will be (i) a slowdown in the expansion of renewables accompanied by a downward adjustment of fixed feed-in compensation rates (for example, national targets for offshore wind power will be reduced from 10/25 GW to 6.5/15 GW by 2020/30), (ii) measures to spread out the financial burden of the Energiewende more evenly (i.e. fewer exemptions for industry), and (iii) a renewed focus on the role of power generation from fossil fuels, especially coal (for example, the need for constructing new conventional power plant capacity is to be reviewed). Things could have turned out very differently. If Merkels CDU/CSU had formed a government with the Green Party, the shift in priorities would have been decidedly less marked. The Greens are strong advocates of a fast and decisive transformation towards renewables. They are also strongly opposed to coal-fired power stations, deeming them to be dirty and not flexible enough for the requirements of a decentralised energy system. Likely to be condemned to four more years in opposition, they are beginning to feel the pinch, and have been lambasting CDU/CSU and SPD as blockaders of the Energiewende.

ENERGY REPORT January 2014

Keeping the lights on: What energy policy for France?

Why is it that little by way of energy production is happening in France, while three of the biggest French energy leaders EDF, GDF SUEZ and Areva have announced investments in huge projects in the UK? Energy giants EDF and Areva have confirmed construction of two EPR (nuclear) reactors, the first in Europe since the Fukushima accident, while GDF SUEZ has bought stakes in thirteen onshore shale gas licenses, worth an estimated 8.8 million. Why nothing similar in France?
world, operating some 58 reactors. Because of long standing policies based on energy security, nuclear energy has been consistently generated and currently represents 75% of electricity produced. This investment in energy production has meant that for France, reactors, fuel products and services have been a major source of exports. Indeed, France is the worlds largest net exporter of electricity due to its very low cost of generation, from which it earns over 3 billion euros per year. For the Green party, which makes up part of the left wing coalition government with the Socialists, a primary

Antoine Bourdeix , Felix Thomson

France antoine.bourdeix@consultants.publicis.fr

Franois Hollande was elected in 2012 with a clear plan to change the French energy mix which has been dominated for decades by nuclear energy. Frances long history with nuclear energy production has made the country the most nuclear-dependent country in the

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condition for the formation of the coalition was prioritizing energy reform and shifting the focus towards renewable energy sources. France has been slowly embracing heavily-subsidized renewable energies, such as wind and solar power, which only currently make up 13 percent of the energy mix, far behind Germany and Spain, and well below the 23-percent target set by former President Nicolas Sarkozy for 2020. Working to fulfill key electoral pledges, French President Franois Hollande announced his objectives to cut the share of nuclear power in the electricity mix to 50 percent by 2025, reduce the countrys appetite for oil, boost renewable energy sources and improve energy efficiency. As such, several measures were promised: the shift away from nuclear production, with the promise of shutting down many of Frances oldest reactors by 2025 and notably the oldest nuclear reactor based at the border with Germany and Switzerlands at Fessenheim. Hydraulic fracturing for shale gas and oil production was banned, and a reform of the mining code was promised to include more environmental regulation for oil and gas research and production. The government also launched a national and regional debate on energy transition. All of these measures were part of the governments Transition Energetique plan to reform traditional energy sources and invest further into alternative energy. Yet after all of this, there is no clear roadmap to energy transition that has been announced. The governments proposed plans are still unclear. The eight month long national and regional debate engaged 170,000 stakeholders, who took part in 1,000 regional debates, and more than 1,000 submitted recommendations over the internet but reached no consensus. It failed to develop specific proposals on key issues, particularly nuclear closures. The resulting lack of consensus means that any proposed bill is likely to face fierce opposition in the National Assembly, delaying the adoption of the measures. Nuclear production is not expected to change significantly over the next four years, as EDF plans to bring the 1.65GW third-generation Flamanville 3 EPR online before the end of 2016, which would compensate for any lost base load capacity arising from the closure of the Fessenheim plant. Regarding oil and gas, the promised Mining Code reform has been constantly postponed and is now not expected before the end of 2014 after the pressure of local and European elec-

Franois Hollande meets representatives of Fessenheim Photo by Franois Hollande/Benjamin Boccas on Flickr

tions fizzles. Companies set to explore oil and gas have been waiting some two years for permits acceptance or renewal. But if the fate of nuclear and fossil energy sources is not to be known before the end of 2014, that of renewables is still equally unclear, not only because of governments decision to reduce tax breaks, but also ironically due to local environmental opposition. Ten wind turbines in northeast France owned by GDF SUEZ were recently removed by a provisional court decision, while the 11% tax break supposed to boost the installation of rooftop solar panels has been scrapped by the government. If the intentions and the promises of the government were clear, the reality of politics and policies has undermined the willingness to move away from nuclear. Not only was no consensus reached and no policy adopted but major investments in all types of energy sources are on hold awaiting for a well-defined roadmap for a clear energy transition. President Hollandes campaign slogan was change is now but since he has been in office, another catchphrase inherited from the previous Socialist president, Francois Mitterrand, is prevailing Donner du temps au temps, which roughly translates as all in due course or be patient, dont rush things. Many of those who signed up for change is now are none too happy about being told to be patient. With local and European elections scheduled this year, change in the countrys energy policy might also have to wait at least till the end of the year to see light at the end of the tunnel.

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ENIs Scaroni leads the discussion on the future of Europes energy and industry
The future of the European energy sector hangs in the balance. Still, EU institutions have not yet adopted a strategy to tackle key issues. European majors, including Italys ENI, have warned of risks, calling upon EU leaders to take a fresh approach to the European energy policy. The issues brought to EU leaders attention will be on the agenda at the upcoming European Council meetings in February and March 2014. There has been broad criticism spanning from renewable energy subsidies being no longer sustainable to the emissions trading scheme (ETS) being inefficient and in need of review. Notably, among the issues that are most concerning is Europes reluctance to embrace the shale gas revolution.
Specifically, regarding shale gas, the CEO of ENI said to Corriere della Sera that if we fail to embrace the shale gas revolution we risk loosing out further to the US where the cost of gas for businesses is a third and the cost of electricity is half. If nothing changes who is going to invest in the EU? Essentially the concern expressed by Mr Scaroni is that businesses - especially energy-intensive ones, such as petrochemical companies now moving their production to Texas - choose the US where energy is cheaper, labour costs are 20% lower, there is more flexibility, there are managerial resources, a market and a business friendly environment. These concerns were reiterated during the FT Global Shale Energy Summit and also reported by the Financial Times. Mr Scaroni said the commencement of exports of shale gas from the US to European markets could bring down prices. However, he added I think this isnt enough to compete with the US. Even if the US becomes a big exporter of gas, the situation here would not improve because we would get it at double the price paid in the US and this would be equally unsustainable. Mr Scaroni sees tangible opportunity in the UK, the only country in Europe to have embarked on shale gas development. It is hoped that other European partners would follow Londons suit, as what is now seen as an opportunity whose potential is not easy to fulfil is soon going to become a compelling need. ENI has not been sitting on its hands in the past years, it has won licences to extract shale gas in Ukraine, Pakistan and China. Still, Russia is the country in relation to which Europe, and Italy as part of it, need to make a strategic choice to bridge the gap with the US. Russia is a country which is an almost inexhaustible source of low cost energy Mr Scaroni told Corriere della Sera.
Paolo Scaroni, Chief Executive Officer, ENI

Alessandro Chiarmasso Alessandro Paoletti

Italy Alessandro.chiarmasso@mslgroup.com Alessandro.paoletti@mslgroup.com

The shale gas revolution is a promising opportunity and sitting on hands might actually kill the chance to win the competitiveness challenge and the ability to attract investment to energy-intensive industries, losing out to the US that started extracting gas from shale rock long ago. This affects businesses and consumers in Italy too. Concerns were voiced among others by ENI Chief Executive, Paolo Scaroni, during a hearing before the EU Parliament`s Industry Committee, as well as in statements reported by Italian and international media, including Italys daily Corriere della Sera and the Financial Times.

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Other choices made by the EU are responsible for the excessively high energy costs and the poor competitiveness of the European energy sector. Among them, renewable energy subsidies that many argue are no longer sustainable. Supporting renewable energy sources has a cost of over 30 billion p.a. for consumers and weighs on energy bills for some 18%. If the goals were energy security, competitive energy prices and the least possible environmental impact, experience has shown that none of them has been attained. This is true also for Italy, where subsidies have undermined the competitiveness of gas and other traditional energy sources. Renewables subsidies are a burden for consumers and hamper the competitiveness of domestic businesses, if they were to be limited this would reduce the energy bill for consumers and businesses. Hopefully, this would also bring about more investment in R&D on less mature renewables such as tidal power. Competitiveness in Europe is also being lost as a result of greenhouse gas emission (GHG) reduction targets that have been unilaterally set and are too ambitious. ENI and other energy giants have called for realistic

In Continental Europe, before you can really start any kind of exploration for shale gas, you have to spend months and years talking, discussing, explaining...
Paolo Scaroni

GHG reduction targets by 2030, as well as investments to make energy generation from renewable sources more efficient through storage and conservation. The energy sector proves once again to be an industry with many opportunities, as well as many challenges, involving complex issues and different stakeholders. According to Scaroni, there is a major problem in Europe related to very slow decision making processes. In Continental Europe, before you can really can start any kind of exploration for shale gas, you have to spend months and years talking, discussing, explaining.... In such a context the ability to handle stakeholder relations to quickly drive consensus towards strategic decisions represents a key competitive advantage for a company, the industry and for the entire economies.

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The merchant and the preacher try to bridge their interests

Catch-22 in The Dutch Energy Polder
The Dutch have a tradition of organising societal change not via legislation, but rather via the Polder. The expression dates back to 1982 when the ruling government closed a long-term deal with employer organisations and trade unions to restructure the economy. This led to 25 years of stability and prosperity, until the bubble burst in 2008.
7 8 9 Develop a smarter and more efficient transportation system. Enhance employability in the installation and construction sector. Focus on energy innovation and export of sustainable solutions. The Dutch want to be ranked among the Top 10 Clean Tech Countries by 2030, currently holding a number 21 position.

Erik Martens, Timen van Haaster

Netherlands erik.martens@msl.nl, timen.van.haaster@msl.nl

Over the years, the Polder has become a synonym for the somewhat murky deals the government closes with NGOs, pressure groups, environmental bodies, advisory boards, trade unions, etc. You could say it even by-passed the legislative, and thus democratic, process. Its objective is to create common ground for a step-by-step change. Recently, more than 40 organisations closed a deal with the government on the future of energy in this tiny country. In collaboration with the government, the Energy Agreement on Sustainable Growth roadmap was crafted. It outlines a high level view of the energy landscape in 2020. The communication rationale behind this agreement is: together we can fix this. Concrete objectives are set forth in 10 pillars: 1 2 Realise energy savings: reduce annual national energy consumption by 1.5% per year. Scale up the production of renewable energy to 14% of total energy production by 2020 (currently: 4%). On- and offshore wind energy-, solar energy and the use of biomass are to be boosted via subsidy programmes. Decentralised exploration of energy by supporting civic programmes. Make the transportation network fit for the future. Lobby in Brussels for a well-functioning ETS system (we do not shrink from setting ambitious targets). Close down all 5 coal-driven power plants by 2016.

10 Craft a financial structure to realise the above goals. This may all sound very ambitious, but in reality it will prove to be practically impossible to distil SMART goals from these ambitious targets that will suit all 40 organisations involved. It will lead to heavy lobbying per square millimetre (as we put it) and every stake will be battled for. Final result: a lot of frustration and probably a lack of results. It is notable too that hidden somewhere in the 60-page report, it is almost secretly stated that at least until around 2050, Dutch society will remain dependent on fossil energy. On top of that, being one of the smaller EU member states, The Netherlands should not just act from a national point of view but from a European one. Only then can all objectives for energy policy ultimately be fulfilled. So much then for the resurgence of the Polder. The Energy Agreement on Sustainable Growth can also be seen as part of an even older Dutch tradition: the one of the merchant and the preacher, which dates back to days of Dutch colonialism. The Dutch always tend to search for new business opportunities around the globe (the merchant) but this is always accompanied by an urge to spread their own lofty ideals and beliefs (the preacher). In a way, the Energy Agreement can be seen as a typical manifestation of the preacher, through which The Netherlands wants to show its belief that sustainable growth is the only way for the future.

3 4 5 6

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However, like in the old times, the merchant tends to prevail. Besides the economic goals in the Energy Agreement and the cautious statement that fossil fuels will remain essential through 2050, The Netherlands also publicly aims to become the Gasrotonde (Gas Nexus) of Europe. This initiative is already a couple of years old and has had a good start with the port of Rotterdam already being an important distribution hub in northwest Europe and several influential Dutch (gas) companies involved such as Gasunie, GasTerra and NAM. An additional advantage is the homogeneity of the participants. A lot of progress has been made so far in terms of the setup of a gas exchange and the LNG and gas infrastructure due to shared interests. The contrast between the two initiatives is striking. Where the Gas Nexus has made a good start and shows potential, the Energy Agreement is already in deep trouble before it has even come into effect: the Dutch Competition Authority, ACM, announced in September that the closure of 5 coal-driven power plants could well be in violation of European competition

legislation. And, where the Gas Nexus has participants with largely shared interests and objectives, the Energy Agreement consists of 40 parties with all kinds of different, all too often unbridgeable, interests. In the final analysis, its the classic clash between realism and ideology. As we noticed before, there is a lack of clear choices regarding sustainable energy growth and a SMART plan of action in the Dutch Energy Agreement. What we have now is a soft, all-encompassing approach which contains few concrete choices. It will do little to improve the current position of The Netherlands as one of the dirtiest member states of the European Union in terms of sustainable energy, especially if the focus remains national instead of European. Compared to other approaches in Europe, such as the Energiewende in Germany, where clear choices and an action plan are in place, in The Netherlands the catch-22 between the preacher and the merchant will continue to exist for some time.

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Cold headwinds for the UK

In September 2013, as the summer months and warm evenings began to draw in, nine of Europes biggest utility companies came together to warn the European Parliament that energy policies and regulations were putting the continents power supplies at risk.
Cameron appreciates that whilst they are certainly not much loved, the big six have a vital role in securing Britains energy future. They needed to be kept engaged and onside, especially with the forthcoming announcement that Frances EDF Energy would play the central role in the 16bn construction of Britains first nuclear power plant in 20 years at Hinkley Point. His solution, to the shock of the Liberal Democrats, his coalition partners, appears to be the removal, or heavy reduction of, the hugely generous renewable energy subsidies. In a desperate bid to regain the initiative and with the knowledge that green taxes add roughly 112 per year to the average household energy bill, Cameron told Miliband in Parliament; We need to roll back the green charges that you put in place as Energy Secretary. Miliband, knowing that he still had the advantage simply replied; Sixty per cent of green taxes were introduced by him. Who is the man who said vote blue to go green? It was the Prime Minister. The debate rumbled on for a few more weeks, right up to the Autumn Statement on 5th December. The government claimed that it would introduce reforms to save the average energy bill payer 50, whilst maintaining support for the poorest families. In reality it was semi-smart accounting, with the 50 saving being made up by the Treasury and existing income tax rates, and many will not see this saving until Spring 2014. So, what does this all mean and what have we learnt from a communications perspective? We see a number of reoccurring themes.

Liam Clark
UK liam.clark@capitalmsl.com

The likelihood of black and brown outs was no longer a possibility, but more a certainty unless a radical change in approach was agreed. Agreement and a common pan-European energy policy were, as usual, at the heart of the issue. The nine highlighted that the lack of common policy and assurance was creating a climate for non-investment, and beyond this, hugely generous renewable energy subsidies had pushed up costs for consumers and left energy companies with little margin for investment. By October 2013, the UK had seen energy prices, policy, generation and investment methods become a political hot potato and mainstream consumer issue.

A storm brewing
The debate started with Ed Miliband, leader of the Labour Party and the opposition, calling foul against the UKs big six utility companies on the back of SSE raising energy prices by an average of 8.2%. Miliband, who was Energy Secretary during the previous Labour Government, claimed that energy prices were far too high and had increased fuel poverty in the UK. In a bid to win back dwindling voter support, he proposed a freeze on energy prices, if elected, until the next general election. A media circus followed, with the majority of commentators making the claim that the policy was not implementable, that it was uncompetitive and, most likely, illegal. In subsequent weeks, and at the time of writing this article, energy policy and prices remains front page news. Energy, and specifically energy generation, was now a mainstream consumer issue. David Cameron, conscious that Miliband had a PR coup with his freeze prices not pensioners campaign, needed a solution and a strategy that would not hit the pockets of the big six too hard. It is worth noting that

A lack of public understanding

Energy production and supply has never been a glamorous subject in the UK, and as an island which historically has had a plentiful supply of North Sea oil and gas and a functioning nuclear sector, the UKs energy sector had, for many years, operated somewhat in the shadows. You flicked a switch and the light came on, you turned on the tap and hot water would flow, all for, until relatively recently, a fraction of your overall income. Where the raw energy source or feedstock came from, and how the energy was generated, was irrelevant to the masses. It just worked. It still works, but years of underinvestment have changed the game

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and the public does not understand why. The Government, both current and past, needs to do a better job at explaining this, with both sides accepting some of the blame for past failures and indecision.

Issue will not go away

Energy companies are not good communicators

It is, perhaps, ironic that the big six continue to spend millions of pounds on consumer advertising in an effort to make the British public fall in love with their brands. Most involve a mascot or character akin to an electrode or gas flame and have a child like presence appearing in everything from national newspapers to Saturday night television commercial breaks. While this investment may have helped keep them front of mind, it adds little in terms of building relevance and understanding among consumers. Secondly, this investment has resulted in the strongest brands standing out and taking much of the consumer frustration when there is industry-wide bad news, like the recent price rises. The recent British Gas #askBG twitter campaign is the perfect example of unfortunate tactics, triggering a heated public debate and a high level of negative brand awareness, culminating in a communications disaster.

The third theme is that this issue will not go away. While it may diminish come next spring, the energy debate is here to stay. Consumers and bill payers have had enough. Although the UK has some of the cheapest prices in Europe, they have jumped too high, too quickly. A huge amount of trust has been lost between companies and their customers and energy bills and policy will be at the heart of the next General Election. How the industry responds will be critical but there is little doubt that better communications should lie at the heart of their approach.

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ENERGY REPORT January 2014

Whats next for European energy networks?

The promotion of the interconnection of energy networks is one of the key objectives of EU energy policy and a critical factor to attract new investment and overcome the chronic gaps in the energy grid that undermine the security of energy supply and the competitiveness of European industry. According to the Commission there is a need to increase investments in energy infrastructure by 30% for gas and by 70% for electricity compared to 2010. The EU and its Member States are still far from delivering against expectations for both consumers and industry, with the 2014 deadline for completing the European internal energy market looming.

Leonardo Sforza
Brussels leonardo.sforza@mslgroup.com

Under this EC initiative, the projects will benefit from a number of advantages: accelerated planning and permit granting procedures (binding three-and-a-half-year time limit); a single national competent authority will act as a one-stop-shop for permit granting procedures; less administrative costs for the project promoters and authorities due to a more streamlined environmental assessment procedure, whilst respecting the requirements of Union law. increased transparency and improved public participation; increased visibility and attractiveness for investors thanks to an enhanced regulatory framework where costs are allocated to the countries that benefit most from a completed project; possibility to receive financial support under the Connecting Europe Facility (except for oil projects which are not eligible for funding) and leverage the necessary private and public funding. The funding facilities can take two forms: a) grants, and b) financial instruments made available in cooperation with financial institutions such as the European Investment Bank. In the case of grants, the first call for proposals under the Connecting Europe Facility is scheduled for the beginning of 2014. Project promoters can apply for grants for studies and grants for construction works. Grants for works, however, will be available only to those that face difficulties in their commercial viability and subject to objective cost-benefit analysis. In the case of financial instruments, enhanced loans, project bonds and equity instruments will be available outside any call for proposals, offered and managed by international financing institutions.

Nevertheless, the EUs agenda and the Commission work programme for 2014, that will close the mandate of the Commission in office before its renewal, remain dense and bold in its aspiration for energy policy. Last October, the European Commission has adopted the first list of some 250 key energy infrastructure projects that will be instrumental to modernise a substantial part of the energy systems in Europe. The list is the result of the work undertaken by twelve regional groups, which brought together the representatives of the Member States, national regulatory authorities, project promoters as well as the European networks of transmission system operators for electricity and gas, the Agency for Cooperation of Energy Regulators and the Commission. These projects of common interest will benefit from accelerated licensing procedures and improved regulatory conditions and may have access to financial support from an EU funding facility under which a 5.85 billion budget has been allocated to trans-European energy infrastructure for the period 2014-20. This will help them get implemented faster and make them more attractive to investors. Once completed, these projects will help Member States to integrate their energy markets, enable them to diversify their energy sources and help bring an end to the energy isolation of some Member States. They will also enable the grid to take increasing amounts of renewables, and consequently help reduce CO2 emissions. The list includes up to 140 projects in the field of electricity transmission and storage, about 100 projects in the field of gas transmission, storage and LNG, and several oil and smart grids projects.

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ENERGY REPORT January 2014

Energy Infrastructure - Electricity

Projects of Common Interest:
High-Voltage Lines
Commissioning date < 2017
Commissioning date 2017 to 2020 Commissioning date > 2020

Electricity Storages
Commissioning date < 2017 Commissioning date 2017 to 2020 Commissioning date > 2020

Offshore hubs Baltic Integration and Synchronisation

Source: Eurogeographics for the administrative boundaries; PLATTS for the underlying energy network. Cartography: European Commission, Energy DG, June 2013

Energy Infrastructure - Natural Gas

Projects of Common Interest:
Gas Pipelines
Commissioning date < 2017 Commissioning date 2017 to 2020 Commissioning date > 2020

Terminals for Liquefied Natural Gas (LNG)

Commissioning date < 2017 Commissioning date 2017 to 2020 Commissioning date > 2020

Storage Facilities
Commissioning date < 2017 Commissioning date 2017 to 2020 Commissioning date > 2020

Reverse Flows
Commissioning date < 2017 Commissioning date 2017 to 2020 Commissioning date > 2020

Source: Eurogeographics for the administrative boundaries; PLATTS for the underlying energy network. Cartography: European Commission, Energy DG, June 2013

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ENERGY REPORT January 2014

The list of projects will be updated every two years with the aim to integrate newly needed projects and remove obsolete ones. The selection criteria for a project to be included in the common interest list, are: involve and have a significant impact on at least two EU Member States; enhance market integration and contribute to the integration of Member States networks; increase competition on the energy markets by offering alternatives to consumers; enhance security of supply; contribute to the EU energy and climate goals and facilitate the integration of an increasing share of energy from variable renewable energy sources.

The concept of Projects of Common Interest was defined in the context of the Guidelines for transEuropean energy infrastructure (TEN-E Guidelines) in 2011. The TEN-E Guidelines identify nine strategic infrastructure priority corridors in the domains of electricity, gas and oil, and three EU-wide infrastructure priority areas for electricity highways, smart grids and carbon dioxide transportation networks. Amid criticism surrounding the selected projects, seen more as a puzzle of different priorities of national governments rather than a coherent EU policy, the EC decision remains an important step towards a cross-border operational dimension in the field of electricity and gas, connecting EU countries to Switzerland, Norway, Ukraine, Russia, Turkey, the Caspian region and north Africa.

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ENERGY REPORT January 2014

A formative moment for energy policy?

Sweden

The free electricity market will become parenthetical. We will have to revert to centrally-planned electricity production.

Per Ola Bosson, Bjrn Wglund

perola.bosson@jklgroup.com bjorn.waglund@jklgroup.com

Sustainability

These words, spoken by a person with a long management career in Swedish electricity supply, were pronounced during a conversation on the challenges facing energy policy. With todays developments, it doesnt look like any of the EUs three targets in the energy policy trilemma will be able to be achieved. Several countries are increasing their coal consumption and CO2 emissions. Energy security is threatened, and the energy supply is hardly conducive to strengthening Europes competitiveness. The US can enjoy lower energy costs and a growing interest in moving production to their side of the Atlantic, while at the same being able to export coal to Europe. Less than a year ago, IEA chief economist Fatih Birol referred to the energy issue as an opportunity for Europe. Owing to low energy costs he now warns of the US having a competitive advantage for a long time to come and being in a position to increase its market share. EU member states and energy market operators have been engaged for some time in fine tuning energy policy. The target for renewable vehicle fuel has been adjusted downward from 10 per cent to 5 per cent, and the issue of back loading the system with emission rights has been debated heatedly. This type of adjustment will continue, of course. But when no targets are met with the current policy, a discussion that looks beyond the details have to take place sooner or later and the entire policy will be called into question. Historians sometimes refer to formative moments in de-

ThE TrIlemma of EuRopeaN EnErgy PoLicy

Security of Supply

Competitiveness

velopment, and there are many indications that we are seeing just such a moment right now for energy policy on the EU level as well as in the individual member states. We have already witnessed the beginning of such a discussion. More and more people are openly critical of the current policy and are demanding that it be changed. The next step is to begin discussing possible changes. The energy issue will therefore soon move to the top of the agenda for EU leaders along with the issue of Europes competitiveness. Sustainability will still be a defining force for a new energy policy, but we will also see a strong focus on competitiveness. There is a risk that energy costs for European companies will be twice as high as those for their American counterparts in coming decades.

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ENERGY REPORT January 2014

Swedish industry consumes 50 TWh of electricity annually

The issue of industrys competitiveness casts a shadow over energy policy not least in Sweden, where a large, energy-intensive industrial sector is combined with a high export share of GNP. Swedish industry consumes 50 TWh of electricity annually and answers for most of the countrys exports. The big political question in Sweden at the moment is the lack of resources for schools, but this debate will be meaningless in the long run if Sweden cant stimulate its industry and maintain its exports. Swedens prevailing energy policy is strongly influenced by the era during which it was produced namely, the wave of deregulation and market adjustments of the 1990s. A pinnacle of this policy is the pricing mech-

anism that should reflect the marginal cost in the system. The price signal would then trigger investments in new generation capacity when needed. But as energy policy now approaches a formative moment, it no longer needs to be held sacred not even in Sweden. The merit order in Swedish electricity production today is based on marginal cost. Politics should not intervene in this order. Hence Swedes find guaranteed prices strange (for instance, the British decision on the Hinkley nuclear project). But things might change if the industrys exports are threatened and economic welfare is put at risk, and Sweden might well be arguing from a new position in Brussels. Economic welfare prevails over any energy policy. Especially in Sweden.

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ENERGY REPORT January 2014

OUR TEAM
Anders Kempe
Regional president MSLGROUP EMEA anders.kempe@mslgroup.com

Nick Bastin
Head of Energy MSLGROUP EMEA nick.bastin@capitalmsl.com

MSLGROUP can make the difference

Per Ola Bosson

Sweden per.ola.bosson@jklgroup.com

Alessandro Chiarmasso
Italy Alessandro.chiarmasso@ mslgroup.com personer

MSLGROUP is Publicis Groupes strategic communications and engagement group, advisors in all aspects of communication strategy: from consumer PR to financial communications, from public affairs to reputation management and from crisis communications to experiential marketing and events. With more than 3,500 people across close to 100 offices worldwide, MSLGROUP is also the largest PR network in Europe, fast-growing China and India. The group offers strategic planning and counsel, insight-guided thinking and big, compelling ideas followed by thorough execution. MSL GROUPs EMEA Energy Practice is a leader in advising companies from Europe and around the world on communications issues in the energy sector. Across 15 countries and 27 offices, our European network supports clients that range from large publicly listed Fortune 500 organisations, to small, privately held companies. We currently advise a third of the energy companies in the Eurotop 100. From attracting the best talent, to communications with investors; from crisis preparedness, to corporate reputation management; and from nuclear to renewables: we understand the key communications issues that keep energy companies awake at night. With both breadth and depth of energy communications expertise across Europes key markets, we know that effective, best practice communications can deliver value to stakeholders across the energy value chain. If you want to find out more about the work we do, or enquire as to how we might be able to help, dont hesitate to contact our team member in your market or contact Nick Bastin at nick.bastin@capitalmsl.com

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Brussels leonardo.sforza@ mslgroup.com

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Germany florian.wastl@mslgroup.com

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ENERGY REPORT January 2014

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ENERGY REPORT January 2014