Casting shadows on energy policy

Energy policy is high on the official agenda of the May 22 European Summit. All the more reason to make your voice heard. That is the strategy adopted by all the energy firms from the Old Continent who, for once, will make their demands to the Commission as a group.

Their message is clear: the stability of energy supplies to Europe is in danger. They are calling on Brussels to help. The causes of this crisis are many and include a dramatic fall in investments in major infrastructure projects, the absence of a precise legal framework and the quite relative weight of a common energy policy. "In short, a blatant lack of visibility at a time when industry giants, in order to manoeuvre efficiently, need a certain number of signals that they are not seeing today," stresses a source who knows the sector well.

These firms face even greater stress due to a series of recurring problems. Their stock price falls to a low level and their debt ratio rises to levels unacceptable to investors which forces them to sell off massive amounts of assets and, as a result, their industrial assets are severely strained. Several production plants must be closed or are mothballed because they are insufficiently profitable.

The latter often concerns combined cycle natural gas plants, victims of the rise in shale gas in North America. Not only is gas four times cheaper on the other side of the Atlantic than in Europe, but, drawing on this new resource, the United States can now export massive quantities of coal. This is used to supply European electricity production plants at a more competitive price than the gas used in the combined gas plants, which have been obliged to stop operating.

Power paradox

"As a result, and this is a fine paradox, a country such as Germany has never powered as many coal-fired plants while financing, at a high level, its renewable energy sector," says a manager in a European firm. This does not mean that the rapid development of "green" energy is generally supported. Thermal plants (gas or coal-fired) are indispensable to compensate for the intermittent nature of energy supplied by photovoltaic cells or wind power. Yet, in Germany, the production of renewables has reached such a level that investing in thermal plants, which are indispensable but expensive to build, is no longer profitable. This dilemma is troubling all electric and gas companies.

In the message sent this week to the Commission, in writing and verbally, the firms will call for close monitoring of the financing of energy policies. The aim is to ensure that the system of subsidies to renewable energies does not distort competition from one country to the next. Sector giants also hope that the carbon market, especially carbon-emission quotas, will be clarified, less costly and more efficient. They also hope that investment will be encouraged in the production facilities needed to meet peaks in demand.

On the side-lines of the major issues, and this is not the least of the problems, each country is pushing for its own projects to be adopted. In Germany, developing networks aimed at linking the north and East of the country, where the wind and solar power, is produced to the south and the west, where the most energy-consuming industries are located, is vital to the success of the country's energy transition. The country decided to shut down all of its nuclear power plants by 2022 and to increase the share of renewables to 40 per cent.

Shale gas is key

According to the Federal government's plan, 4,000km of power lines must be optimised and 1,700 kilometres of electricity "highways" must be built by 2022. Berlin wants its European neighbours to share the cost of developing the networks to supply renewable energy throughout the continent.

Furthermore, Germany is moving favourably towards exploiting shale gas in order to ensure the stability of supplies and of energy prices. German Chancellor Angela Merkel should be satisfied to note that, in its draft conclusions to Wednesday's summit, the European Commission mentions, for the first time, the possibility of "more systematic" recourse to "native" energy sources – a Brussels code word for shale gas.

Although the draft nowhere mentions that the potential of shale gas must be explored by member states – a taboo notion in France – it is a foot in Brussels' door. And it could be enough to add a new bone of contention to the already complex issue of energy development.

Shale gas

The EU to look into hydraulic fracturing

The EU could soon launch a study on hydraulic fracturing, reports Der Spiegel The purpose of the study is to lay down the legal groundwork for "demonstration projects and surveys," and to learn more about this technique for extracting shale gas and what it will cost. Regulations could be brought in this year.

Hydraulic fracturing is a controversial method, the newspaper writes, as extracting gas from the rock layers could lead to chemical residues contaminating drinking water. “Protecting areas that hold groundwater and drinking water, like Lake Constance, is absolutely the right way to go,” says European Commissioner for Energy Günther Oettinger. However, he warns, we should not "worry excessively about the risks" from this method.