ptit 30 anniversary special keynote address series · changing landscape: 1990 & today 1990...

A New Deal: Regulatory Framework for a Competitive & Innovative Energy

Market That Works in the Interest of Consumers

PTIT 30th Anniversary

Special Keynote Address Series

September 19, 2016

W A L T E R B O L T Z

Former ACER Gas Working Group Chair,Former ACER Board of Regulators Vice Chair,

Former Energie-Control Chairman

A New Deal: Regulatory Framework for a Competitive & Innovative Energy Market That

Works in the Interest of Consumers

W A L T E R B O L T Z

Former ACER Gas Working Group Chair,Former ACER Board of Regulators Vice Chair,

Former Energie-Control Chairman

Luncheon address at

30th PTIT anniversary, Bangkok,19th September 2016

Europe looks back to more than 50 years of political/economic integration

First, commodity Union (coal, steel, later nuclear); then: economic integration

Telecommunication sector started to liberalize from mid 1980’es onwards

Late 90‘es start of liberalization of electricity and gas (from a situation of high costs and oversupply in (nuclear) electricity)

Today: Europe as role model for successful liberalization in electricity and gas

Electricity oversupply and high prices asstarting point for liberalisation

Bangkok, PTIT, September, W. Boltz 3

Primary production of energy in the EU-28 totalled 790 million tonnes of oil equivalent (5,8% of world’s total)

Primary energy demand in mtoe 1990

Primary energy demand in mtoe 2015


Residential andcommercial

Industry andfeedstocks

Power and distritheating

Transport

Other

Residential andcommercial

Industry and feedstocks

Power and distritheating

Transport

Other

Energy mix


1990

Coal

Oil

Natural Gas

Nuclear

Hdro

Renewables

Other

2015

Coal

Oil

Natural Gas

Nuclear

Hdro

Renewables

Other

Electricity mix

Bangkok, PTIT, September, W. Boltz 6Source: https://ec.europa.eu/energy/sites/ener/files/documents/trends_to_2050_update_2013.pdf

E-networks in Europe well meshed towards all directions

Source: ENTSO-E


Gas transportation grid in Europe


Global Gas Balance in 2015

9

Source: Acer MMR 2015

Changing landscape: 1990 & today

1990 Today


15 Member States: ~ 475 mio. inhabitants

15 single markets with mainly national legislation (Transit Directive)

National champions

Separate prices per country

28 Member States: ~ 510 mio. inhabitants = 7% of world’s total

Several Regional markets at wholesale level with EU legislation as main guidance for national implementation of law (market coupling)

Regional prices

Dominant vertically-integrated companies

Customers had no choice to switch supplier in case of dissatisfaction

Intransparent bills and low service quality

most of the national electricity and natural gas markets monopolised and highly concentrated

markets are largely national,

with relatively little cross-border trade

Inattractive sector market

Pre-liberalisation: National Champions, low Security of Supply, high Prices


Sector inquiry (2005)Merger control

State-aid guidelinesAntitrust

SO ….

National incumbents controlled gas markets


Austria

incumbent share

non incumbent

France

incumbent share

non incumbent

Great Britain

incumbent share

non incumbent

Germany

incumbent share

non incumbent

International Gas Wholesale Prices 2009 - 2015

~ 22,65 EUR/MWh

Objective:

Well functioning energy markets that ensure secure energy supplies at

globally competitive prices are key for achieving growth and consumer

welfare.Bangkok, PTIT, September, W. Boltz 14

European model of energy marketliberalization

How to get well functioning energy markets that ensure secure energy

supplies at competitive prices

introduce independent regulators to monitor the

sector.

Independent Regulator

free up the supply side of

the market (e.g. remove barriers

preventing alternative

suppliers from importing or

producing energy);

remove gradually any

restrictions on customers from

changing their supplier

Supplier choice

oblige the operators of the

non-competitive parts of the industry to allow third

parties to have access to the

infrastructure;

Third partyaccess (TPA)

Unbundling the industry (e.g. supply to

customers) and regulate the

non-competitive parts(e.g. operation of the network and central

services

Unbundling


Objectives of Liberalisation & Approach


2009 EU LAW

shift towardsRENEWABLES

ENTSOs

UNIQUE IDENTITY

TRANSPARENCY

growing switching rates

OWNERSHIP unbundling

REGIONAL MARKETS

Building blocks of liberalisation


Coordinated Infrastructure Development

Trading, Transparency and Supervision

Security of supply law

Gas law since 1998

Electricity law since 1996

More competitve energy prices

30 Bio EUR welfare gains annually

Security of supply improvementMore diversity

Customer choice improvement

Wholsale markets developmentNo more oil indexation

Many new entrants

Technological changes Distributed generation

Smart metering

Bangkok, PTIT, Septmber, W. Boltz 18

Effects of liberalization in EU -in facts and figures

Open Market for Gas, flexible contracts(interruptable) attracts investors

Source: Russia energy outlook: an analysis of gas market in 2015; Maria Belova, VYGON, Presentation at the4th Annual European Gas Price Structuring and Market Liquidity Forum , 5-6 February 2015 BerlinBangkok, PTIT, September, W. Boltz 19

Industry benefits more from retail competition than households


Effects of liberalization in EUPrices: US LNG spot prices influenced by

Henry Hub (in US$/mmbtu)

Source: Tudor Pickering Holt & Co.

~ 15,90 EUR/MWh

~ 19,75 EUR/MWh~ 18,80 EUR/MWh

~ 22,65 EUR/MWh

21

Effects of liberalization in EU (4):flexible supply on hubs gains importance


Go for simultanous gas and electricity liberalization

Keep the initial set of laws and rules simple

Adapt rules periodically but be patient

Create winners from the beginning

Phase out PPAs and other long term relationships

Ensure transparency for all energy customers

Case studies from inside / outside Europe

Northern Europe: Baltics (Lithuania, Latvia, Estonia)

Western Europe: Iberian Peninsula (Spain and Portugal)

Israel

How to successfully liberalise smaller and isolated gas markets?


Three small and isolated countries, formerly part of Soviet Union

Estonia, Latvia and Lithuania have a total of 6,5 Mio inhabitants

Moderatly developed industy, much heavy industry and machinery

Electricity sector well developed, one joint nuclear power plant

Gas is heavily used for industry and heating and power production

Gas import only from Russia in one pipeline

Liberalization achieved through forced LNG imports with floatingLNG plant

Electricity liberalization aided by underwater cables to Finland

Slow process with many hurdles and political discussions

Strong regulators for setting all prices until liberalization startsworking

Case study: Baltics


Big but isolated market with total 55 Mio inhabitants

Modestly developed industry with large agriculture and construction sector

Very weak connections to France in El & Gas

Gas market with large LNG share (>60%) and only some pipelines to North Africa

Government involvement in regulation lead to tariff deficit in electricity

Gas market with high level of competition due to many LNG terminals

Recent attempts to increase interconnection capacity to France

Competition picking up after market merger Spain with Portugal

Case study: Spain & Portugal


Small and isolated country, 8 Mio inhabitants

Well developed economy and electricity sector, no gas

Monopoly in electricity with strong national regulator

Stepwise liberalization of electricity sector

large customers first

PPAs with industrial electricity producers

Difficulty to ensure fair competition

Underwater cable to Italy under consideration

Large gas fields found off shore in 2000/2010

Access to gas important for industry

Difficult to assure TPA and cost based tariffs --> big politicalfight

Case study: Israel


Don‘t give up too soon! Real gains only unveal after several years


Contact:[email protected]


Senior Associate, Frontier Economics, LondonOf Councel, Baker McKenzie, Austria and Germany

ptit 30 anniversary special keynote address series · changing landscape: 1990 & today 1990...

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