Currently, the publication of availabilities or shortages on production/transmission capacities is done locally on a semi-voluntary basis. The regulatory authorities have little access to information regarding cross-border transactions and information is not uniformly shared at European level. This makes it difficult for regulators to identify potential market abuses in an effective way and creates additional entry barriers for market players.

On December 8th 2010, the Commission proposed a regulation to improve transparency on energy markets. REMIT – standing for Regulation on Energy Market Integrity and Transparency – aims to enhance market integrity, improve trust and attract new market participants while providing more transparent data on the fundaments of power exchanges in trading operations.

REMIT is expected to be fully implemented by 2013 and a first step is already taken in December 2011. Due to the short timeframe given to respond to these requirements, market players will be impacted and face different challenges (Process adaptations = P, Organizational changes = O and IT transformation = IT) as they need to respond in the most effective way to comply with the first REMIT obligations. The upcoming phases are foreseen to be even more challenging given the complexity of the reporting requirements while further clarifications are still expected.

(Click to enlarge)

The aim of the European Commission to decrease the risk of market manipulation and distorted price signals while simultaneously providing more transparent data on power exchanges will require energy participants to take decisive actions in order to be fully compliant with the REMIT directive by the end of 2013:

1. Organize seminars and information sessions with authorities and staff,
2. Assess the impact of other regulatory initiatives (e.g. EMIR, MAD, MIFID2…),
3. Define an organization capable to be flexible in regard of the requirements and fast in the implementation,
4. Analyze existing processes, design REMIT relevant processes and document changes on REMIT implementation,
5. Develop and execute an action plan in order to comply with regulation,
6. Implement reporting tools to generate reports for multiple regulations,
7. Train the staff and create awareness on the new processes and tools.

REMIT is just a start of a compliance process to Financial Regulation. Revisions of MIFID (Regulatory capital requirements), MAD (Market Abuse Directive) and the implementation of EMIR (Mandatory clearing of OTC derivates) are foreseen in the near future. This would increase the reporting and monitoring requirements of the regulator towards the Energy trading companies which have to organize themselves as from today. Some uncertainties remain in terms of extent of the necessary data, the geographical scope of requirements, the sequence order of the data sharing, the confidentiality treatment of some information, and the homogeneity of rules across Europe and countries outside Europe.

Like the bank industry during the last decade, the energy industry must adapt itself to comply with additional regulation packages. An appropriate combination of management skills and expertise is a necessity in order to accommodate modular and flexible transformations on processes, organizations, resource management and IT. The program in charge to implement the regulatory frameworks will have to cope with late requirements, unclear specifications, lack of resources, resistance to changes, uneasy decision making processes, geographical constraints and multitude of specific adaptations.

With expertise in financial regulation and large experience in energy management (production, optimization, trading, power exchange, cross-border market), Sia Partners combines the best of the two worlds to guide companies in their road for compliance.

Aurélia Vos & Kin-Chi Chow – Sia Partners

Unusual supply and demand profiles…

While worldwide economic growth is the main driver of the demand for base metals, it only has a limited influence in the case of rare earth metals. The demand associated with these special metals is indeed governed primarily by the development of new high-tech applications1. Rare earth metals are a crucial component of many electronic devices that have been the result of the environmental, technological and green revolutions of recent years. As a result of these recent innovations their demand has increased sharply, while a further increase of 10% per year is expected until 2015, supported by the development of new technologies and the growing of markets in emerging countries like India and China.

The supply for these minerals for its part has the unique feature of being dependent since several years on a single country, China, who provides for more than 95% of world supply. This is the result of the massive subsidy of mining activities conducted by Beijing in the 1990s which enabled the country’s mining companies to sell their lanthanides2 at a loss, i.e. at prices of around 5% of those charged by other international suppliers. Countries such as India, Brazil, Australia, Malaysia and the United States, also major suppliers of rare earth metals on the international markets, were forced to close their mines, making China the undisputed world leader in the sector. It is in this context that the rate of production of rare earth metals have soared, having doubled a first time between 1990 and 1995 and a second time since. But this increased production has not benefited in the same way to all market participants: the increasingly severe tightening of export quotas by Beijing have caused a gradual collapse of supply outside China since the early 2000s.

…as the source of international deficits.

The equilibrium between supply and demand in rare earth metals outside of China has thus been very precious in recent years, reaching a first deficit in 2010, with a shortage of supply of no less than 14% of worldwide production3, as shown on the figure below.

Evolution of Chinese production rates and export quotas since 2005, compared with international demand.(Click to enlarge)

Western countries now bear the consequences of twenty years of indifference, during which they knowingly allowed China to capture the rare earth metals supply market since it allowed them to benefit from extremely low prices and prevent damage from exploitation to their own environment. However, the reactions to the first deficits have been many and swift. Around one hundred mining projects have been set up worldwide and several new mines outside of China, for instance the sites of Mountain Pass in the USA (California) and Mount Weld in Australia, could be in production in the years to come, thus rebalancing international supply. However, the time between the initiation of economic and environmental feasibility studies and the effective start of production is long, mainly because of the tedious procedures for obtaining operating permits. Foreign production may therefore not be sufficient to offset the Chinese restrictions for several years.

These short-term threats have been confirmed several times by different studies of economical criticality. Many countries, such as the United States, Japan or the European Union, have already conducted detailed analyses to determine the critical raw materials to be covered by special protection and security measures. Europe, for instance, has launched in 2008 the Raw Material Initiative whose purpose is to preserve the region’s competitiveness by ensuring a secure and undistorted resource access. All these studies have identified rare earth metals as the number one risk group, but with different levels of risk within the group. The elements whose economical criticality is estimated the highest are the ‘heavy’ rare earth metals (dysprosium, terbium, yttrium and europium) and neodymium.

Graphical representation of the results of the short-term criticality of rare earth metals, by the U.S. Department of Energy (U.S. DOE), “Critical Materials Strategy”. (Click to enlarge)

Although the risk in the supply of lanthanides is real on short and medium term, there is no proven risk over the long term as worldwide reserves are sufficient to meet annual world consumption for several hundreds of years. The prerequisite is that enough mines are to be opened, which should be the case if current investments policy is maintained.

From supply deficits to soaring prices

Where the price evolution of rare earth metals has been a relatively constant rise during the last decade, several phenomena such as the economic development of China and India and the technological revolution in developed countries have caused a market destabilization and the creation of large deficits since 2010. As a result, all rare earth elements have known an unprecedented increase in price going from 300% to almost 4000% between June 2010 and the third quarter of 2011. For instance, the price of heavy europium has increased to around 5,000 dollars per kg against 500 a year earlier.

Price evolutions of rare earth oxides (minimum purity 99%) since June 2001 (in US dollars per kilogram). (Click to enlarge)

This price explosion was accompanied by a boom in shares of mining companies involved in the rare earth industry. SMEs have seen their market value jump by over 100% in a few months, while larger companies were left with a capitalization of several billion dollars. It is therefore not surprising that many index trackers (or exchange-traded funds) following the course of these companies have emerged over the past year, bringing a new source of concern about the supply of lanthanides if those funds would need to be secured by physical assets in the future.

While a drop in prices due to the current difficult economic climate has taken place in recent months, the rare earth metals market remains highly volatile and unpredictable. All signs of a bubble are present and the similarities with the uranium bubble are striking. An implosion may occur at any moment, rendering investments attractive but very risky.

We can conclude that the critical economic importance of rare earth metals on both short and medium term, together with the recent price explosion and the resulting threat due to increased speculation, confirm the need for coordinated action at national and regional levels to secure and stabilize the supply of these precious resources. The alternative is for the European industries to be heavily penalized in favor of their Chinese concurrents that are unaffected by this supply problem. The political debate to assess the actions that may resolve this crisis should soon take off in Europe.

Footnotes :

¹ Rare earth metals are components of many high-tech products such as catalysts for petroleum cracking, metal alloys, polishing powders and certain types of glass. Their critical application, however, is in the form of NdFeB permanent magnets which are primarily used in vehicle engines, power generators, high power wind turbines, and in all miniaturized electronics (smart phones, laptops …) as well as in the phosphors of energy saving lamps.
² The lanthanides are the 15 chemical elements with atomic numbers between 57 and 71. Together with scandium and yttrium, they form the rare earth metals. The term lanthanides is often used to describe the whole group of rare earth metals.
³ The reduction of Chinese export quotas, which is at the origin of the supply shortage, shows the willingness of Beijing to reduce its exports of raw materials and increase the export of products with higher added value.

Used in green technologies, miniaturized electronics or defense systems, the demand for these minerals continues to explode in a context of already tight supply. Rare earth elements are at the center of an economic “war” in which countries and industrialists around the world compete. In this article, we will expose the issues.

Rare Earths: suitable for high-tech applications thanks to their extraordinary properties

Thanks to their microscopic structure, this group of metals possesses particularly interesting physical properties. These are mainly optical and magnetic features, making them essential for many high-tech applications.
Their magnetic properties are, among other things, used in permanent magnets, type Neodymium-Iron-Boron (NdFeB), which are the most powerful magnets known today. They are used in engines and generators for electric vehicles and high-power wind turbines.
The rare earths’ optical properties are used in the design of the new generation of light bulbs or fluorescent lamps.

Foregoing technologies can require several hundreds of kilograms of rare earths, but we can also find them in very small amounts in many other applications, especially in the vast majority of electrical equipment and consumer electronics such as microphones, sensors, audio systems, hard drives and compressors.

These minerals also have many other, less known applications. They are for example used in fluid catalytic cracking, this is a conversion process used in petroleum refineries. Other applications are metal alloys, use in polishing powders and in the glass industry. These examples represent the second largest share of consumption of rare earth elements after magnets; they cover altogether a share of 62% of total consumption. Catalytic converters, fuel cells, high-temperature superconductors and nanotechnology are other examples of major consumers.

Share of different applications in the overall consumption of rare earths of 2010 (distribution by mass)

(Click to enlarge)

We can conclude that rare earths are used in many industrial products and that for most of these applications; the rare earth elements are irreplaceable. Our economy depends greatly on these metals, as evidenced by the increased production and the explosion of market weight during the past decade, the latter being estimated at between 5 and 10 billion dollars now, compared to only $0.5 billion in 2003 and about $1.5 to 2 billion a year ago.

Changes in world production of rare earths since 2001

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An ultra-concentrated production, mainly in China…

To understand the issues related to rare earth elements, we must break down the myth of their rarity. They are all way more abundant in the earth’s crust than for example gold or silver. Their name actually reflects a relative rarity in the minerals in which they are present. They are widely dispersed and almost always found in low concentrations. We can for instance find lanthanides in over 200 minerals, but only five of them dispose of sufficient quantities to be economically exploitable.

The total reserves have been estimated by the Institute for Geological Study of the US (USGS) at about 114 million tons. This means that we are sure to have enough for another 800 years of consumption, if the current level of demand is maintained. Among these resources, 48% belong to China, 17% to the CIS, 11% to the United States, 3% to India and 1.4% to Australia. The remaining 19% are divided between Canada, Greenland, Malaysia, Brazil, South Africa, Malawi, Vietnam, Thailand, Indonesia and a handful of other countries.

Hence, China owns almost half of the global reserves, but its role goes far beyond because the former ‘Middle Kingdom’ has been carrying more than 95% of the world production for several years now. The two major sources of the country are the mine of Bayan Obo, located in Inner Mongolia, and the ion adsorption clay reserves on the coast of Guangdong (South East). This second source is extremely rich in “heavy” rare earths. More specific, the elements from gadolinium to lutetium, which are less widely found but most requested. This means that Beijing could hold up to 80% of world reserves for those elements in particular.

Among all the other countries that possess rare earths, only India, Brazil and Malaysia produce on a regular basis. Since 2010, the U.S. and Australia started generating rare earths as well, but only in very small quantities.

World reserves of Rare Earth Elements, producing countries and consuming countries in 2009 and 2010

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The concentration of production has exacerbated, which presents a significant threat for the security of supply in the industry.

…Difficult to reconcile with the growing needs of the world

In this particular context of quasi-monopoly of China, the risk of an “economic” catastrophe is likely, if this supply were to be jeopardized.
And that is exactly what is happening for several years now, and even more since 2010.

Indeed, China wants to move its upstream expertise more downstream in different industrial sectors. It wants to have a greater vertical integration in the market for rare earth elements in order to increase its dominance even more. China has been developing its rare earth production over the years; from simple mineral concentrates, refined metals and oxides over industrial components such as magnets and phosphors to even finished products like computers, electric motors and mobile phones.

In addition, since 2007, China has been designing various measures to protect its domestic supply of lanthanides. The ban on direct foreign investment, the increase of export taxes, price controls, the freeze of mining licenses and the integration of the industry into a few large companies controlled by the state are only part of this protectionist trend. The most important measure is the one that sets export quotas. Introduced in 1999, quotas have been ruthlessly cut down during the last decade, including a dramatic drop of 40% between 2009 and 2010. This caused the first shortfalls.

After the tightening of Chinese protectionism, the European Union, the United States and Mexico filed a complaint with the WTO. The latter has judged in July that Beijing is guilty of discriminatory restrictions on exports for nine commodities. In the wake of the judgment, the Chinese government then showed a sign of goodwill by announcing the doubling of rare earth quotas to foreign countries for the second half of 2011, with permission to amount to 15,738 tons compared to 7976 tons for the same period in 2010.

This reversal, which could have permitted to keep export at practically the same level as the years before, was nevertheless considered “extremely disappointing” by the European Union, due to a lengthening of the list of China’s products subject to quotas. This would actually result in a decline between 7 and 20% of the amount of rare earths promised for export.
It is clear that the issues are significant: the rare earth elements have become key elements in industries in developed countries, key components in a multitude of industrial products, including applications destined to see their demand explode over the coming years, such as electric cars and wind turbines.

The supply of these precious minerals is highly constrained due to an incredible concentration in China, the country that therefore totally dominates the trade flows of rare earths. There will no longer be enough to satisfy everyone and Europe’s green revolution may be in danger.

“Nuclear power is a mature technology, secure and reliable, able to provide electricity and heat on a large scale, at a reasonable price, without pollution or emission of greenhouse gases.” The opponents of nuclear power oppose to this that “the nuclear waste remains an unresolved problem and nuclear energy benefits from significant government support”.

In 2012, the debate on nuclear energy is still burning. While the political debate continues in many countries about the benefits and risks of nuclear power, more than forty countries intend to implement a nuclear program in two upcoming decades ¹. It is thus interesting to define what are the investments needed to build and operate a nuclear power plant.

A mixed European context

According to the IEA ², the nuclear energy in Europe is still accountable for about 27% of the total electricity consumption in 2010. In France and Finland, nuclear energy represents a major part of the energy mix -75% of French electricity is generated by nuclear power – and are developing the latest EPR reactor. To the contrary, after the disaster of Fukushima, Germany decided to close all of its 17 nuclear power plants between 2015 and 2022. Eight of them were closed immediately after the disaster. Sweden meanwhile might see a return on its decision to forfeit nuclear energy, and the United Kingdom built new EPRs. Thus, the above examples show how national policies towards nuclear energy differ.

European context of nuclear

Economic anatomy of a nuclear power plant

An economic analysis of a nuclear power plant is complex and it is not easy to quantify accurately costs and benefits. Construction and operating costs are highly dependent on plant type and the time needed for its construction. The “overnight capital cost”, which symbolically represents the cost to build the nuclear plant in one night, and thus eliminating the cost of capital³, is $ 3500/kW for a third generation AP1000 (Westinghouse) pressurized water reactor (PWR), and of $ 3400/kW for an EPR⁴ (European pressurized (water) reactor) reactor (Areva). However, delays of construction differ greatly: for example, the building of an AP1000 plant takes 36 months while for an EPR,n it takes more than 60 months, with a direct impact on investment costs for capital costs arising from there. In general, the various costs of nuclear power plant can be sorted into the following categories⁵:

- Investment costs for construction
- Operating costs
- Costs of waste management
- Decommissioning costs

Cash flow of a NPP

The real challenge lies in the high initial investment costs to provide at the beginning of the construction of the plant, i.e. 65% to 75% of the total cost. These financing costs are the highest and depend on the interest rate of the debt. Once the plant is built, it is operated with reasonable costs and considered by some as a “cash machine”.

The radioactive waste management represents 2% -3% of total costs. As for decommissioning costs, they are often integrated in the price at which electricity is sold to the consumer, and are estimated to a range from 10 to 15%.

Leveled costs for electricity generated

As stated above, some consider a nuclear power plant as a “cash machine”. Others claim that “the cost of nuclear energy is competitive compared to other forms of electricity generation, except those with direct access to cheap fossil fuels.” Currently, studies investigate the competitiveness price of nuclear power by including the price of CO2. The introduction of a carbon tax or a trading system of CO2 emissions would highly influence the context of investments.

The investment context is changing

With such investments, a thorough analysis must be conducted and must take into account the potential risks. A few decades ago, the risks of investing in nuclear power plants were carried by public monopolies or regulated government. After the liberalization of energy markets, there is an increasingly number of private companies willing to take the risk in this highly competitive environment, leading to a new way to address and to assess the economic risks of a new nuclear power plant. After the disaster at Fukushima in 2011, it is likely that operating costs will increase due to tightened safety regulations. This raises the question of the evolution of electricity prices. For now, this changing and uncertain environment is resulting in investor caution. The future will tell whether this attitude is only temporary or not.

Notes :

¹ World Nuclear Association
² International Energy Agency
³ L’« overnight capital cost » permet de comparer les coûts de construction de différents centrales sans prendre en compte les intérêts, variant fortement selon la durée de construction
⁴ World Nuclear Association
⁵ Nuclear Economy

In fact, about fifteen countries have officially confirm their willingness for nuclear equipment to the IAEA. Alongside these first-time buyers, China, India, Russia, and Brazil constitute real opportunities for development of nuclear power plants.

With an international presence in other sectors such as water, transport or other energies such as hydro, gas or power plants, GDF Suez is a potential contact of these emerging countries.

While the nuclear market has been dominated by historical operators – Rosenergoatom, EDF, TEPCO, EON, Duke Energy, Iberdrola, KEPCO – which place the French nuclear team does reserve to GDF Suez ?

While GDF Suez shows ambitions in the nuclear power market, several backhands seem to affect his chances. Nevertheless the group holds several technological and commercial assets : the diversity of the mastered technologies constitutes an advantage to penetrate into emerging markets, waiting for a well-balanced energy mix.

Several backhands affected GDF Suez’s position in a market troubled by the accident of Fukushima

In September, 2010, GDF Suez gives up what seems then his first opportunity to penetrate into the nuclear market in France, by selling his stake in Penly 3. If EDF is the main shareholder, the project should also be worn by Total (8.33%), Enel and E.ON (21% each). This renunciation is actually a sensible and wise strategy. Indeed GDF Suez had not obtained the developer’s status in this project: reduced to a financier’s role, he would not have developed expertise of operator in France, and should have accepted the conditions promulgated by the owner, EDF. Especially, this release preceded the postponement of the investment decision, preserving GDF Suez of a disappointment. Similarly, in January 2011, the GDF Suez consortium, RWE and Iberdrola reverse their decision to develop six CANDU reactors (4440 MW cumulative) additional in the power plant of Cernavoda in Rumania. 3 successive accidents in 2009-2010 on the existing reactors are questioning the ability of Romanian teams to manage the power plant. Then CEZ, initially a member of the consortium, withdraws from the project in 2009, while the government, impacted by the European debt crisis, announced his intention to reduce the planned investments. GDF Suez decides then to withdraw, thus showing himself, well long before Fukushima, careful on the investments in the nuclear power, compared to the commercial and business risks related thereto.

On the contrary, GDF Suez undergoes a backhand in his historical market, Belgium. In 2011, the extension to 10 years of the duration of exploitation of Doel 1-2 and Tihange one is refused and a nuclear contribution of EUR 550 million was announced in November. Consequences of the decision to abandon the nuclear power, these measures are bad omens for GDF Suez in Belgium, even though the forty-five years of operation of the seven reactors operated by his subsidiary Electrabel founded his legitimacy in the nuclear industry.

Despite this, the group is actively pursuing business opportunities still open, by offering diversified solutions of power production.

Outre-Manche, where the perspectives for the nuclear power are favorable, GDF Suez acquired from 2009 a plot of 77 million euro in the vicinity of the Sellafield nuclear complex, to build there, with the consortium NuGen, a power plant of 3,6 GW. However, the joint venture NuGen lost one of his three founder members in September, Scottish and Southern Energy, who declared wanting to dedicate his resources to ocean energies, solar and wind. GDF Suez and Iberdrola (Spain), today equal, launched the ground and field analyzes, showing that the company is on the right track. On the occasion of the publication of his annual results, GDF Suez announced his willingness to dedicate more than 30% of his investments of growth in emerging countries over the period 2012-2017.

So, in Brazil, GDF Suez signed a Memorandum of Understanding (MOU) with Eletronuclear / Eletrobrás in 2009. This liberalized market allows a multiplicity of producers to produce and to market some energy stemming from varied sources. GDF Suez will therefore develop complementary offer there: present in the power production of hydraulic origin (Jirau dam, 3750 MW officially recorded in August 2011), he intends to take advantage of the construction of nuclear power plant.

The strong presence of Suez to the international favors GDF Suez in the negotiations currently open with Chile, Jordan, Thailand, Saudi Arabia, Poland, and Turkey. The signature in August, 2011 of a partnership agreement with the sovereign fund China Investment Corporation announces the group’s commitment in large-scale projects in Asia.

In a market occupied by historic actors, GDF Suez distances himself by his technological choices

Less bound than EDF to the technological heritage of the past 10 years ,GDF Suez considers the opportunity to adopt the ATMEA as the reactor for his upcoming projects. Elaborated by Areva and Mitsubishi Heavy Industries in 2006, the ATMEA 1 (MW 1000-1150) was reviewed by the ASN in 2010 and could be offered for international license from 2013. If GDF Suez opts for the ATMEA, his expertise of builder and operator will be different from this of EDF, which could complicate the sharing of expertise and responsibility on a common project.

To cut this potential dispute, the political Council of the nuclear power of February 21st 2011 decided to develop the ATMEA-1, involving EDF, who’s President, Proglio, had positioned in favor of a diversification of the models of reactors.

In May 2011 Gérard Mestrallet already is anticipating that “the production costs of nuclear power [would] be higher”. While Total seems to lose interest in the nuclear power and refocuses his strategy to diversify in the solar and CO2 capture, GDF Suez appears as the only French group capable of competing with EDF. The seizure of EDF in France, considered as an industrial asset, is now seen as a risk exposure of an economic slowdown on one hand, and of a decline of the nuclear power on the other hand. On the contrary, the international positioning of GDF Suez plays in his favor in the eyes of investors.

If a real differentiation of the technical offer is possible, the two electricians shared institutional support of France in terms of legislative expertise and insurance for export, making them formidable competitors in theory. Rather than a zero sum game, it is likely that GDF Suez is positioning himself -alongside Areva nuclear who guarantees expertise- in markets where EDF renounces to take hold.

As the third Energy package (passed in July 2009) creates a single market for gas and electricity, gas consumption in Europe is increasing and its sources remain out of the territory for over two thirds. Existing gas infrastructures connect extraction fields and final consumers involving various technical activities depending on the origin of the gas: regasification, storage, compression, transmission and distribution. For each of these activities, the increasingly diversified sourcing and the trend for major market liquidity demands massive investments to modernize or extend these infrastructures.

To make the best of the opportunities, gas operators, freed from their historic boundaries, have long bet on concentration and partnering strategies. They are now scaling up such initiatives, aiming at continental leadership over the gas grids.

Numerous recent examples illustrate such a trend, such as Gasunie’s (NL) extension in Germany, Fluxys’ (BE) extension in Germany and Switzerland, or Storengy (a GDF Suez subsidiary, FR) extending in the UK and Germany.

From producer to consumer, what impact is to be expected from the consolidation of gas transmission and storage system operators on the European gas market?

European gas grids overcome their historical geographic boundaries while they gain independence from public funding.

EU members established the objective of an open and competitive energy market through the years 2000. The common market (1992) was extended to gas in 1998, thus preparing the penetration of private funds in once public companies.

Market players then went through various evolutions, as opening their capital to private investors modified their management of risks and their business valuation. Standards for operational and financial performance of privately-owned companies then spread to the utilities. As state-owned monopolies vanished, more “commercial” approaches have been used to take care of the clients.

As European States face tremendous debts, infrastructure operators can no longer rely on public funding for maintenance and modernization of the transmission grids. Stable revenues expected for such assets appeal to private investors: investment banks, pension and sovereign funds have therefore entered a once all-industrial market. In January 2011 for example, French long-term investor CDC Infrastructure acquired a 25% stake in GRTgaz (GDF Suez’ subsidiary) for a mere EUR 1.1 billion.

While grids used to be strongly embedded in their administrative area, this tie is fading out with the creation of a common gas market, opening opportunities for operators to gain market shares outside of their historical boundaries. From an economics standpoint, better profitability is guaranteed to those actors able to serve a greater number of clients. Local actors are therefore bought over by vertically integrated players, managing all steps of the value chain, from sourcing to storage.

Germany’s E.ON for example, acquired Ruhrgas’ transmission and storage facilities as early as 2003. Likewise, Italy’s F2i invested several billion euros to consolidate three major regional gas distribution and storage operators.

Emerging Europe-wide operators of transmission (TSOs) and storage (SSOs) is shaping tomorrow’s gas market

In the early 2000, mergers of European utilities created international or so-called “multi-domestic” groups.

In 2007, Enel teamed up with Spanish investment fund Acciona to acquire Endesa, one of the major Spanish electricity and gas operators. As a response, Spanish companies Gas Natural and Union Fenosa merged in 2009, thus becoming GasNatural Fenosa.
Gaz de France and Suez groups merged in 2008 and then acquired most of UK-based International Power, creating the world’s second biggest utility.

The competitive advantage of these groups lies among other things in the extent of their grids and storages, which guarantee steady revenues. They also benefit from being present throughout the value chain: often managing their own storage facilities, they are able to diminish portfolio unbalances and better service their clients. Their weight in the market makes them direct interlocutors to gas producing countries, or gives them great power in exchange hubs such as TTF, NBP or Zeebrugge. Their assets can be leveraged to finance pipelines, although they will often partner with financial investors to share risk and debt.

Even though cooperation is necessary to trans-European infrastructures, the rivalry between actors remains strong, as shown by competition during assets tendering processes.

The announced tender for Open Grid Europe, E.ON-Ruhrgas’ transmission grid, illustrates the current market dynamics

As part of a disinvestment program launched in 2011 to reduce its EUR 15 billion debt, E.ON considers selling Open Grid Europe: The 12 000 km-long grid will only be valuated once its 2011 results are released, in March 2012. Various candidates to this deal estimated at EUR 2.5 billion have already claimed their interest.

Indeed, Open Grid Europe benefits from an ideal location: at the center of continental Europe, it constitutes a bridge between Russian gas entry points since the inauguration of Nord Stream, Northern Sea gas flows, and the industrial consumption zones such as the Ruhr region, Eastern France or Northern Italy. Once the planned intra-European pipelines start operating, this grid could become a strategic crossroads for Russian and Caucasian gas, just like TENP/Transitgas or OPAL.

(Click to enlarge)

Among the bidders seem to be some of the major TSOs, in partnership with private investors. GRTgaz (operating in France and Germany) would team up with French CNP Assurances and Australian infrastructure fund IFM. Gasunie (Netherlands and Germany) would lead a consortium gathering Allianz and Canadian pension fund CPP. As for gas operators Snam (Italy) and Fluxys (Belgium, Switzerland and Germany), they would be supported by Global Infrastructure Partners (GIP).

Such a secured and potentially bankable investment also attracts purely financial players: RREEF Infrastructures, Singaporean sovereign fund GIC and Canadian Borealis would present a common offer; so would Macquarie, Abu Dhabi Investment Authority (ADIA) and offshore investment consultants British & Colonial. CDP Québec could also team up with Goldman Sachs Infrastructure Partners. From a management point of view however, these shareholders will limit their intervention to defining a roadmap for the profitability of the initial investment within a given timeframe, while industrial management remains under the responsibility of operational teams.

The significant investments still to come, coupled with the ongoing merger and acquisition trend might cause an increase in prices; since the actors are becoming independent from states, market regulation is now reorganizing itself to the scale of the European continent.

In order to insure technical and economic efficiency of the European gas market, the sector’s regulation is also consolidating at European level

The creation of a common gas market is not limited to national markets liberalization. The European Commission is indeed running various initiatives to ensure proper market functioning. The unbundling of the different activities of the chain is meant to ensure free access of all actors to available services. However, companies which used to belong to a group could tend to maintain preferential relationships, making it easier to coordinate sourcing and storage, transmission and distribution.

The Commission protects the interests of consumers and producers through technical and economical rules dedicated to regulated activities; it’s therefore watching for suspected oligopolistic behaviors. As such, major German and French gas utilities were fined in 2009 for having agreed not to compete with each other on their domestic markets, and an ongoing antitrust inquiry targets various gas producers operating in Central and Eastern Europe.

The consolidation of the gas market is also built on some level of technical coordination between actors in order to simplify operational frameworks: ENTSOG, the European association of gas TSOs, is establishing a code under the supervision of ACER, the European association of regulators, in order to set common grounds for publishing information and for balancing gas pipelines systems. CREG in Belgium, NMa in the Netherlands, and their national counterparts throughout Europe, enforce these good practices and run audits, respectively on Fluxys and Gas transport services BV. The harmonization of the capacities allocation rules is ongoing, thanks to the creation of common mechanisms such as CAM and CMP: such standards must be spread to ensure the liquidity of the European market.

Although these rules are commonly agreed between actors of the value chain (transmission, storage, distribution, suppliers and traders) and act as guidelines; discrepancies and delays often appear between European directives and national laws, constituting an obstacle to markets integration and fair competition.

The consolidation does simplify market access for gas shippers and traders, yet infrastructure operators will have to publish ever more timely and reliable information to a growing number of counterparts. The emerging trans-national gas grid thus appears as a condition to the creation of an open and liquid European gas market.

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Mastering the “upstream” of the value chain, that is to say the gas at its source, is European actors’ main ambition and will remain. When it comes to Caucasian and Siberian gas however, the upstream playground being already quite full, European operators rather focus on the last 1 000 km to reach their clients: transmission, storage and intra-European gas pipelines facilities.

Such a restructuring of the sector is clearly triggered by the demand for gas-fired power plants –all the more in countries phasing out their nuclear strategy– but it’s also made possible thanks to that long awaited “European” regulation for gas.

The consolidation of transmission & storage gas infrastructures thus only constitutes a first step, it’s the foundation onto which only a few remaining giant utilities will grow, in order to be able to supply electricity not so much in abundant manner, but rather in the precise instants & locations where it’s really required.

Sources

ENTSOG, North West gas regional investment plan 2011-2020,
http://www.entsog.eu/download/grip/grip%20northwest%2021_nov_2011_highres.pdf

Reuters, Five consortiums compete for E.ON’s grid-sources,
http://www.reuters.com/article/2012/01/19/eon-gas-network-idUSL6E8CJ2Z820120119
http://www.nytimes.com/2008/02/28/business/worldbusiness/28iht-power.4.10536714.html
http://www.agefi.fr/articles/La-cession-dOpen-Grid-Europe-affaiblirait-profil-operationnel-dE-On-Allemagne-1194409.html

As the breakthrough of the electric car finally seems to become reality, more and more studies announce the important role of Vehicle to Grid (V2G) for the profitability of Electric Vehicles (EVs) in the near and medium future¹. At this moment, many investors await the technological optimization of the EV and an easier electricity market access through smart metering implementation. The main elements standing in the way of a faster introduction are the high initial investment cost for both infrastructure and vehicles, and a solid business model to maximize its benefits.Sia Partners thinks that the opportunities for the electricity generation and supply industry are definitely present.

The goal of this article is to put in place a profitable business model for EV exploitation through V2G that is easily accessible to electricity companies.

Therefore, we first analyze the different V2G application models by defining their benefits and costs, followed by the proposition of a business model that meets best the challenges ahead. The result is a call for electricity generation and supply companies, amongst other companies in the sector, to lead the way towards of a large-scale implementation V2G which is crucial for the profitability of EVs.

Vehicle-to-Grid application models

The concept of V2G stands for the two-sided integration of the battery capacity of electric vehicles into the grid: besides the grid supplying the necessary energy to recharge the batteries, the batteries could play a role in the operational grid management by regulating the energy flows between vehicles and grid at specific moments.

Before going into detail in the V2G models, we will first highlight the concept of demand response. In demand response, the energy used by the battery to recharge is regulated on demand:

• the battery will typically charge at off-peak hours when enough production capacity is available and electricity prices are relatively low;
• at peak hours, the battery may remain idle so not to further increase peak demand.

The advantages are the lower peak demand for the grid operator and the lower charging prices for electric vehicle owners. The regulation typically happens on demand by the grid operator via an automated process. The effective large-scale implementation of demand response would require an upgrade of the communication infrastructure in the electricity grid.

In case of V2G, we go one step further: the energy stored in the EV batteries can be used to supply electricity to the energy grid in some specific situations. Unlike for demand response, where only a unidirectional connection is required, here a bidirectional connection is established between grid and vehicle so to let energy flow back from the battery to the grid. In addition to an upgrade of the communication infrastructure, this system also requires an upgrade of the DGO energy transport and metering infrastructure to support these bidirectional flows.

The application of V2G opens many perspectives which can be grouped in different models:

1. The first model is analogous to demand response but works in two directions. The batteries will charge when prices are low and production capacity ample (as for demand response), while they will supply energy to the grid at peak times. The battery owner is paid for these services to the grid. Since the energy flows would be controlled by the grid operator, this approach would require the establishment of bilateral contracts or a legal framework;

2. In the second model, the total battery capacity in the owner’s portfolio is sufficiently large, thus for a fleet of EVs, the owner may choose to participate directly in the BELPEX market or the primary or secondary reserve market:

a. In order to trade on the BELPEX reserve market, the fleet owner is allowed access either by being an ARP or by negotiating access with an existing ARP, or through a bilateral contract with a broker².

b. In order to offer capacity on the reserve market, the owner needs a CIPU contract with Elia for each involved connection point on the Elia grid. In addition, the following technical constraints apply ³:

i. For the primary reserve market, the reserve capacity has to be minimum 1MW and must be available 24 hours a day. The provider is rewarded for the offered capacity.

ii. For the secondary reserve market, the capacity has to be at least 10MW and is contracted in 15min intervals. The provider not only gains for his offered capacity, but also for the amount of energy effectively provided to the grid.

3. The third model applies in the case the owner of the EVs is a large consumer, electricity producer or ARP, he can use the battery capacity to balance its portfolio in order to avoid imbalance fees, as an alternative solution to trading on the short-term (intraday) wholesale market. This is for instance true for market players with a substantial amount of intermittent energy sources in their portfolio. As an example, recent studies have shown that the average off-shore wind farm loses up to 15% of its revenue through imbalance fees due to the unpredictability of intermittent sources ⁴.

The challenge of V2G thus lies in maximizing revenues through one or several of the application models discussed before, while minimizing the infrastructure and investment cost and facilitating market access.

Tackling the challenge, part 1: EV fleets

One way to reduce the infrastructure costs, already more and more appreciated by some companies (Siemens, Ernst&Young)^5,6 , is the use of central deposits and charging points for a fleet of electric vehicles. Besides reducing the initial cost per vehicle, a fleet also means a partly off-set of the limited range and long charging times of electric vehicles through adequate planning and reserve management. This strategy also has the major advantage that it doesn’t require a full implementation of smart grid technology since only one access point per depository is required. As such, the use of fleets greatly facilitates large-scale grid penetration of EVs.

In addition, EV fleets allow large electricity consumers to balance their load which may be profitable depending on their contract.

Specifically for Belgium, with the rehearsal of the company car tax system, one of the few cars that remain unaffected is the electric vehicle. Companies can still deduct 120% of the bought EV value from their profit before tax, while the cost of most other non-electric cars has sharply increased.

Tackling the challenge, part 2: the role of the electricity industry

When we look at the V2G application models for EV fleets, it is easy to see the synergy with the electricity generation and the electricity supply industries. Through EV fleets, the total battery capacity is large enough to participate in the electricity reserve markets while the access to these markets is greatly facilitated through the existing supplier/ARP contracts. Since the EV battery capacity can be traded together with the supplier’s existing traded volumes (both on the Belpex market as for reserve capacity), the initial access is even further facilitated.

The battery capacity which is not used for reserve capacity can also be used internally to avoid imbalance issues. Indeed, the EVs may be used to stabilize production or balance the ARPs portfolio and avoid or reduce imbalance fees.

An overview of the EV battery capacity usage is given on the figure below:

Since the investment costs remain high, electricity companies could look for business partners to cooperate in EV/V2G projects. In fact, they can even offer the possibility of a joint investment as a supplementary service to existing and potential clients. While this means a sharing of the benefits, it also includes a partitioning of risks and costs, and a boost to the green and innovative image of both companies.

In other words, a combined approach of EV fleet investment by electricity companies allows for a fast and efficient implementation of V2G while maximizing revenues through synergies with the existing business models of most of companies.

Conclusion

The EV fleet offers the opportunity for electricity generation and supply companies to add a new service to their current package: sharing the investment costs of EV fleet providers (car leasing companies or other companies) while sharing the revenues obtained through lower fuel costs, low taxes on company cars, reduced imbalance fees and the V2G revenues from market participation and self-balancing. In addition, investments in EVs can play a crucial part in the green, innovative and dynamic company image that is strived after by many companies in the sector.

The electricity generation and electricity supply industries should therefore not wait for other firms to take the lead in EV fleet investments in the light of their unique position with regard to the profitable V2G business through the many synergies with their existing activities.

Sources

¹http://www.nationalgrid.com/uk/Media+Centre/PressReleases/2011/10.05.11+electric+vehicles.htm
²http://www.belpex.be/index.php?id=45
³http://www.elia.be/repository/pages/8ea35dd1f1c0419385ab0b479296be47.aspx (S. Grid Support)
⁴http://www.esat.kuleuven.be/electa/windbalance/docs/Conferences/conf8.pdf
⁵http://www.power-link.be/siemens-belgi-met-fotovolta-sch-slim-energienet-voor-elektrische-wagens
⁶http://www.ey.com/BE/nl/Newsroom/News-releases/Ernst—Young-kiest-voor-elektrische-wagens

During this interview, he gives us his vision on energy efficiency, and more specifically, on the possibility to establish a European policy around this theme. Will the current policy in France, complemented with European directives, be sufficient to reach the objective of a 20% energy consumption reduction by 2020?

Watch the video on the Génération Energies website : (tab Actualités, Vidéos)

For all details on the 4 the edition of the Génération Energies contest, its format and new features, please visit our website www.generation-energies.com.

In Durban progress was made on three main topics

Given slow international decision making, the Durban-top was the ultimate opportunity to put in place an agreement that could start on the first of January 2013. Mission accomplished, although the success is disturbed by the fact that Canada, Russia and Japan have decided not to participate in the second period of commitment to the Kyoto protocol. Furthermore Canada officially announced it no longer participates in the Kyoto-protocol. This means that together with the United States, that never accepted Kyoto, 4 developed countries don’t wish to commit themselves to the second period of commitment to the Kyoto protocol from 2013 to 2017. The remaining countries only represent a sixth of the global emissions of greenhouse gases. Furthermore no commitments to further reduce greenhouse gases emission are decided yet and it is unlikely that ambitious goals can be expected in the near future.

The renewal of the Kyoto-protocol includes also renewal of certain flexibility mechanisms, such as the Clean Development Mechanisme (CDM). This mechanism encourages countries that have to reduce their emission of greenhouse gases to invest in emission-reducing projects in developing countries. In exchange, the investing countries gain emission rights that can be sold directly on the emission market, such as the European Union Emission Trading Scheme (EU-ETS). The Durban-agreement ensures the future of CDM’s after 2012. In this way development actors are reassured on their funding for projects in emerging countries, exactly those countries where most projects take place. Another major step forward is that projects related to Carbon Capture and storage probably become eligible for CDM-funding.

The prolongation of the Kyoto protocol gives a view on short term evolutions. For the middle and long term, an agreement in principle is written that lays the foundations for a new treaty that is expected to enter into force in 2020. The “success” of the Durban Conference lies in the equal treatment of all countries in this agreement in principle: all countries – developing, emerging or developed – will now have to participate in efforts to reduce greenhouse gas emission reductions. It is the first time the United States, China and India, respectively responsible for 18%, 23% and 6% of global CO2 emissions in 2008 [1] agree to lower their emissions. But for now, only a road map is in place with the objective to sign a new global treaty by the end of 2015. There is no guarantee that the commitments will be ambitious, or that they will be legally binding.

About the Green Climate Fund, the negotiators have managed to transform the ideas from Copenhagen and Cancun into a functional structure. The goal of this fund is to support projects that either attenuate or adapt society to global warming. The fund will be managed by an independent organization under the auspices of UNFCCC. The most difficult issue has however not been tackled yet: finding the funds! The objective is to find 100 billion dollars by 2020. Many questions still persist on the origin of this money: public or private, bilateral or multilateral, donations or loans? Funding through taxing international financial or fuel transactions are studies as well.

Post-Durban: new agenda (Source : Sia Conseil)

International decisions following geopolitical logic…

Convince countries to commit on the national level to face global challenges. This is the ambitious goal of the annual conferences on the climate. They are the subject of difficult negotiations that reflect international balance of power. Supported by less-developed and island countries, Europe is the key defender of the climate. It is proud of its carbon market EU-ETS. From a European political perspective, the Durban conference had high stakes. In times where the Euro-zone – and even the whole European Union – is reflecting on its own future, it was necessary to show that Europe is able to unite with one voice, in this way showing its voluntarism and its unity. Europe, weakened by the debt crisis, gains confidence from its leading role in the progress made in Durban. But at what price? Indeed it seems promising that the global emission reduction treaty is planned to be in place by 2020. However, on the short term, unlike the mayor economies, Europe commits politically and economically to fight a problem to which they contribute only 14% ¹. Is this a good strategy?

The emerging economies – and more specifically India and China – appear to be the big winners at the conference. They keep receiving funds for sustainable development projects. In exchange they only commit to a road map to think about a global treaty that might be signed in 2015 for a possible entering into force by 2020. The developing countries are also happy that the Green Climate Fund will be under the auspices of the UNFCCC, and not the World Bank who appeared to be too biased. Finally one should not forget that if financing is found, the money will be spent largely on “made in China”-technologies such as wind and solar energy.

While nowadays China and India get three quarter of all CDM-funding, on the middle and long term a redistribution of CDM-funding towards oil-producing countries might be observed. This is because probably Carbon Capture and Storage projects will become for CDM-funding. These funds will encourage oil-producers to reinject CO2 in reserves to store carbon… and to improve oil recovery at the same time. Masdar, the city in the United Arab Emirates that completely relies on renewable energy, is already an interested candidate.

The international image of the United States is slightly improved after Durban, compared to previous climate conferences. About the global treaty, they have agreed before China and India. On the other hand, it is considered that Canada, Japan and Russia have taken steps back in the battle against climate change, leading to catastrophic damage to their image towards civil society, always following closely the events around climate conferences.

…but not responding to a scientific reality

Since 20 years, the UNFCCC-objectives have not been reviewed. The goal is still to keep global warming below 2°C. This choice was probably arbitrary in the beginning, but can now be reconfirmed after in-depth investigation of the consequences of global warming, done by the Intergovernmental Panel on Climate Change (IPCC). Previsions of climate evolutions show that behind this limit, the effects are disastrous, with greater effects on the mainland than on the oceans. Less availability of water, extinction of 30% of all species, lower agricultural output, more natural disasters, population displacement and migration of pathogenic vectors are expected consequences of a global warming greater than 2°C.

According to IPCC, the moment where the greenhouse gas emission reaches its peak is determining for the expected temperature rise. The more time it takes to reach the peak, the bigger the emission reduction efforts are and the more severe efforts will to be in the coming decades and more than 60% larger than in 1990. The required efforts become so restrictive that they become impossible to implement and requirement extremely expensive measures. The requirements not to surpass 2°C global temperature rise are clear though: a greenhouse gases emissions peak – including short-living emissions – must be reached around 2015, after that by 2050 the emissions must be reduced by 50%-70% compared to 1990.

CO2-concentration evolution according to different scenarios (Source : IPCC)

Unfortunately, the decisions taken in Durban are not in line with scenario I from IPCC and thus don’t allow to limit global warming below 2°C. In fact, until 2020 the only protocol limiting greenhouse gases emissions is the Kyoto Protocol, and the countries participating in this protocol only represent 15% of the global emissions. It is clear that the emissions peak is not reached by 2015. Even worse, waiting until 2020 for participation of the largest emitters (China and USA), probably results in a emission peak in the next decade. This means scenario IV becomes more probable. Under the assumption that all countries are liable to very ambitious targets and contribute in considerable effort, a temperature rise of 3.5°C can be expected. This is not new, scientists have come to the same conclusion before. The IEA ²and the scientific journal Nature ³ have shown that it is already impossible to keep global warming below 2°C. Apart from not respecting the emission peak, those experts take into account other observations: in 2010 a record CO2 concentration of 400 ppm in the atmosphere was reached while the 2°C temperature rise scenario foresees a maximum concentration of 450 ppm. Furthermore it is extremely difficult to lower CO2 emissions in the next 20 years since 80% of all emissions come from amenities that are foreseen to be exploited for several years until they are depreciated. The Nature scenario is similar to the IPCC, although more pessimistic. In Nature the probability of staying below 2°C is estimated to be 66% if the emission peak is reached between 2010 and 2020. The emission objectives have to be reviewed a fortiori by 2015. Between now and then, the fifth report of the IPCC must come out with a first part on climate dynamics in 2013, followed by 2 parts on climate change impact and cost of the battle against climate change in 2014.

The Durban negotiations were a success in the sense that for the first time, all countries agreed on “a protocol, another legal instrument or an agreed solution with legal force” for greenhouse gases emission reduction. In reality, it is merely the beginning of a work group which mission is to further specify the agreement, hoping all countries sign it in 2015 so that it can start working in 2020. About the Kyoto Protocol, the regulation gap after 2012 is solved on the short term. But many questions remain unanswered, for example the financing of the Green Climate Fund. Furthermore scientists believe the decisions made are insufficient to hope to keep global warming below 2°C. The objective has to be reviewed upward with all its consequences. Today, Carbon Capture and Storage appears one of the most-promising long-term solutions. This is anyway the signal UNFCCC has given towards eligibility of those projects in the clean development mechanism. Coincidence has put the next climate conference in Quatar, a country that might be very interested in this idea.

Sia Conseil

Notes :
(1) Chiffres de 2008, d’après les statistiques des Nations Unies
(2) World Energy Outlook de 2011 : http://www.worldenergyoutlook.org/docs/weo2011/es_french.pdf
(3) Référence de l’étude : http://www.nature.com/nclimate/journal/v1/n8/full/nclimate1258.html#/author-information

Sources :
Agence Internationale de l’Energie
Dépêches Reuters du 28 novembre 2009
Cartes des émissions du monde

After Germany and Switzerland, Belgium has confirmed its desire to opt for a nuclear phase-out. While the risks of possible black-outs are mentioned due to the abrupt outages of the German exports, the government saddles itself up with an additional constraint, without mentioning any planning.

This decision will probably have an impact on Belgians biggest power supplier Electrabel, subsidiary of GDF Suez, who may nevertheless join their German counterparts in the market for nuclear dismantling if an immediate dismantling would be required.

In the following interview broadcasted on LCI (31st October), Nicolas Goldberg, Senior Consultant Energy & Utilities at Sia Conseil, talks about the consequences of the Belgian decision for GDF Suez and the outcome of nuclear dismantling.

To watch the video, click here

N. Goldberg

Benoit Aubard, Senior Manager Energy & Utilities at Sia Partners, analyses in ‘Entreprendre’ the difficult situation that Belgium might face on the supply side of the electricity market with the possible closure of 3 nuclear power plants in Belgium towards 2015.

As nuclear power represents 53% of the current electricity production mix in Belgium, a reduction in nuclear production could entail a severe consequence in the electricity provision and the potential role of renewables in the production mix.

Full article (FR) from Entreprendre: Click here

However, the Caucasus also has large gas resources that are still untapped due to a lack of infrastructure. The discovery of several trillion cubic meters of gas in the Absheron block⁴ in the Caspian Sea in September 2011 illustrates the potential of this new Eldorado of gas.

Would the construction of a new pipeline in the south of Europe allow new entrants to compete with Gazprom? In order to ensure the profitability of these enormous investments, the trading partners have to ensure that there is sufficient demand in the importing countries, and that the gas production corresponds to the capacity of the pipeline. Will the golden age of gas be as promising as announced to make such projects profitable?

If the gas demand continues to grow in spite of the crisis, new sources of supply will reduce the attractiveness of the gas pipelines.

The gas consumption has certainly dropped in 2009, but this slowdown was only temporary. The forecasts are showing a rise in volume again: in 2030, the share of gas in the European mix will be around 30% (7267 TWh) against the 20% in 2010. In the post-Fukushima era, combined gas cycles could play a crucial role.

However, the delivery through pipelines is no longer the only option considered by the European countries. Gas liquefaction and LNG transport allow to diversify the origins of the gas. Through this development, the European market has become accessible for producers from Nigeria, Algeria, the Middle East or South-East Asia. This technology may be applies to the reserves in the Caucasus and in the Caspian Sea: it is, in fact, the option chosen by the “Azerbaijan-Georgia-Romania Interconnector”-project (AGRI). This project foresees the construction of a pipeline from Bakou to Georgia, where the gas will be liquefied and by transported to Romania as LNG.

Finally, the discovery of shale gas in Europe provided a possible source of supply. France and Poland have deposits, estimated at 5,300 billion m³, which could make them independent of the pipelines. The Energy Commissioner Günther Oettinger will submit common standards on unconventional gas to the member states by the spring of 2012. Nevertheless, the uncertainties on the exploitation of shale gas – France favours LNG ⁵ – may well drive this opportunity to the background despite the growing needs of Europe.

So pipeline transport of gas in Southern Europe is still required, and provides a commercial and strategic opportunity for new entrants.

Heavily dependent on infrastructure, the production hypotheses remain uncertain until a project is approved.

The production estimates differ according to the sources and vary with the rhythm of exploratory works. Turkmen reserves are about 21 billion m³ according to the authorities, about 7.9 billion according to Cedigaz and the CIA, but these estimates do not include the Caspian reserves. Just the Shah Deniz offshore field in Azerbaijan, discovered in 1999, would already contain about 700 to 1,000 billion m³ gas ⁶ . The start of the production at Shah Deniz 2 is planned for 2017. However, today the Azeri production is weak and insufficient to fill the capacity of the Nabucco pipeline: other producers should join.

Approximately 29,600 billion m² of gas ⁷ is located in Iran, which makes it the third largest reserve in the world after the USA and Russia. However its infrastructure is insufficient to extract and transport the gas, and the diplomatic conflict over its nuclear programme makes any investment by European countries impossible.

Similarly, the uncertainty concerning the legal status of the Caspian Sea delays its exploitation. Russia, Kazakhstan and Azerbaijan agreed in 2001 on sharing of the exploitation rights of the resources of what they consider as a sea. But Iran and Turkmenistan are opposed to this agreement, that defend the view that, since this is a lake, the use of its funds can only be agreed upon by unanimous consent of the riparian countries.

Moreover, the increased demand from Asian countries could lead exporters to reduce their share of production for Europe. The inauguration in December 2005 of an oil pipeline between Kazakhstan and Xinjiang makes this option technically and politically a probable scenario. As a result of these uncertainties, both the European Commission and European buyers have postponed their investment decision from 2011 to 2013. Similarly, Gazprom, will only take its decision on whether or not to build South Stream at the end of 2012.

The fear over constructing an oversized gas pipeline has encouraged the multiplicity of smaller projects

While the capacity of South Stream and of Nabucco make them rival projects, several consortia propose gas pipelines of smaller scale.

Map of gas pipeline projects in Europe

Gazprom, which is leading the South Stream project, is planning the transport the Russian and Kazakh gas to Austria, bypassing Ukrain. This second channel would, in particular, allow them to serve Italie, of which 9% of the energy mix depends on gas imports. Threatened to lose its transit rights, Ukrain proposes the White Stream project, which also has its supply in the Russian and Kazakh fields. The European Union defends the Nabucco project, to reduce its dependency upon Russia by developing the production in the Caspian Sea and the Caucasus. Furthermore this gas pipeline offers the possibility to supply Bulgaria, Roumania and Hungary, which are all highly dependent on Russian gas. The investment depends on whether or not contracts for additional production can be obtained. Three other projects are still in the running to obtain a transportation contract from Azerbaijan. They also have to convince the transit countries, as well as the Europeans industrial players.

Postponing the investment decision is thus a strategy per se: by giving new exporting countries the time to develop their production, the European Union hopes to bypass the powerful Gazprom more easily. For now, the EU invests in trans-European energy infrastructure (9.1 billion euros in 2011), promoting interconnections, the creation of gas hubs and ultimately the emergence of pluralistic market. This long term vision will probably require investing in smaller projects before the acknowledgement of the construction of Nabucco, which could at the earliest be put into operation in 2018.

¹North Stream connects Vyborg in Russia with Greifswald in Germany across the Baltic Sea. Its capacity is about 55 billion m³.
²Gazprom owns 51% of the operating company of the pipeline. The rest is divided among the German companies BASF and E.ON, each owns 15.5%, the Dutch Gasunie (9%) and the French GDF Suez (also 9%).
³Moscow demanded that Kiev paid the international market price for the costs of the gas delivery and no longer the prices that were used to be reserved for the countries of the Soviet Union.
⁴Total is the operator of it and owns 40% of the extraction project, in association with the national company of Azerbaijan SOCAR (40% and GDF Suez (20%).
⁵Spain and France are respectively the 4th and 5th importers of LNG worldwide.
⁶According to « La Documentation Française »
⁷5 billion m³ per year instead of the originally expected 20 and the 15 required for the Nabucco project

What is this still untapped unconventional gas? Can it cause another major change in the international gas markets and succeed where shale gas failed?

Important energetic and economic potential…

Methane hydrates are found as small pockets of gas confined in ice crystals, formed in an environment of high pressure and low temperature. By consequence, they are most abundant in the ocean bottom layers and in sedimentary basins beneath the permafrost and polar circles. When stored in this form, the gas to water ratio is quite high: about one molecule of gas for less than six water molecules. When relieved to atmospheric pressure, this represents a volume of 168 cubic meters of gas for 1 cubic meter of methane hydrate.

The currently estimated technical reserves in methane hydrate equal 2 to 10 times the conventional world gas reserves, or almost 190 billion cubic meters. At the current rate of extraction of natural gas, this is the equivalent of 140 to 700 years of production. Note, however, that this number may differ considerably from the economically justified reserves that also take into account the cost of extraction and processing involved. Since most technologies are still experimental, the actual profitability of extraction is very difficult to assess.

Among the regions with access to methane hydrates, Japan puts the most effort into using this resource to meet its own energy needs and reducing its dependence on imports. Until now, Japan’s geographic isolation made them very dependent on liquefied gas imports, their only natural gas source. In addition, since the Fukushima incident in the spring of 2011, the anti-nuclear public opinion pushes the country in the direction of less dependency on nuclear power. Both economic and political policy makers are therefore looking for alternative solutions.

…but also a technological challenge…

Currently, the only commercial exploitation of methane hydrate is performed on the field of Messoyakha, in the north of Siberia. Between 1970 and 1978, the conventional gas reserves of this field were exploited and, following a stop in production, an increase of the pressure in the reservoir took place. Geologists affirm that the depressurization of the field as a result of exploitation caused the dissociation of methane hydrates, which then became available for extraction. The exploitation resumed in 1980 and still continues today.

The extraction of most deposits, however, can prove to be tricky. The methane hydrates are indeed very unstable and a slight increase in temperature or a small pressure drop may cause the melting of the ice that confines the gas. In the case of the Messoyakha field, methane hydrates decomposed but remained captured in pockets beneath the relatively impermeable permafrost, but in the vast majority of other observed cases, the gas hydrates are located in the porous sedimentary layers where the melting of the ice would cascade into a rise of methane to the surface. The technical challenge lies therefore in releasing the methane hydrates efficiently while limiting leakage into the atmosphere.

…and environmental risks to master.

The exploitation of these deposits of methane hydrate is far from safe for the environment. Being by far the most important constituent of natural gas, methane has the property of strongly contributing to the greenhouse effect. In fact, its potential impact is estimated to be 21 times that of CO2. Due to the instability of methane hydrates, the risk of large amounts of methane leaking through the surface into the atmosphere is certainly not negligible and could be catastrophic for the environment.

Conclusion

As the methane hydrates are a possibly important source of energy, their use remains a technological challenge. Experimental exploitation is still in its childhood and commercial exploitation is not considered for several years to come. However, given the energy challenges faced by Japan, a successful pilot phase would open the door to the exploitation of this new resource. And when in the future, profitable exploitation of these deposits will be possible, LNG producing countries will need to redirect their ships towards markets such as Europe which do not have access to as much methane hydrate. A commercial extraction of methane hydrates at one end of the world could thus result in lower gas prices on the European markets.

Sia Partners

Thank you for visiting and enjoy your reading on our new weblog!

The weblog upgrade includes the following major changes and features:

• A new and modernized layout, including a slideshow header (with more pictures to be added)
• A review of the category structure with the addition of supercategories for easier navigation
• Several new pages, including archives and events
• A new and multilevel header menu from where you have easy access to the new pages and category structure
• Possibility to download individual articles in PDF format

Sia Conseil / Sia Partners in partnership with RTE and the Energy Channel of l’Expansion present a new version of the competition, with a subject at the very core of the energy actuality.
This year’s competition invites French students but also Belgian, Italian and Dutch students from diverse backgrounds to reflect on a new theme:

A 20% cut in energy consumption by 2020. An impossible mission?

Students, use your imagination! As with previous editions, the objective is to write an article in a journalistic style in French or English on this innovative subject. A prestigious jury composed of professionals and academicians in the energy sector will reward the top 10 articles, with a first prize of € 2,000 and more than € 6,000 to be distributed amongst the finalists. The winning articles will then be published on the Energy blog of Sia Conseil and on the Energy Channel of l’Expansion.

The award ceremony is scheduled on March 15, 2012. It will kick off with a debate on the issues raised in the articles written by the competitors in the presence of a prestigious jury comprised of:

• Dominique Maillard : President of RTE
• Pierre Franck Chevet : General Director of the DGE
• Mathieu Courtecuisse : General Director of Sia Conseil
• Jean-François Conil-Lacoste : General Director of Powernext
• Paul Maertens: Director of Public Affairs of SPE Luminus
• Jan Horst Keppler : Economics Professor at the Université Paris – Dauphine

This event is a unique opportunity to contribute to debates on the energy challenges of tomorrow. Contributions are to be submitted before February 16, 2012.

You can already register on Generation Energies. All information regarding the contest rules are available on the site.

Also, you can find on the website interviews with the winners of Generation Energies 3 in the section “Contest Progress”. Interviewed by our team, they talk about what they have gained from this contest and deliver tips and ideas for this year’s competition…

Sia Partners

Afterwards, protracted debates ensued, leading to the creation of the IPCC (Intergovernmental Panel on Climate Change) and the signing of international treaties such as the Kyoto Protocol. Entered into force in 2005, the Kyoto Protocol requires that Greenhouse Gas emissions (GHG) from Annex I countries decrease by overall 5% between 2008 and 2012 compared to the 1990 levels. It also provides some tools that the concerned countries can implement to reach their commitment of reducing GHG emissions. Three mechanisms are foreseen: the exchange of emission allowances, the Clean Development Mechanism (CDM) and Joint Implementation (JI). In this article we will focus on the market for GHG emissions trading in Europe, modeled on Kyoto’s emission quota system. After that, we will tackle the future of this kind of markets after the Kyoto Protocol (2012).

Operating principle of the GHG exchange system: the European system

Europe wants to carry out the leadership in the fight against global warming, therefore it has created its own emissions trading system: the European Union Emissions Trading Scheme (EU ETS) (Directive “emission trading” 2003/87/EC). To confirm this commitment and balance globally the reduction target of 5%, Europe’s goal (imposed by Kyoto) is to reduce its emissions by 8% compared to the emissions level of 1990 (thus 3% above the globally fixed threshold).

The EU member states adopted the National Allocation Plans (NAP): they decided on the global allowances amount that has to be allocated to installations part of their territory and covered by the Directive. Thus, operators of these facilities (mainly industrial throughout 2008 – 2012), have a number of allowances, each one equivalent to one ton of CO2, that covers their GHG emissions. At the end of the calendar year, each operator must return, to the Public Authorities, a number of allowances equivalent to its own emissions. If he has emitted less GHG than the amount of quotas held, and has not exhausted the quotas in its possession, it will be possible for him to sell the excess.

If the operator fails to gather enough allowances, he will have to get them to cover his GHG emissions: non-compliance with this obligation may lead to various financial penalties. These quotas have an economic value: a real exchange market has been established since 2005. See below some key dates:

The GHG allowances exchange market, emerged since 2005, has nevertheless encountered some difficulties mainly due to a lack of cooperation among European states.

Efficiencies and limits of the EU ETS market

During the first two phases (2005 – 2007) and (2008 – 2012), quotas were distributed for free. Each state has defined its National Allocation Plan for (NAP). These NAPs were subsequently examined by the European Commission who, in some case, has asked to the states to review the granted ceilings. This system of allocation has not been beneficial: indeed, states have allocated a generous amount of quotas for certain companies in order to maintain their competitiveness. So, therefore concerned companies never needed to buy quotas: the major imbalance between this large supply and the weak demand led to a fall in the price of CO2 quotas in 2007.

In order to face this collapse, the European Commission has increased the levels GHG reductions for several countries which helped to stabilize the price of CO2 in 2008 to € 15. This price level, however, remains too low for companies to take it into account and launch formative decisions of ambitious emissions reduction, especially since the economic crisis has led companies to freeze their reduction plans seen the financial difficulties encountered.

In general, the CO2 price was subject to significant fluctuations: the industrialists did not have good visibility (low and uncertain prices) to invest in GHG reduction solutions. So, to reach the 20% reduction in emissions by 2020, a complete revision of the EU directive was triggered in December 2008 as part of the climate and energy package. The progressive auction of the entirety of emission allowances has been proposed for the sector of energy production. The states continue to allocate allowances for free to other sectors subject to strong international competition. The other progress of the climate and energy package is to entrust the management of the emission levels setting to the European Commission.

The international generalization remains very important and crucial. Indeed, if an equivalent system is not implemented in other parts of the world (USA, China …) European firms will be penalized at international level. Several tracks are mentioned including that of a border adjustment in case of international agreements failure. The international consensus is always difficult to achieve and discussions on post-Kyoto illustrates the divisions of the international community.

In view of the post-Kyoto uncertainties, Europe still wants the be the driver of the negotiations

The Copenhagen summit in 2009 and the Cancun summit in 2010 have not been up to expectations: no post-Kyoto framework has been established. This represents a regulatory risk for actors such as the ‘Carbon credit Fund’ that would then become meaningless after the end of 2012. Today, it is difficult to define the face of the GHG emissions reduction system within the Framework of th Convention of the United Nations on Climate Change (UNFCCC): The main disagreement is between the “North Countries” and “Developing countries”. The latter, are not willing to sacrifice growth points to “decarbonize” their economies. China still enjoys such status of developing country while it is the second global economy and the first country emitter of CO2. However, China still has very low CO2 emissions related to the number of inhabitants: this raises serious difficulties in the negotiations to involve China in the effort of GHG reduction and reflects the difficulty of trade to come: which indicator has to be chosen to set goals?

However, one of the concrete achieved aspect after the Cancun summit is to continue the multilateral process of negotiations on reducing emissions even if no specific, standardized and broken down by state (or region) objective has been set. A second aspect is the creation of a ‘green fund’ to assist developing countries in their efforts: 100 billion dollars a year are planned from 2020 to this fund. The technical aspects of financing (of this fund) have still not been defined, which still leaves major doubt s on climate negotiations.

In the absence of a post-Kyoto framework, Europe, wishing to set an example on environmental issues, has imposed more stringent reduction targets from 2013 on itself. Progressively, less and less quotas will be allocated for free , the market will be extended to other gases (NO2, fluorinated hydrocarbons per …) and new sectors will be concerned (the aviation sector for example). To avoid various problems (encountered in the first two phases), some experts recommend the establishment of a minimum price and a maximum price to avoid the risk of a CO2 prices collapse. The European carbon market, despite errors at the ‘launch’ phase, could therefore be an example for the establishment of a universal CO2 price setting system over the next 20 years.

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The wastewater is an energy source at a constant temperature that runs all year long in sanitation circuit at a temperature between 11 and 20 °C. Compared to a heat pump air/air, a heat pump water/water allows to take advantage of all the enthalpy contained in this wastewater and to overcome any variation in the temperature of the source. The major drawback of this technology (the need to have the water source close to the surface) disappears when this process is implemented where the piping are dense and pervasive, just like cities sewage canalization. Wastewater could represent the future of urban heating, providing enough energy for the major part of the urban space heating and preventing CO2 emissions from conventional boilers. Let’s focus on this innovative idea already in place in many countries with the purpose to more efficiently heat urban water.

A proven technology adapted to urban piping network

This process developed since 2000 by the Swiss company Rabtherm, is known in France under the name “Degrés Bleus” of Lyonnaise des Eaux (a subsidiary of Suez Environment). The concept is pretty simple: recover the calories of wastewater. Waste water from laundry, showers, sinks maintains a temperature of between 10 and 20 °C in the pipes, whatever the season of the year. To produce a sufficient heating, the temperature must be raised to a minimum 50 °C. In order to produce the raise of temperature in the fluid, a heat exchanger is used to transfer the heat from the wastewater to the coolant through a set of pipes that prevents any risk of contamination of the coolant by the wastewater. The coolant then supplies a heat pump, whose role is to raise the temperature of a range of 10 to 50°C or even to 70 °C which is hot enough to produce domestic heating. The heated coolant then runs through the pipes of heating installations.

The heat pump used, also called hydrothermal system, is a pump water/water enabling the transfer of energy from the coolant to heating water. Unlike a heat pump air/air which is dependent on the temperature of the ambient air, the hydrothermal heat pump operates with a constant source of energy. Wastewater can indeed be used as hot source, whatever the outside ambient air temperature. This is not the case of the heat pump air/air which depends on the temperature of the ambient air. If the water/water heat pump is quite uncommon at the moment, it’s mainly due to the fact that its profitability is closely linked to the proximity water source. The more distant the water source, the more expensive the needed vertical boreholes/diggings are. However, in an urban canalization system, the sewage piping’s are close, which minimizes costs and energy losses, and thus maximizes the profitability of the installation. The main interest lies in the reversibility of the system. Since the temperature of wastewater is constant, the heat pump will produce heating in winter and cooling in summer.

Figure 1: Heating system by wastewater and heat pump

Two conditions are mandatory in order to implement the system in the existing urban piping network: a minimum flow of 15 liters per second, corresponding only to urban networks, and a minimum diameter of one meter so that the heat exchanger can be installed in the piping. The opportunity is indeed specially interesting if the installation of heat exchangers can be coupled with work of extension of the existing network or in case of replacement or renewal of existing canalizations.

Can this process really pose as ecological and inexpensive heating system?

Designed as replacement for the traditional large gas boilers heating large buildings, this technology allows savings on gas costs and also reductions on CO2 emissions from the combustion of gas. Even though this technology cannot fully replace conventional boilers, it can still provide a large part of the heating of buildings. This by using a source of energy most often wasted and yet perfectly adapted to urban areas where the concentration of buildings is so dense that heat is continuously supplied through wastewater piping networks. The heat pump can provide up to 80% of the heat, reducing thus the part of gas to about 20% of the needed energy supply. The best use of this system can be obtained in case of constant heating needs at low temperature. Since the heat pump is unable to produce heating at higher temperature than 80°C, this system cannot absorb peak in the heating demands. From the period of commissioning, this device allows energy savings from 20 to 30%. Even though the needed gas consumption is indeed greatly reduced, the heat pump however requires energy (electricity) to operate. This system can still be considered as environment friendly and offers the opportunity to reduce CO2 emissions and also, to save up on energy.

Associated installation costs of the heat exchanger and the purchase of heat pumps are very high. In order for the system to be quickly profitable, it is necessary to implement it in areas with high heating needs (150 kilowatts is a minimum and is equivalent to about fifty households. Thus, This technology is therefore particularly adapted for constant and collective energy needs such as swimming pools, hospitals, nursing homes and school facilities. The expected lifetime of the installation is close to 30 years and the longest return on investment estimated by Lyonnaise des Eaux at 10 years, without subsidies. Prior to any implementation, opportunity and feasibility studies are mandatory and are respectively amounted to € 10 000 € 20 000, according to Lyonnaise des Eaux.

The details of the annual bill, plus all the initial implementation and purchase costs (heat pump, heat exchanger…) are listed in the table hereunder and compared to the original invoice of gas. Assumption has been taken for an amortization over 10 years, with or without any subsidies from ADEME in the context of the Fond Chaleur which aims to develop renewable heat networks. In the following table are presented two economic balances for already implemented Degrés Bleus projects about a swimming pool and a building.

Figure 2: Business case by GDF-Suez

Despite more significant subsidies and a theoretical more extensive coverage of the needs, the swimming pool is the less profitable Degrés Bleus project “Blue Degrees”. Nevertheless, even without subsidies and during the amortization period, the bill is smaller than the initial one. From the eleventh year, end of the depreciation, the two projects present annual savings on the bill of 150 000 €, which represents only 54 % of the initial annual invoice! However, let’s keep in mind that this profitability is entirely based on the situation: flow in the collector, consumption profiles, heat demand, type of wastewater network, distance from the network are thus influencing parameters on the profitability. The more heating consumption, the greater the saving’s potential is high.

Towards a real implementation of this heating process for Paris needs?

This system of heating through the recovery of calories present in the wastewater is growing in Paris, where many projects are emerging, especially for large school buildings and swimming pools.

Two projects “Degrés Bleus” have already been developed in Paris: Levallois Perret swimming pool and Wattignies scholar group in the 12th district. For the latter, the system allows covering up to 70% of heating needs and thus significantly reducing the gas bill. The project cost is estimated at 400.000 €, funded for half by Lyonnaise des Eaux and by the CPCU (Compagnie Urbaine de Chauffage Parisien) and for the other half by the ADEME fund. For this business model, the CPCU bill for the school during the amortization period has been unchanged, but gas consumption has been greatly reduced, so were CO2 emissions.

As owner of 400 km of piping network in the ground of Paris, the CPCU commissioned a mapping in order to locate the buildings eligible for this technology, leading to the announcement of many Degrés Bleus projects in Paris, including the heating of the pool “Dunant” in the 14th district, the Lacordaire scholar group in the 15th district, the future Batignolles district, the eco-district of Nanterre . Even the Elysée announced the commissioning of this system for the summer of 2011. The city of Valenciennes, funded at 79% by ADEME, has already implemented this technology with Lyonnaise des Eaux. The city hall will be heated this winter thanks to the heat contained in the city’s wastewater.

This quite simple system has a real potential of implementation in the French cities and receives furthermore funding from ADEME, namely in the context of the Fond Chaleur. This environmentally friendly heating system would allow the French communities to meet the EU requirements by 2020: a 20% reduction in greenhouse gas emissions and energy consumption, and an increase by 20% of the use of renewable energy while reducing dependence on gas. Furthermore, what better future for our wastewater than to return in the form of heating?

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The rise of the Mediation concept in many sectors such as energy, banking or telecommunications confirms this observation. By offering customers the possibility of a fair and free treatment before legal procedures, thus avoiding time-consuming and costly steps that are incurred by these procedures, mediation becomes a major player in the sector. What is Mediation? In what way is it different from customer services? How is it structured in the energy sector?

Mediation, a last resort before justice

Mediation is a structured process in which a person, called “Ombudsman”, often assisted by a team, is responsible to facilitate the resolution of a dispute between a company and a customer. As an extra judicial alternative, it is a way to restore a balanced dialogue between an isolated customer and institutional actors. It can be referred to as Alternative Dispute Resolution (ADR).

The activity of Mediation revolves around three main tasks. First: settlement of conflicts. The Mediation must first of all promote an amicable agreement on the litigations where a solution could not be found by the customer services department of the company. In order to achieve this, mediation makes individual recommendations towards the claimants (customer with complaint) and the company, based on observations made by both parties, and ensures the monitoring of their implementation. However, these recommendations are not binding.

To accomplish this mission, the Mediation has to respect a number of principles including gratuitousness, processing speed, fairness, confidentiality, transparency or even respect the “contradictory principle” aimed at taking into account positions and facts presented by each party.

Given the recurrence of some dysfunctions observed in its recommendations, the second objective of Mediation is to participate in improvement programs of the sector. Mediation can propose reforms of legislation, procedures or even practices that aim to improve the service provided. It is also intended to make aware companies on complaints handling and it plays an educational role in developing the mediation spirit and in listening to customer needs.

Finally, the third objective assigned to Mediation is a communication objective. The Ombudsman is committed to publish an annual report listing the number and type of complaints received and their outcome, the recurrent disputes and proposals for improvement from observed dysfunctions. In addition, he must provide regular presentations to consumer associations to better understand consumer expectations and enhance its external communications in order to increase its visibility.

The Mediator, an independent actor distinct from customer service

To fully achieve its tasks and differentiate itself totally from the resorts already existing in companies and to provide equitable treatment, taking into account the observations of both parties, the Ombudsman should be placed as an independent actor. He is not just another customer service entity; he is not a company representative. To ensure this independence, a sine qua non condition for the successful conduct of its missions, he must have his own operating budget, means of investigation and a mode of compensation unrelated to the outcome of mediation. Moreover, the Ombudsman should not combine the functions and, in the case of an internal mediator of the company, it must be linked to board-level of the company. Internal or external, it is only by ensuring these principles that the Ombudsman will gain in credibility and become the natural choice of customers as an alternative dispute resolution.

An influent Mediation in the energy sector

Like in transport, telecommunications, banking or insurance, the energy sector is not immune to the influence of Mediation. This influence has significantly been reinforced by the establishment of a sectorial ombudsman. While the historical suppliers have opted for an internal mediator for almost ten years, the National Ombudsman of Energy (MNE – Médiateur National de l’Energie in French), in charge of resolving disputes amicably between customers and operators of natural gas and electricity, has first appeared in December 2006.

Comparative table of Ombudsmen on the base of their Annual Activity Report in 2010

The “Independent administrative authority” financed by all customers via the contribution to public service electricity (CSPE), and appointed by the Minister of Energy and the Minister of consumer affairs, the MNE benefits from its status of sectorial Mediator to multiply efforts to improve practices and procedures for all operators to the benefit of consumers.

Among them, an important specificity of the MNE: the publication of recommendations, anonymously, on its website. Thus, in the same time as “recommending solutions to disputes,” the MNE “informs consumers about their rights. These recommendations are also used by the MNE to formulate generic recommendations. In 2010, the MNE delivered 67 generic recommendations that focused principally on the correction of the overestimated “termination” index, on the reliability of the “supplier change” index or on the repayment of holdings below 15 Euros in case of termination.

The willingness of the MNE to contribute to improving the functioning of energy markets and rebalancing the relationship between customer and companies is also reflected in the development of Energy-Info, co-financed with the CRE, which includes a website and a call center to provide comprehensive information to consumers, to help them in their steps and to refer them to contact persons if necessary. Another initiative of the MNE is the establishment of a comparator of supply offers. Finally, the MNE is involved in the creation of information support in order to understand the energy market and energy savings in partnership with the Agency for the Environment and Energy Management (ADEME) or National Institute of Consumption (INC).

The volume of referrals sent to the different ombudsman and the activities of the MNE the past few months suggest that the mediation has proven itself as a simple solution focused on quick and efficient resolution of disputes and taking part in the progress of companies.

Other indicators such as the creation of the Commission of Mediation Consumer Affairs on the 1th July 2010 with a charter of best practices of mediation is expected in July 2011 or the work of the Club of Mediators of the Public Services such as the creation of an Association, the renewal of the Charter or the preparation of a website, confirm this increase. Similar findings at European level with the holding of the European Conference of mediation (EMC) in May 2010, the development of EEOG (European Ombudsmen Energy Group) with new members or the rise in power in Belgium of the energy mediation.

However, when it comes to agreeing on the principles of mediation operations, particularly in terms of transparency and impartiality, the opinions of consumer groups, companies and government vary. The question of independence of Mediation remains between internal Mediators in companies and sectorial Mediators financed by companies and public institutions such as the MNE.

The IEA announces in its last annual report that the peak oil had been reached in 2006¹. Thousands of rigs, all around the world, currently produce oil and gas from offshore fields. By 2050 however, their decommissioning will be compulsory as their lifespan is limited and oil resources are decreasing. How could we, first, dismantle those rigs and while avoiding on-site pollution, then, recycle dozens of thousands tons of steel, and guarantee an optimized profitability? Far from being a burden for the petroleum industry, on the contrary, those oil rigs can represent key-players for the energy changeover: by using them and install offshore wind turbines on top of them.

Toward the combination of offshore oil & gas with wind power

With current technologies, offshore wind turbines are still limited to water depths below 30 m. Hence, those turbines are not able to reach greater wind potential which lies far from on-shore, beyond 30 m of water depth. Steel-jacket oil rigs, however, are installed to 60 meters water depths, thanks to their jacket which can be to 90 meters high. By removing the topsides from the top of the jacket and replacing them with a wind turbine, one would significantly increase the reachable wind potential, and on top of this, reduce noise and visual pollution usually reported by coasts inhabitants.

This concept becomes even more interesting as areas with a high density of oil rigs match with offshore high wind potential areas: the North Sea and Gulf of Mexico for instance. Currently 450 oil rigs are standing in the North Sea as the average wind speed is 9 m/s. Same as in the Gulf of Mexico with 3858 oil rigs for an average wind speed between 7 and 8,5 m/s. Those rigs have a 20 to 30-year lifespan; hence all of them will have to be removed by 2050. We can then easily imagine in 2050, thanks to those rigs, offshore wind farms supplying onshore areas nearby with a high density of population.

Potential power generation estimates³

This concept has indeed a great potential in the Gulf of Mexico: considering for a 5 MW2 wind turbine a load factor of 23%, and for the rigs a reuse factor between 40% and 60%, depending on their shape and location, we can estimate an annual electricity production from 15,5 to 23,3 TWh, which is equivalent to the residential electric consumption of a city such as Chicago in 2005 3. But wind energy potential is in reality far greater: offshore wind’s load factor is actually greater than onshore’s and can reach 30% depending on the area.

An unsuspected power potential

Offshore wind turbines capacities are increasing, thus the real power production will go far beyond those estimates by 2050. Several projects are making this idea into a reality: in the North Sea, a company named Talisman has installed several steel-jacket wind turbines for its project Beatrice. By using offshore oil & gas” know-how”, long mastered technologies are now experimentally used for an activity in development: wind energy. Actually the seed of this idea is already germinating in industrials minds: SeaEnergy Renewables Company, created by former experts from the petroleum industry, has already bought the patent rights for this concept aiming at a future marketing, and scientific studies on offshore wind potential have been performed in the Gulf of Mexico⁴.
Although wind turbine and steel jacket technologies are already fully mastered, their connection to the electric grid is still in development: DC current lines lying on the seabed and covering hundreds of kilometers are still very expensive.

Supergrids are nonetheless in the beginning of their business boom as several ongoing projects; hence we expect first feedbacks and learning’s by ten years. Moreover additional costs to plug wind farms to the onshore electric grid, estimated today to 700 k€/MW5, will be compensated, at least partially, by the savings on rig’s decommissioning. Thanks to this process of reuse, the steel jacket is actually not removed from the seabed, what represents a saving on the overall decommissioning cost: in the Gulf of Mexico, decommissioning cost reaches 1400$/ton, what is equal to save around 11,2 M€ per oil rig. This cost reduction added to feedbacks on offshore electric grids will enable to improve the overall economics for this kind of project.

Comparison between wind potential and existing oil rigs (map customized from references [4] and [5])

By ten years answers will be given to current technical padlocks. Furthermore, this concrete solution would enable, during the coming transition phase, to capitalize on fossil fuels era’s know-how in order to promote re-newable energies development. This offshore wind energy concept represents hence the opportunity for petroleum majors to adapt to the new emerging energy market and at the same time uses advantages of offshore wind energy against onshore projects.

Maud Texier
Ecole Centrale Paris
23 years old

NOTES
1. From 2010 World Energy Outlook
2. Average capacity of an offshore wind turbine according the « Syndicat des énergies renouvelables » (renewable energies syndicate) [6]
3. Base on residential consumption per user ([7]) and the number of inhabitants in 2005 ([8])
4. Publication from Rich Crowley, professor at Colby College
5. Cost estimate for a 26,6 GW offshore wind farm in Germany, with a hub connection [9]
6. Unit cost from [10], total cost estimated for a 8000 tons weight jacket

REFERENCES
[1] World Energy Outlook 2010, IEA, 9-11-2010

http://www.worldenergyoutlook.org/

[2] “When oil rig met wind turbine”, Michael Kanellos, 11-02-2009

http://www.greentechmedia.com/articles/read/when-oil-rig-met-wind-turbine-5692/

[3] “Gulf of mexico’s offshore oil platform wind potential”, Rich Crowley, Colby college, 28-04-2005

http://www.colby.edu/environ/courses/ES212/atlasofmaine/projects_pdf/ES21205_gulfwind.pdf

[4] NOAA Map (national Oceanic and Atmosphere Administration) Ocean Explorer, 26-08-2010

http://oceanexplorer.noaa.gov/explorations/06mexico/background/oil/media/platform_600.html

[5] “90-Meter Offshore Wind Maps”, Wind Powering America, Department of Energy, 10-14-2010

http://www.windpoweringamerica.gov/windmaps/offshore.asp

[6] L’Energie éolienne en mer, Syndicat des énergies renouvelables, mai 2010

http://fee.asso.fr/content/download/1782/7125/version/2/file/13FEE_Eolien_offshore.pdf

[7] “NYC’s climate change challenges through 2030”, NYC Mayor’s office of sustainability, 2007

http://www.nyc.gov/html/planyc2030/downloads/pdf/greenyc_climate-change.pdf

[8] “Annual estimates of the population for incorporated places over 100 000 ranked by July 1, 2005”, US Census Bureau

http://www.census.gov/popest/cities/SUB-EST2005-01.xls

[9] “Offshore wind and the European Supergrid”, EUFORES, Parliamentary kick-off, 09-16-2010

http://www.eufores.org/fileadmin/eufores/Events/Parliamentary_Events/Offshore_September_2010/EUFORES_Schwencke.pdf

[10] “A Gulf of Mexico Offshore Platform Decommissioning Case Study”, Proserv offshore, May 2009

http://www.oilandgasuk.co.uk/downloadabledocs/490/3.3%20Robert%20Byrd,%20Proserv%20Offshore.pdf

The total energy a water wave contains is considerable and proportional to wave height (H) squared times wave period (T).

Example: a 5 meter wave, with a 2 sec oscillation frequency is capable of generating 25 kW of power per meter of wave front.

On earth, the potential represents 290 GW of installed capacities uniformly located across the coastlines of each oceans have proven to be of real interest for all coastal territories. In terms of projects, the UK and the US are clearly taking the lead in Research & Development. In the US, without making a direct reference to ocean energies, Mr. Obama recently confirmed his desire to ―create the conditions for en-ergy innovation to flourish (…) — at a faster pace, at a scale large enough to match the challenge and is willing to make a $ 40 million engagement. Realizing the future strategic potential of this technology, Europe dedicated € 200 million to a program that promotes the development and the research infra-structures for offshore renewable energy devices: ocean-, current-, wave- and wind energy.

Energy leaders recognize the potential and are attracted to the possibility of harvesting even more en-ergy from oceans in a sustainable manner.

Nevertheless, these technologies need to catch up in order to meet the expectations. Efforts have to be made in order to transform the technologies in the state of prototype into commercially available solu-tions and to facilitate the connections between off-shore installations and on-shore grids.

Benchmark of available technologies

Today, the world needs a bit less that 20 000 TWh/year in order ―to keep the lights on‖. The technologies linked to ocean energies could generate up to 100 000 TWh/year. The current technologies can be separated into six categories. The benchmark is not ex-haustive – as scientists’ imagination rarely has limits – but it provides an overview of main categories:

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Maturity of the technologies

In 2008, 135 projects were analyzed compared to 86 two years before, and 35 in 2003 moving the trend in Research & Develop-ment toward the deployment of commercial scale for new oceanic technologies. The maturity of new technologies is also an impor-tant element to be assessed. The NASA barometer is a measurement tool widely used in the R&D area to assess ―the maturity of evolving technologies‖. The current progresses of these technologies as well as their development status have been mapped with the barometer.
The graph below shows per number of project, the level of maturity per technology. For example, the tidal energy (barrage), illus-trated in red, has most of its projects at commercial production level scale. In dark blue, the wave energy attracts most of the pro-jects, although none are operational yet. Monitoring like this, allows for the maturity of a technology to be easily tracked over the years. It can serve as a good indicator for every energy player who wants to enter the market and provide guidance as to the most appropri-ate time to do so. As represented, some technologies (thermal or osmotic) are far from reaching the commercial maturity while others already have (tidal). This could help strategists to make the right choice in regard to the posi-tioning of their company (an industry could decide to in-vest in level four since it is proven feasible on a small scale or an energy supplier could wait until level 2 is reached in order to introduce a mature technology in its portfolio).

Source: IEA-OES and NASA

Opportunity to diversify portfolio

FOR PRODUCERS, SUPPLIERS

Ocean technologies are not yet competitive for power suppliers. It would require 5 to 10 years to decrease by half the current pro-duction price (~ 8 c€/KWh) and become affordable for regular customers. Nevertheless, the image of this new energy creates en-thusiasm and curiosity. The opportunity provides a strategic way of diversifying a portfolio of offers while making a minimum in-vestment (ocean technologies are modular and scalable and therefore the investment can be very small). Shareholders and custom-ers will be eager to see that the companies they are trusting are also oriented toward innovation and global sustainability.
Today, ocean technologies can be a marketing tool that creates great value with little investment. Also the early involvement in new promising technologies will be sufficient to develop the future competitive advantages (branding, products, offers, back-office man-agement) once technologies become mature. This learning experience will certainly be very profitable in the coming years as the level of competition increases.

FOR GRID OPERATORS

Ocean technology by definition will be most likely located off-shore or on-shore, close to aquifer origins. The transmission net-works have been designed for managing centralized production units on solid ground. The transmission is in most case made in HVAC while long distance will probably require HVDC technology. Although some technological entry barriers exist, the tech-nologies which are being developed today, the materials and the connectivity systems will also be the lead products of tomorrow. Being able to master those new technologies at the earliest stage will make the grid operator the referent partners of those who missed the boat.
Finally, another non-negligible advantage for integrating ocean ener-gies as a new source in a diversified portfolio is the seasonal behavior of the production capacity. Indeed, the best waves are created in bad weather conditions that occur more frequently in the winter season.
Not only do ocean energies deliver continuous power during the year but they are also in line with the current behavior of the correspond-ing demand curve. Compared to volatile and difficult to forecast en-ergy resources such as wind, ocean energies guarantee relatively con-stant power output and typical seasonal profile. This additional ele-ment creates great value in a sourcing portfolio as it diminishes the risks for uncertainties.

Actions to get ready

The whole value chain can create opportunities related to this technology. Yet, in order to transform the opportunity into revenues, a given company must define the right time to enter the market. Essential elements within the organization need to be set up to prove the feasibility (company and market) and the viability (technological and financial) of the project.

ORGANIZE A MARKET WATCH

Organizations such as IEA and OES – Ocean Energy Systems – are establishing collaborative platforms in order to give visibility on the technologies development progress and encourage exchanges of information between members involved in ocean energies projects. The outputs of those organizations should integrate the internal system of technologies and market watch indicators for companies. The potential of the technology and probability of reaching commercial applica-tions in the upcoming years are great. Potential players, at a minimum should remain alert.

BUILD BUSINESS CASE

The construction of more advanced costs and benefits analyses will provide stakeholders in the energy value chain with a good visibility on the right time to penetrate the market generated by ocean energies technologies. This analysis should follow the trend of three sustainable indicators used to qualify the maturity of such a market:

• Energy Balance: calculate the energy payback time as a ratio of the energy consumption over the entire life cycle (manufacturing, transport, installation, maintenance, dismantlement) and the expected average energy production per year. This ratio is typically between 4 and 7 for wind turbines whereas it is today around 3 to 5 to for ocean energies technologies. The energy balance for photovoltaic technologies is estimated to be between 1 and 5 years.
• Environmental Impact: confirm the positive effect of the installation in terms of carbon emissions and impacts on local marine life (fauna & flora). Today, the main factor remains the carbon emissions. A survey from Stanford Uni-versity shows that the life cycle of the wave and tidal technologies emits much less g-CO2e/kWh than the current hydroelectric technologies (34-55 g-CO2e/kWh for tidal against 48-71 g-CO2e/kWh for hydroelectric).
• Economic Viability: calculate the return on the investments in net present value, taking into account the time value of your income and compare it with sensitivity analyses on basis of market perspectives. In order to be compared with other technologies which have an energy internal rate of return for technologies (analogous to IRR for financial invest-ments) around 15%, ocean technologies must reach their ROI within 5-7 years.

PROMOTE THE TECHNOLOGIES

Together with the key players of the value chain, the objective is to build a consortium capable of extracting sufficient knowledge on technologies on one hand and on marketing strategy on the other in order to enter the competition. This initiative will highlight opportunities to create strategic partnerships between industries, investors and politicians to lobby towards an alternative source of energy.

Recommendations

Ocean Energy has more potential than other renewable energies. The industry is only just beginning to discover it. The curiosity effect will rapidly transform itself into strategic trajectories for competition. In the meantime, technological and financial barriers will have to be eliminated in order to generate sufficient power at low cost and to connect the devices to the on-shore network. Those barriers will also constitute opportunities for producers, transporters and suppliers to create dedicated marketing communication, to diversify portfolios and to imagine ad-hoc ocean products and services.

Jean Trzcinski
Bernard Nobels

Undoubtedly left apart, denied, even prosecuted in the early 2000’s, Hydrogen as an energy means of production has eventually made its way through the 21st century and ended up taking over fossil fuels. Let’s flashback upon an unexpected fate strewn with pitfalls…

From early faltering steps towards technological breakthroughs…

Bill GATES was mistaken in 1981 when he stated: “640 kB ought to be enough for anyone”, and ap-parently, so was Anthony PERL in 2010, lecturer at HARVARD University at that time, when he asserted: “Hydrogen has no future as a fuel substitute”. As a matter of fact, given the current economic conjuncture, how smart should one have been so as to foresee such an overwhelming rise? Stakes were peaking at the level of incurred risk: peak-oil coming up inescapably1; IPCC’s2 disquieting 2001 balance; stringent primary energy consumption growth forecast concomitantly with the Estimated Ultimate Recovery (EUR3) depletion… Under such circumstances, how to carry on with supplying worldwide energy demand in tandem with promoting sustainable development?

Historically, fuel cells did succeed in bringing up an answer. Throughout successive oil crisis, governmental fund-raisings progressively fostered research programs and enabled them to overcome technological hurdles which had thwarted fuel cells’ accomplishment so far.

In the very beginning of this expansion, transportation sector highly contributed to this boom. The latter was indeed bogged down in the middle of a predicament: it stood for a third of the global consumption, given the fact that 97% of the primary energy burnt up there stemmed from fossil fuels, making it one of the greatest Green-House Gases (GHG) producers. Two main improvements turned out to be thoroughly beneficial towards Hydrogen advent: first breaking free from platinum4 regarding its production, and second, managing to cope with its storage in a technical and social feasible way. What made this last feat come true definitely were the nano-materials properties which were capable of storing Hydrogen in molecular structures(figure 1), hence abiding by the various rules5 imposed by the Department Of Energy (DOE)5. Thanks to this achievement of such a very high energetic density, Hydrogen’s innocuousness once and for all supplanted petroleum, whose almightiness was growingly questioned.

Figure 1 : According to a numeric model and quantum physics calculations, each titanium atom (in dark blue) in the middle of the carbon nanotubes structure (in light blue) can bond with four H2 molecules (in red)
Reference: NIST
National Institute of Standards and Technology

… and then the emergence of unsuspected scopes.

As the astrophysicist Hubert REEVES pointed it out in its own times, “So as to assess all the opportunities, do-it-yourself is the most effective means to proceed”. Indeed, Hydrogen defenders showed that little strokes fell great oaks and their will of iron enabled Hydrogen to overhaul the whole energy scene.

Oil Industry paradoxically gave it a second wind. Indeed, as soon as the first harbingers of Peak-Oil came up, the International Oil Company (IOC) Total started a Joint-Venture in association with AREVA aiming at producing massive amounts of Hydrogen gas directly within oilfields areas, so as to exploit oil wells which had become profitable thanks to hydrogenation process6. Strengthened by this experience feedback, AREVA thrived on such a hit and set up, first in France and then in the whole world, an outstanding fleet of Hydrogen generation means, coupled with regular Nuclear Power Plant. The use of residual heat from nuclear reactors in High Temperature Steam Electrolysis (HTSE) process indeed made overall efficiency fly. Such a synergy between both nuclear and Hydrogen industries, soothed the moral standards, all the more so as Generations III and IV reactors are now running jointly, which means that Categories B and C wastes7 from EPRs8 are now burnt up in FBRs9, which produce in turn nuclear fuel for EPRs.

Another providential side effect of Hydrogen advent alludes to the bounden behooving to produce electricity without worsening Global Warming. Intermittent renewable energies found out a way to store their energy in order to deliver it when demand is at its highest, thanks to very powerful fuel cells. Many OECD10 Countries then could swap their deprecated thermal power plants for « Cleaner Technologies », embodied by fuel cells without any GHG releases. Implementation of this brand-new electrical system was made all the more so easier for grid operators as they no longer had to deal with ill effects of decentralized energy production since they appeal to fuel cells accordingly to the demand, thus avoiding voltage decreases and absorption or injection of reactive power or harmonics to the grid.

Boundaries are fading up, yet without vanishing for good.

Whilst OECD and New Industrialized Countries (NIC) are nowadays benefiting from Hydrogen boons and can reasonably hope for better days in regards to Global Warming and standards of living, many other places in the world are burdened with inertia. Sustainable development is the opposite extreme of the leitmotiv sought in the New Developping Countries (NDC): so as to pursue growth masterfulness and rapid payback, they excessively operate coal plants, easy going and profit-making, but outrageously polluting. Nevertheless, Hydrogen could once again offer a remedy. China has been striving since 2035 to equip Coal Thermal Power Plants with a particular CO2 sequestration process: pre-combustion capture. It consists in converting coal into a synthesis gas from which CO2 will be extracted to recover Hydrogen so as to produce energy (figure 2). Eyes are now looking towards Johannesburg, which will be the host city of the 57e International Congress on Climate Change, whose main expectation concerns the globalization of this innovative process to all the NDC.

Figure 2 : Synthesis gas originating from coal is a mix of carbon monoxide and hydrogen. CO reacts with water during shift-conversion stage and forms CO2 and hydrogen. CO2 is then segregated from hydrogen and the latter can be at last be used to produce energy (electricity or heat) without any CO2 releases.
Reference: IFP in association with european project CASTOR (CO2 from CApture to STORage)

Whilst it still cannot be denied that Earth future remains in cantilever, conspicuous responses having taken place since the beginning of the 21st century conversely leave hope for a glimpse of optimism. Unlike Earth resources which are obviously finite, mankind’s are bottomless and there will always be men and women yearning for global improvement, to imagine and lead up high-calibre projects which will turn nowadays’ utopia into tomorrow’s reality.

Jérôme MOIZIARD
ECOLE CENTRALE PARIS

NOTES

1. The most pessimistic members of the ASPO (Association for the Study of Peak Oil) forecast Peak-Oil before 2030.
2. Intergovernmental Panel on Climate Change.
3. Estimated Ultimate Recovery: an approximation of the quantity of oil and gas that is potentially recoverable or has already been recovered from a reserve or well.
4. Platinum was replaced by nickel, far more abundant, used by micro-organisms to produce H2.
5. Department Of Energy imposed volumetric and mass energy density criteria to make fuel cells reliable.
6. Non-Conventional Fossil Fuels (NCFF) like shale oil became profit-making thanks to hydrogenation process.
7. Categories B and C volume waste is divided by 100 through Generation IV reactors.
8. European Pressurized Reactor : evolutionnary design of Generation II with improved performances (safety, efficiency, …)
9. Fast Breeder Reactors: Generation IV able to recycle radioactive waste issued by EPRs.
10. Organisation for Economic Co-operation and Development (IEA).

REFERENCES AND INSPIRATIONS :

PUBLICATIONS :
• « L’île Mystérieuse », Jules VERNE, 1875.
• « Piles à combustibles », P. STEVENS, Techniques de l’Ingénieur, Génie électrique, D 3 340, 2000.
• « La filière hydrogène », Les clefs CEA n° 50-51, 2004.
• « La Ciencia inesperada », Cienciateca, Pedro Gómez Romero, investigador y divulgador científico del CSIC, 2006.
• « La Pile à Combustible : structure, fonctionnement, applications », Meziane BOUDELLAL, Publications de l’ADEME, Editions DUNOD, 2007.
• « Lost Generation », Poem by Jonathan REED, 2007.
• «Perspectives énergétiques de la France à l’horizon 2020-2050 », Strategic analysis centre, Energy Comission Report, 2008.
• « Stockage d’hydrogène : comment l’hydrogène se lie aux nanocornets de carbone », F.J. BERMEJO, Techniques de l’ingénieur, Nanotechnologies, NM5150, 2008.
• « Enjeux de l’énergie, de la géopolitique au citoyen », E. IACONA, J. TAINE, B. TAMAIN, éditions DUNOD 2009.
• « S’affranchir du platine dans la production et l’utilisation de l’hydrogène », CEA Bio-energy Department, novem-ber 2009.
• « Precious metals that could save the planet », The Independant, 2 janvier 2010.
• « La compétition pour les minerais rares est une source de conflits majeurs », Le Monde, Friedbert Pflüger, Professeur honoraire en politique internationale au King’s College de Londres et conseiller chez Roland Berger Strategy Consultants, 4 novembre 2010.
• « World Energy Outlook», International Energy Agency, 17 novembre 2010.
• Les Echos, Supplément “Spécial Développement Durable”, Wednesday decembrer 1st, 2010.

WEBSITES:
• www.ifpenergiesnouvelles.fr
• DOE website: www.energy.gov
• International Energy Agency website: www.iea.org
• British Petroleum website : Statistical Review of World Energy: www.bp.com
• IPCC website, Synthesis Report on Climate Change: www.ipcc.ch
• BRGM website, Carbon sequestration and storage: www.brgm.fr/brgm/CO2/default.htm

LECTURES :
• « Vers un nucléaire durable : les systèmes du futur », Christophe BEHAR, Chairman of CEA Nuclear Energy Department, september 21st, 2010.
• « Bienvenue dans le nano-monde », Debate in PARISCIENCES Scientific Movie Festival, Pascale Chenevier,researcher in molecular electronic at CEA, octobre 8th, 2010.
• First Class Lecture of Energy Day 2010, « L’avenir de la distribution d’électricité », Michèle BELLON ERDF Chairman, november 5th, 2010.
• Debate « Les scénarios globaux de l’énergie à l’horizon 2020, l’émergence des conditions d’une énergie alternative », Jérôme C. GLENN, Project director of Projet Millenium, november 9th, 2010.
• Debate « L’énergie et ses enjeux : des ruptures scientifiques et techniques sont-elles possibles ? », Pierre PAPON, physicist and Honor Lecturer at ESPCI, november 17th at « Cité des Sciences et de l’Industrie » in PARIS.

VISITS:
• During first semester of 2010 in Singapore, Visit of NTU University’s Laboratory working on fuel cells. Since August 2010, Singapore City Bus are running with fuel cell technology.
• In August 2010, Visit of CNRS Laboratory in Odeillo Solar Oven (Pyrénées Orientales) working on nanomaterials.
• In September 2010, Visit of PSA – Peugeot Citroën Research Centre in La Garenne Colombe, working on fuel cells, among other topics.

In this context, the fact that gas storage will be a key strategic element of the gas chain makes no doubt. Why storing gas? What are the characteristics of the various ways of storage? What is the storage situation in Europe? What are the factors driving investment decisions? Is the famous paradox of storage still relevant: “When gas prices are low nobody wants storage. When gas prices are high nobody can afford to build new storage”?

Storage, a fundamental tool of flexibility within the gas chain

The main function of gas storage is to balance the flow of gas between a quasi-constant production and a particularly variable consumption.

Indeed, production rates of gas are close to constant and this for economic reasons. Because of the importance of initial investment used in the upstream gas chain, the production and transport infrastructure are used to their maximum capacity. This enables the initial investment in fixed assets to be paid off more quickly.

On the other hand, consumption of gas -and in particular when used for heating- is highly variable. This variability can be divided into two levels in time: seasonal variations, firstly, corresponding to the significant difference in consumption between winter and summer, and, secondly, daily or intraday variations correspond to rapid changes in consumption. For example, in France, gas consumption is 6.5 times higher in winter than in summer. A decrease of 1 ° C of the average temperature from one day to the other leads up to an increase of around 100GWh of the overall consumption, which corresponds to the daily consumption of a city like Lille.

Nevertheless, regulations make the continuity of response to the final customer demand mandatory. As a result, means favoring flexibility, such as storage, are essential to ensure a balance between upstream and downstream gas flows.

Besides the function of balancing the physical flows of gas, storage is also an indispensable tool for securing supplies. During the winter of 2006, the tensions over the Russian gas market led to reduced supplies in Europe. The UK, for instance, which produces more than 90% of his annual consumption but still imports a large quantity of Russian gas, has not been able to meet cold winter peaks. The cause: insufficient storage capacity! Indeed, with a storage capacity amounting to only 4% of annual consumption, stocks were insufficient to meet peaks in consumption in a context of decrease in imports. All European countries are however not in the same boat. France, for example, has 25% of its consumption in storage capacity. It is therefore less exposed to the risk of supply disruption, despite the fact that French production is lower than 2% of annual consumption.
Overall, storage allows security of supply by providing customers with gas reserves in the national territory.

In addition to security of supply, having natural gas resources provides an opportunity for storage users to optimize their supply by comparing market prices, storage costs and prices in their long-term contract. Storage is at the heart of supply strategies of the main actors in the gas chain, especially gas suppliers.

The various functions of storage justify its importance in the strategies of the main actors of the downstream gas chain. In particular, “technical» characteristics of means of storage determine their use and implementation.

Storage means are conditioned by the geology of the site

The functions of balance of seasonal variations (or seasonal modulation) and security of supply, discussed above, require access to large volumes of gas to cover the increases of consumption, particularly during the cold period. The aquifer or depleted field type of storage are mainly used for these functions because of their large storage volume. These storage means have a low flexibility, mainly due to high duration of injection and withdrawal problems. However this constraint is not fundamental in the case of the seasonal modulation because the gas needs can be anticipated based on weather forecasts for the year.

In contrast, for the daily modulation functions, and in particular to cover a peak, it is essential to quickly access the resource. Cold peaks are punctual events and difficult to predict. The daily modulation cannot be ensured by means of storage with low flexibility. In these situations, storage with rapid withdrawal capacity, such as salt caverns or LNG, is preferred. Those means of storage are characterized by a significant withdrawal rate and a limited working volume (about 100 times lower than conventional underground storage). They are therefore used to cover strong but punctual needs.

Techno-economic characteristics of the storage means

If the techno-economic characteristics of storage sites determine their use, how can the major difference between storage capacities in France and in the UK be explained? Is this related to the importance of national production, to the number of potential storage sites available or to geological characteristics of soils?

A heterogeneous situation in Europe…

First, the difference in storage capacity between France and the UK is not an exception in Europe. The allocation of storage at the European level is very heterogeneous and concentrated: over 60% of storage capacities in Europe are held by France, Germany and Italy. More than a third of the countries of the European Union have storage capacity greater than 15% of their annual consumption. However, countries like the United Kingdom, Greece, Sweden and Spain have significantly lower capacities (lower than 5% of national consumption). What are the main factors determining national policies for storage?

Mapping of storage capacity in the EU 27

Since the establishment of the European Directive in 2003, states have the choice between a regulated or negotiated access to storage capacity. Each country determines its own “strategy” of storage based on a number of factors, among which two are particularly important: storage requirements and economic constraints related to investment.

The needs for storage capacity depend on the specificities of the gas chain: access to the tools enabling flexible supply (long-term contract, swing production, access to spot market…), access to inter-country storage capacity, the importance of the winter / summer consumption ratio and gas penetration within the domestic market. Storage requirements are determined after arbitration between all these factors. Storage requirements of a gas producing country or a country whose fluctuation in consumption is limited, for instance, will be lower than those with no means of production and where the variability of consumption is very high. Further, countries enjoying stable climatic conditions, such as Greece for instance, have less important needs for seasonal storage.

Economic constraints also strongly influence investment decisions. Gas storage infrastructure investment amount from tens of millions of euro for rapid extraction sites to several hundreds of millions of euro for seasonal storage. Investment decisions therefore favor the economic profitability of the site. The economic profitability is determined by valuing the sites based on gas price on midterm organized market (e.g. NBP UK, Zeebrugge in Belgium…). In addition, the price risk, associated with changing gas prices, has to be taken into account. Indeed, a part of the initial investment required for a storage site relates to a specific quantity of gas needed for reservoir management and to maintain a minimum pressure of storage: the gas “cushion”. This gas cushion is valued at a certain price in the initial phase of the project implementation. The evolution of this price during the construction of the storage site is a substantial financial risk. In fact, investment decisions for storage depend heavily on the comparison with other means of flexibility including market purchases on short term contracts that do not require heavy initial investment.

The paradox of storage « When gas prices are low nobody wants storage. When gas prices are high nobody can afford to build new storage » seems to be meaningless and reflects the reluctance of some countries to implement storage capacity on their soil. When gas prices are low, market purchases or long-term contracts are more attractive in the short term. When gas prices are high, the initial investment becomes exorbitant. Despite the economic and financial blocks identified above, investment intentions are significant in Europe as energy security is considered more important. The current trend is to increase European energy independence. As a result, and according to the GSE study from July 2007, the storage capacity in Europe should increase from 15% to 20% by 2015. However, assuming the industry development of unconventional gas in Europe, combined with falling prices on spot markets, these forecasts may be challenged, translating in a significant risk for the storage industry.

Their development, however, suffer from regulatory constraints and NIMBY (not in my back yard) effects. Offshore wind farms appear thus to be the future for wind turbine technology. Next to the UK and Denmark, as major players, many other countries are intensifying their efforts towards offshore wind generation. But many challenges remain to be surpassed to make off- shore wind generation profitable.

On shore constraints force operators to go off shore

To be elected as a favourable location, a marine spot should contain many elements:

In first instance, wind generation started on shore. Wind generation has made a real start from the year 1990 and onwards. The first offshore wind farm was built in 1991 in Denmark, but the offshore share in wind generation stayed for a long time marginal. Since a couple of years there is a real expansion observed in the offshore projects. In Europe, there was a particularly active period in 2010, with 308 new wind turbines, or an augmentation of 51% of the installed capacity offshore. This is explained by the barriers encountered with onshore wind generation:
• Not enough space in populated regions (eg. Denmark, The Netherlands, …)
• NIMBY effects (eg. Noise disturbance, landscape pollution, …)
• Regulation that limits the implementation of wind farms.

Offshore wind capacity installed worldwide (source : EWEA)

The part of China is impressive; 83 wind farms are currently in project for a total capacity of 50 000 MW. Going offshore should not only be seen as a way-out if onshore becomes impossible, but it should be seen as a real opportunity. An opportunity as larger farms can be built and better wind conditions can be perceived. However, taking benefit of these advantages is not straight forward.

Large investments

The pioneers putting in place offshore wind parks have proved that offshore wind energy was not a game to be easily played. Numerous actors have been very careful in the beginning. The first wind farms were heavily subsidized and were not very profitable. Many technical constraints had to be eliminated that made the cost of construction very large:

- Difficult meteorological conditions and the presence of salt needed the development of specialized machines (in particular to resist to corrosion). The access to locations for maintenance was very difficult, the level of robustness of the machines had to be economically acceptable and needed more attention that the equivalents onshore.

- Specialized engineering for foundations is required: different technical solutions exist, more or less expensive. Characteristics of the location are very specific: depth of water and type of bottom (sand, rocks, etc.). The foundations represent 20% of the installation cost of an offshore wind turbine…

- Submarine cables have to connect wind turbines and have to connect farms with the coast. This not only to inject the generated power in the transmission network onshore, but also to accommodate the command-control which is a prerequisite for offshore installations.

- The construction of offshore wind farms is done by barges that are common in the exploration and production of crude oil. These barges have a poor availability. More recently, more specialized actors have seen the light in the construction of wind farms (eg. ‘A2sea’, founded in 2000) and some grouping can be observed between electric companies and dredgers (eg. ‘Otary knowledge centre’ ao. Electrawinds, Aspiravi and DEME dredging, 2011).

Intensive operational costs

Maintenance for offshore wind parks has a very high cost due to difficult accessibility, depending on meteorological conditions. Arbitrating between CAPEX and OPEX is necessary. For the offshore, it is preferable to invest in a more robust and costly park to reduce the maintenance costs. Hence, a technical upgrade of the machines was needed.

Important improvements have thus been realized, more in general thanks to the experience acquired on the platform for crude oil: the improvement of hydrodynamic wave models, models to construct the foundations, improvement of anti-corrosion measures, preventive maintenance to complement as much as possible the maintenance interventions and diminish the production losses, developments for better accessibility for the farms, etc.

Notable is that in 2010, 29 new models for offshore turbines have been announced by 21 suppliers. As winds are less turbulent at sea, the life cycle of an offshore turbine is of 25 years compared to the 20 years life time of a regular onshore turbine. On top of that, the foundations are able to support two generations of wind turbines in one life cycle.

In conclusion, it can be said that the construction and maintenance of a wind park at sea necessitates costs that are 60 to 100% more important than its onshore equivalents (without the connection cost).

The location is the most important choice

To be elected as a favourable location, a marine spot should contain many elements:

• Being nearby a coast and having not too deep waters: between 10 and 30 meters is feasible today, in a couple of years up until 50 meters even.
• Having an already installed transmission network on land as the installation of new capacity is disproportionably long.
• No major marine activity due to others, particularly fishing activities (casted fishing nets keep stuck behind the electrical cables).
• Favorable meteorological conditions should expose the park to a stable and heavy wind force. Also, the number of days a farm is not accessible is very important.

Next to these elements it is also required that there is a compatibility with the existing transmission network:

• a match between offer and demand,
• network capacity to compensate the variability of the wind generation.

In contrary, offshore wind parks can blur the need for alternatives in some cases. For example, on isolated regions or islands where the alternatives are expensive diesel generators, the offshore wind farms offer a cheaper alternative for generation.

Profitability comes hand in hand with a critical size

Offshore wind farms are more productive: on average, 1 MW installed power offshore generates 1, 5 to 2 times more energy than its onshore equivalent thanks to the stability of the captured wind flow.

The wide open space at sea offers the opportunity to install a much larger number of wind turbines. This gives the opportunity to benefit economies of scale on the transformations, interconnectors, maintenance, etc. A wider space also creates more optimal positioning of the turbines, so that turbulences between two turbines can be minimized. The rentability and lifetime of the machines are thus improved.

Economies of scale prevail also when considering the length of the blades: better exposition to the wind and less visual impacts gives the offshore turbines the opportunity to be larger and have larger blades. Until 10 MW can be achieved in the last models, compared to the costs of construction and maintenance that stay the same in function of the size of the turbine.

The critical size of a farm can reduce costs per kWh generated:

Evolutions of cost for wind production according to the year of construction (source : BTM Consult)

The profitability of the offshore wind turbine will soon equal its onshore equivalent and should in the long term even beat it.

The constructors of power plants did not wait for feedback from the Japanese disaster to boast the safety of their models. Anne Lauvergeon, CEO of Areva, has not hesitated to declare that “if there were EPR at Fukushima, there would have been no leaks into the environment “referring to the vessel corium recovery of the EPR. Indeed, this technological asset could be considered as differentiator in the future.

For its part, the CEO of American Westinghouse recalled that simplified systems for cooling the AP 1000 can operate without electricity thanks to a game of pressure and gravity. This argument also weights in the balance when we know that the main reason of the power plant disaster is the cooling circuits.

However, would this promotion around security be enough to convince the electricity producer? Renewables have a role to play in reducing greenhouse gas emissions but cannot be done without the construction of additional production facilities. Therefore, countries will be tempted to rely on gas (especially as the supply security is less tense considered the development of shale gas) to replace coal plants which represent the most important part of the electricity mix in the world.

Nobody is able to predict the supply cost when markets will recover. For instance, Japan will have to replace on medium term some of these nuclear generation capacity by the gas. The Japan gas increase will lead to an increase in global demand by 5%! This aspect of variability in fuel costs does not arise in the nuclear fuel. Indeed, nuclear plays only a negligible part of the final price for consumers.

Confronted with these stakes, it is indispensable that the actors of the sector and the national governments estimate and communicate on the inconveniences of the nuclear power renunciation: risk of supply, prices of the kWh increase and augmentation of CO2 emissions. This will be the inevitable consequences of the nuclear power phase-out. Will the populations be ready to pay the price?

At the same time, these same actors will have to communicate on the costs of the dismantling, the waste management, the radioactivity and the effects badly known that sometimes constitute blocking points in the development of the atom industry.

Since 1991, the International Atomic Energy Agency (IAEA) uses a scale of 0-7 to qualify a nuclear accident. The classification depends on the consequences of the accident and not its causes. This can be be confusing because some accidents such as Chernobyl, are actually due to an internal error and not a natural disaster, as it is the case today in the central Fukushima.

                                                               IAEA Scale

Chernobyl is obviously classified at the highest level of the scale, the extent of the explosion was unprecedented and the fission reaction is still under way.
The Three Miles Island is classified as Level 5: the accident was serious, but the containment remained intact which has therefore limited the damages, despite releases into the atmosphere.

The Fukushima incident is currently classified as Level 4 but it possible that the level will be higher due to the fact that the incident is not complete and the hart of the reactor is partially melted.

The conditions are thus comparable to those at Three Mile Island: a study of discharges into the environment should be conducted to confirm. Nevertheless, a Chernobyl-type scenario is not possible because the reactors are shut down. The earthquake has been the major disaster of recent days.

A feedback is essential

Following the disaster, a feedback on the most violent natural hazards will need to be provided. The plant has successfully resisted to the earthquake but not to the Tsunami. Indeed, as major consequence of the Tsunami, the generators in charge of cooling the reactor in case of power failure are now out of order.

Solutions to maintain a reactor in case of power failure combined with a flood will be, in the future, a determining factor for the next reactors.
Areva, EDF and Sofinel already worked on the subject before the incident: no doubt that recent events will accelerate studies. The accident at Three Miles Island at that time, did not slow down the nuclear industry but allowed to improve the safety of reactors: will then Fukushima help the other reactors to survive from any natural hazard?

According to ADEME, the national expenditure related to waste management was 7407 million in 1996. Ten years later, this cost amounted to 11 623 million euros, thus, an increase of 36%. What solutions are proposed by Grenelle Environment? Is there any better solution for sustainable waste management?

The waste management policy of the Grenelle Environment remains unclear

Several solutions can be used to treat waste: storage, recycling, incineration, composting are the mainly used techniques:

• The simplest, storage in landfills, is discouraged because of the space it requires.
• Recycling, the public favorite, allows reusing the waste in a new form
• Incineration, hampered by its poor image, allows the production of electricity and heat, but each incinerator has a significant construction cost.
• Composting allows the development of organic waste
• Finally, accountability for our mode of consumption must be put forward to face the problem of the growing number of waste.

The major objective of the Grenelle is to reduce waste and increase recycling, with specific objectives such as:

• A reduction by 7% over the next 5 years of the household waste production
• An increase in recycling up to 35% of the total weight of waste in 2012 and 45% in 2015 for garbage, compared to 24% in 2004;
• A reduction in the amount of waste ending their lives in incinerators or storage sites by 15% before 2012.

However, the lack of development of a technology or pedagogy makes it difficult to achieve these objectives. An awareness campaign would encourage recycling in urban areas.

According to ADEME, only 18% of French waste was recycled in 2008, against a European average of 23%. 36% were buried in landfills and 32% were being incinerated. The best waste management still needs to be found and by default, recycling seems to be the favorite but still has its limits.

Recycling cannot reduce all the waste

Often seen as a “THE” solution, recycling is facing economic and material difficulties. Sorting and reusing waste has a cost. This cost is not compensated by the sale of recycled materials.
In order to reach an efficient recycling, it is necessary to have appropriate treatment systems, which is not the case in France.

The “raw material” of recycled materials is in competition with new materials. Indeed, the cost of new materials depends on the demand while recycled materials need to cover the fixed cost of treatment. Economic opportunity is therefore subject to market fluctuations.
Finally, recycling has a physical limit: while being recycled, the material loses its quality and eventually becomes an unusable waste. For example, paper can be recycled 6-7 times eventually leading to the rough cardboard.

The benefits of recycling can be penalized by the increase of waste production. Therefore, an awareness campaign would be able to limit the direct reuse of materials. Beyond recycling, reducing the number of waste will allow to process them efficiently.
For instance, reusing a glass bottle at home is very interesting for waste reduction and economically advantageous. Some European countries have thus decided to combine other methods of management with effective pedagogy to help reducing waste volume and treatment.

Germany is exemplary in Europe with a balanced mix of management

According to EUROSTAT, Denmark, Sweden, Belgium, the Netherlands, and Germany have established a sustainable waste management, making them the best European students in terms of sustainable treatment of waste: less than 5 % of garbage is stored and an important part of it is recycled.

Methods of treatment in the EU
(Source : EUROSTAT, 2007)

Germany is the most advanced country for its waste sorting and awareness policy with over 40% of waste recycled. In 2004, Germany stocked in landfill 104 kg of garbage per year per person. In 2007 this proportion increased to 3 kg, thanks to an active recycling policy. In fact, since 2005, waste pretreatment is required, resulting in sorting, composting or incineration of all the garbage.

Moreover, in Germany, the government allows tailored recycling. Indeed, recycling differs in each region according to its rural or urban character. Thus, by structuring the industry and use various modes of management, the final waste is kept to a minimum: recycling finds its place, but we must not neglect the compost and incineration, which represent 60% of the share waste management.

Incineration, an essential, unknown and unappreciated treatment

During deliberations, some associations have spoken out against incineration, demanding a moratorium on building new incinerators, arguing that this method reduces the amount of recycling and presents a danger to public health. The figures of ADEME show the importance of incineration in France in 2006, 128 incinerators have handled 10 million tons of waste per year, and the production of electricity generated was 3,763 TWh, which corresponds to the total consumption of Paraguay in 2006, 3.5 TWh.

The main argument is obsolete: when burning waste, fumes contain many harmful gases and toxins, especially dioxins, carcinogenic residues causing skin lesions. However, since 1985, when the dangers of these toxins were discovered, all incinerators have been adapted to meet the regulatory level of emissions.

The real problem of incineration is its poor image and low visibility. However, it is interesting to note the current developments in conventional incineration with the emergence of new technologies such as gasification or plasma torches that benefit from a better public image, especially gasification.

As demonstrated by the international experience, the share of waste stock in landfill can be reduced with incineration and these new technologies could help to incinerate more waste while producing heat or electricity and thus creating a new energy source.

While in Belgium, energy distributors are working on the replacement of the regular meter in 2012, in France, 300 000 households will be soon equipped with smart meters thanks to the Linky experimentation. However, the Linky deployment is just a prerequisite to the “smart gird” development. Today, 35 millions meters are read every six months, tomorrow thanks to the smart meter, they will be read every 10 minutes. Beyond this advantage, a real smart-grid will optimize many other constraints experienced by the network: decentralized generation, new prospects of storage, electric cars. Therefore, the number of data’s and analysis will raise considerably.

Investment in complex tools

To meet the smart-grids challenges, complex IT tools will need to be implemented. They will help to optimize changes and evolutions undergone by the network.

First, we need to focus on the integration of decentralized energy. These energies are growing very fast, in particular solar and wind energy. These energies are sometimes detrimental to the stability of the network and can cause cuts, as it already happened in Germany. Through a better monitoring of the network, a better equilibrium can be reached between energy extractions, injection of renewable and storage.

Furthermore, in order to face the main the challenge of decentralized energy, energy storage will allow the full use of renewable energy by storing the electricity produced when this electricity is not needed.
If other techniques are still under investigation, two storage methods are emerging: the storage by hydraulic pump (using the electricity available to store water which will produce hydroelectric power) and the storage by using batteries from electric vehicles when they are not in use. Therefore, electric vehicles will need to be integrated to the smart-grids logic in order to reinsert energy and bring out the famous concept of vehicle-to-grid (V2G).

Lastly, the business model for the deletion of peak demand is still to find. We can imagine that attractive tariffs can be offered to customers if they commit to limit their consumption in peak hours or turning off energy consuming devices for a short time. In either case, consumption peaks reduction avoids network saturation, especially in regions located at the end of the network (such as Bretagne or the PACA region). Moreover, the electricity used during consumption peaks is generally generated by a production very carbonaceous.
Peaks reduction will have a direct impact on the environment and emissions of CO2. In United States, for example, a 5% drop in peak demand would avoid the use of 625 power plants which correspond to an annual savings of $ 3M!

Problems no longer separately considered

Thus, all the constraints supported by the network will now be treated in a correlated way. For example, the electric car that used to be considered as a network problem is, today, used to adjust distribution networks. Thus, the links between storage, renewable energy and peaks consumption are strong and need to be treated together.

Therefore, beyond the aggregation of data, it is necessary to develop information systems that enable data analysis and action plan. The incentive is strong the markets are to be taken: the investment amounted to over $ 7 billion for China and the United States, just for 2010.

Differences of opinion in Europe

We can notice different views in European countries. Indeed, while Belgium, Germany and Denmark are rather anti nuclear, France protects its nuclear industry.

In Belgium, since 2008, the producers have to pay a tax of 250 million per year. This tax is at the heart of the debates. On the one hand, producers have led a lawsuit against the payment of the tax, saying it is discriminatory and too expensive. On the other hand, political parties want to increase the tax to 750 million for the CD & V and 1,5 billion for Ecolo and Groen.

In Germany the extension decision is considered as laudable: the replacement by 2020 of the entire nuclear, which still represents one quarter of German production, will occur with a heavy reliance on coal. The coal is already present in 50% of the German electricity mix. This tax helps to extend plants lifetime and control greenhouse gas emission but would it raise the electricity prices in Europe?

Germany is already breaking price records

Leaving the nuclear has a price. Despite the fact that Germany couldn’t decarbonize its electricity and transfer to a carbon-free electricity, the country has one of the higher electricity price in Europe for household consumers.
As shown in the diagram below, countries such as Italy, Denmark and Norway that have already left the nuclear have also high prices.

Electricity price for household consumer for 2010 ( in € per 100 kWh)

These costs have a direct impact on household consumption and also on the competitiveness of companies. For electricity-intensive industries, electricity represents sometimes more than 40% of fixed costs: the price affects directly the margins and can be a deciding factor for new establishments or relocations.
Therefore, taxing a quarter of its production goes against the competitiveness of industries and, thus, many German industries disapprove this tax..

Moreover, Germany is not isolated from its neighbors; the price increase will affect the rest of Europe. Today in Germany, in order to control prices, over 10 TWh of electricity is imported from French nuclear plants.
Tomorrow, when the tax will come into force, the German suppliers will be tempted to buy on European markets. In consequence, it will create a distortion on spot markets and an inevitable price rising.
Then, would the price disequilibrium between the supply and demand create an export opportunity for the neighboring countries?

An opportunity to export more electricity?

Are there any opportunities for the neighbors to raise their exportation of electricity if the German suppliers want to purchase in foreign markets? In France, for example, the construction of a reactor ATMEA was refused due to the sufficient electricity production.
The construction of this new reactor would have more sense if it is partly used for export. Indeed, by proposing to E. ON and RWE, the major German suppliers to invest heavily in the French nuclear power plants, it could provide a new source of funding and promote the French expertise in the field. Interconnections between countries still need to be ensured in order to allow these exchanges.

Sia Partners

Today, natural gas meet 25% of global energy demand and the consumption is expected to double to 4000 Gm3/year to 2030. With such a success, and to avoid saturation of the transport “pipeline”, has emerged in the 2000’s the LNG (Liquefied Natural Gas). The LNG is transportable by sea. In fact, the gas is transported by ships called LNG carriers which store the liquid in tanks. Therefore this kind of transport allows to connect Import and Export areas that used to be too far from each other. After a decade of development, it is appropriate to ask whether the LNG industry will continue to succeed.

A strategic sourcing depending on the import areas

Worldwide, the LNG demand is concentrated and will remain concentrated in three import areas: North America, the countries of the European Union and the countries of East Asia East (mainly Japan and China). The forecasts anticipate a demand that should reach 1000 Gm3/year in the next 20 years while the current production does not exceed 250 Gm3/year which ensures to the industry an annual growth of 8%.

This new resource presents strategic stakes differing from the sourcing areas. In fact, for North America, LNG producer through its deposits in Alaska, the major challenge will be to make up the decline in production capacity. However, since 2 years the LNG industry is in competition with the emergence of unconventional gas that has considerable reserves and well-controlled extraction technique.

Regarding the East Asian countries, the main objective will be to ensure growth, in particular led by Chinese demand.

European countries have to face other constraints. Currently over 40% of European consumption is provided by the Russian. This situation gives them a strategic advantage disliked by European governments. To reduce this dependence, Europe has chosen to focus on LNG in order to reach almost 50% of the supplies (320 Gm3/year) by 2030.

Situation of the industry in Europe

In Europe 20 terminals are operational. In the past 10 years the amount of terminals has doubled and more than 30 projects are under construction or under consideration. However, some countries encounter some difficulties and still need to be provided in gas by the Russian. This is the case of Germany where the country is too far from the terminals to receive LNG even if it is well connected to the rest of the network.

Despite the European solidarity, each country builds its own terminals in order to guarantee supply security and a competitive access to the resource.
Belgium has a LNG terminal located in Zeebrugge. Since 1987, the terminal has received about 1,200 gas carriers and supplies the Belgium and Western Europe market. LNG can now be transported from Zeebrugge via tank truck which allows greater flexibility in LNG destination.
The capacity of Terminal amounts 9 billion m³of natural gas, 110 shipments per year can be unloaded and the Terminal has a storage capacity of 380,000 m³. Due to the significant industry growth in Europe, Fluxys launched, in February 2011, the consultation phase for additional capacity.

An industry providing structural savings for long distances

Supported mainly for its geostrategic dimension, the LNG industry offers other advantages. The development of liquefaction trains in the exporting countries and LNG terminals in the importing countries is expensive. However, the investment on the LNG carrier is the same whether the distance between the areas. Compared to the price of crude gas which is directly proportional to the distance traveled in the pipeline, the cost of LNG remains constant.

The cost structure ensures the sector’s competitiveness from 5000km distance between the point of production and consumption and even less if compared to transport by pipeline offshore.
The transport by sea also permits a great flexibility in the delivery destination and avoids the political risks associated to the countries crossed.

Two challenges: investment costs and environmental assessment

The expansion of the industry has to face some difficulties. First, the infrastructures established require financial efforts. Then, the environmental risks associated with liquefaction terminal / regasification often put projects under pressure.

Regarding the financial aspect, the establishment of a complete chain of 15 Gm3/year (1 or 2 LNG trains, 10 LNG terminals 1 or 2 and the facilities used for connections) is estimated to 10 billion dollars. In order to meet the needs of 2030, a total investment of $500 billion will be required.

Within this value chain, half of the expenditure goes to the liquefaction trains while only 500 million is spent for the regasification terminal. Although economies of scale are expected in the long term, these amounts remain significant.

Environmental risks are not correctly assessed, and this while the buildings are subject to strict state standards.

The LNG industry

Despite environmental concerns and financial barriers to entry, the future of the LNG industry in Europe is assured thanks to the strategic stakes and long-term savings of the projects.

The construction of LNG terminals will continue especially on the coasts of the Netherlands and Great Britain. Both countries are too dependent on the declining Scandinavian production. The LNG terminals will also be developed on the Germans and Italians borders now too dependent on Russian imports.
The development of unconventional gas (CNG) won’t impact Europe as far as the industry has an environmental report badly received by his opponents and has a lack of maturity on the continent.
The issue will be to maintain the gains and ensure competitive access to the resource.

Sia Conseil

It offers a modern and tempting technical solution which lends itself in particular to the car sharing and the self-service. It can convince the young generations which turn away the traditional car. That’s why the electric car initially seduced the public authorities who decided to largely finance its production and to facilitate its use.

The moment of truth: the market

But its theoretical virtues will have from now on to confront itself with the reality of the market. Finally, one will know who will buy an electric car reagrding the abundance of the conventional offer, in electric modernization treatment …? Moreover, the lull observed on the oil price, even if it is only temporary, like the awakening of the real conditions of electrical energy production necessary to the cars moderate the enthusiasm of the exclusive promoters of the electric car.

The Paris show was the occasion to show vehicles truly intended for the general public. The first French electric car available on the market as of October will be… a Japanese one. Indeed, PSA stole the show from its rival Renault by adapting the model of its partner Mitsubishi, the iMiev sold under the name of Citroen C-Zéro (image below), then Peugeot Ion.

Citroën C-Zéro from PSA

Sales strategies of both groups are different. Whereas Renault always stated to want to offer an electric car to the price of a traditional car, Citroen positions its small truck on a high price level (30000 € after 5000 € bonus) for a hundred kilometers of autonomy and the sales volumes ambitions remain confidential. The Alliance Renault Nissan, which made electric vehicle its major ambition, introduces the Nissan Leaf (image below) which will be proposed at the European market with 28000 €. Electric Kangoo and the Fluence will only appear at the end of 2011 and the Zoe, intended to be a vehicle of mass will appear during 2012. Bolloré Pinifarina, seen since 2008, like Lumeneo, will have to finally show that they can leave the showrooms for the street.

Nissan Leaf from Renault-Nissan

Competition: hybrids and adapted traditional vehicles

Behind the pure electric vehicles, which must prove the relevance of their quality ratio/price, the market is succeeding the electrification of all the traditional vehicles. We faces numerous solutions which make electric vehicle only one particular case.

Firstly, Stop & Start system generalization switching off the engine when it is not necessary, in traffic or waiting the green light, leads to a consumption decrease in cities by 10%.

Secondly, all the car ranges have optimized thermal engines, profiting from a size reduction, power and capacity, involving a significant decrease of consumption while preserving gravitational performances and autonomy specific to the vehicles with oil. The level of the 100 g/CO2 per km is now exceeded by several vehicles.

Moreover, each manufacturer has its interpretation of the hybrid vehicle, either for reducing consumption, either for increasing performances. Pioneers such as Toyota and Honda generalize their solution on the whole of their range. But where the traditional hybrid is a thermal car profiting from a complementary electrical motor, one sees appearing with Opel Ampera, cousin of the Chevrolet Volt, another solution. It is about an electric car connected to the network which can increase its autonomy thanks to a thermal engine acting like auxiliary generator. It will be sold in Europe at the end of 2011 beyond 35000 €.

Enlightened conservatism or rupture?

The consumer will have to choose between modernized conservatism and the audacity of the rupture, the “all-electric one” could be perceived like an incursion into an ignored world, marked by the fear of a too weak autonomy, even if it is allowed rationally that apart from the holidays daily displacements enter without difficulty the current operating range of the electric car.

In addition to the pleasure of being an early adoptor, in fact especially considerations of cost will make the difference. The electric car has obvious assets under daily operation, but must make finance the current over cost of the batteries. The government aid can provide for it for a time, but it is obvious that the technical innovation will have to be solicited in the next years to offer at a competitive price a reassuring autonomy, or effective means of guaranteeing it, for those waiting from their single car multiple services.

Jean-Pierre Corniou, Sia Conseil Director and previously member of the Executive Committee of Renault

Photovoltaic (PV), wind, micro-combined heat & power (CHP) and many others produce power locally for direct use, reducing the need for transporting the energy across transmission and distribution grids.

With growing microgeneration units, the centralized architecture of the current power grid system is slowly moving to a more decentralized architecture with distributed generation points. (cf. Figure 1).

Figure 1 – Distributed Generation on the Grid

While microgeneration helps not only to achieve energy security and environmental responsibilities but also to reduce energy bills, what are the feelings of the Belgian energy actors which are apparently directly impacted?

What are the challenges for the Distribution Grid Operators (DGO) in order to support greater power injections? How will the balancing be managed by the Transmission System Operator (TSO)? Will microgeneration be an opportunity for the suppliers or on the contrary a risk for loosing market shares?

To identify the most relevant success factors of microgeneration, to evaluate the biggest challenges for the energy value chain and to expose the various options that are existing, Sia Partners decided to collect the views of several experts in the field of microgeneration in Belgium. The opinions of the Executive Agency for Competitiveness and Innovation (EACI), the regional energy regulator (CWaPE), the DGO from Brussels (Sibelga), the national TSO (Elia) and the first Belgian energy suppliers (Elec-trabel) have been confronted in order to address this study.

Success of Microgeneration in Europe and in Belgium

In Europe, the number of distributed generation units is projected to grow rapidly even if it is difficult to anticipate exactly local production future growth forecast, as mentioned by Electrabel.

“Microgeneration will be one of the main challenges for the coming years”, Francis Ghigny, CEO at CWaPE.

Following the DISPOWER project supported by the EU Framework Programme for Research, between 16% and 32% of the total power generation will come from the local production in EU-15 (cf. Figure 2). Belgium will follow the same market trend with almost 15%.

Figure 2 – DG in % of Total Generation EU-15 (Source: DISPOWER Project, www.dispower.org)

The illustrated trend can be explained by the following four key components of a market evolution:

1. Environmental Sense

Awareness of customers regarding their personal impact on the environment is becoming more impor-tant years after years. International conferences like Copenhagen or Kyoto have a very positive effect on the population and many organizations support people in their quest for lower impacts for example by providing them with support and expertise on energy saving means.

2. Market

Small scale electricity generation systems are available on the market. Technological efforts are made to build more efficient and less-expensive microgeneration units. Indeed, Hubert Lemmens (Elia) reminds that some European plans such as the SET Plan – which aims to accelerate the devel-opment of cost-effective low carbon technologies – pursue this objective.

3. Regulation

The microgeneration success is also stimulated by various European and national initiatives:
- The “20-20-20” objectives of the European Union aim to reduce overall emissions to at least 20% below 1990 levels and increase shares of renewable in energy use to 20% by 2020,
- The GEMIX report recommends among other things to reach 13% of renewable energy sources by 2020, as recalls Hubert Lemmens (Elia),
- Green-oriented plans and grants (grants for PV installation, Solwatt plan, Green Marshall plan…) are promoted by the governments.

4. Economical Benefits

What also makes microgeneration so successful is its cost-effectiveness and profitability. A microge-neration unit is sometimes chosen as a safe financial investment by consumers since these systems reduce energy costs and their return on investment is relatively short. Like states by Daniel Raes (Si-belga), for some people investing in PV panels it is more profitable than a savings plan. Combined with grants, the PV installation can have a return on investment of 5-7 years in 2010 in Brussels.

“As mandated in the RES Directive (2009/28/EC), Member States must report by June 2010 how they intend to achieve their binding renewable energy targets across the electricity, heating, cooling and transport sectors.”, EACI.

Future Challenges for Energy Value Chain

Although microgeneration units bring environmental sense and economical benefits, real challenges are expected in the coming years. Concretely, our interviewed experts express their concerns regard-ing some forward difficulties. The biggest challenge will come from a more complex balancing man-agement. Also, but to a lesser extent, inappropriate tariffs for DGO/TSO and a potential decrease of suppliers’ revenues will also have their place in the challenges landscape.

Complex Balancing Management

With centralized grid architecture only a few points need to be activated or deactivated when manag-ing the balancing. With more decentralized generation points, required information is more scattered and is more difficult to be collected to avoid imbalances and congestions on the grid.

Moreover, distributed generation induces two effects: off-take and injection energy flows (power is not only produced but also received when the microgeneration unit is inactive) and the use of variable sources of energy such as sunrays or wind. The grid faces then bidirectional and volatile power flows.
Thus, the balancing management will have to take into account less predictable data coming from more numerous and distributed points, complicating the balancing management.

“With more decentralized generators, more data are required to ensure security of supply and the information management becomes more complex.” , Hubert Lemmens, Grid Services at Elia

Inappropriate Tariffs for DGO

Today, consumers’ bill is basically depending on consumption level because tariffs are based on off-take logic. Part of it is allocated for distributors, proportionally influenced by the KWh consumed. Indeed, for the residential market, the current DGO tariffs are essentially compounded of proportional part linked to the consumption in KWh and are almost not depending by the line capacity in KW. When a consumer owns a microgeneration unit, consumption and line capacity automatically decrease impacting directly the earnings of DGO although more operations are necessary to maintain the stability. The effect is worst for other segments such as industrials which pay also a fixed part for the capacity line.

Decrease in Earnings for Suppliers

With increasing microgeneration units, the owners will consume less and thus a decrease in suppliers’ earnings could be observed in comparison to a situation where these customers do not generate part of their energy needs.

Solutions in regard to these Future Challenges

Even if there are remaining challenges induced by the decentralization of power generation, intervie-wees are convinced that each problem has its solution. Although they share a common vision on the solutions to bring, each actor puts the emphasis on different specific axes.

Better Balancing Management through an Active Use of the Grid

Giving the importance of the balancing management challenge, interviewed experts agree on the fact that the major challenge for DGO and TSO is to use more actively the grid and not only by digesting the energy.

The real challenge for them is to know the level of capacity required at each node in order to avoid surges. With increasing local production, the capacity becomes less predictable mainly because flows are more volatile. Hubert Lemmens (Elia) says that current transformers are ready to manage bidirectional flows but are not yet adapted to manage volatility. Francis Ghigny (CWaPE) underlines that the current network is not well-dimensioned for decentralized generation needs and this increases the probability of surges. And this phenomenon is particularly important in the country side where infrastructure is less dense. Daniel Raes (Sibelga) insists on this important factor because in cities like Brussels the grid power lines are numerous, their lengths are shorter and their section are bigger. This protects better the network against surges. Thus, with more microgeneration units, the Brussels network remains less sensitive to surges while the Walloons and Flemish network have to be more worried.

Because redesigning or reinforcing the grid infrastructure implies a lot of financial means, new and smart technologies to gather instantaneously capacity needs can be an important part of the solution. Two options can be deployed, together or not, to reach this objective: smart metering and smart grid.

“The grid needs not only to accommodate the energy but also to get feedback from it”, EACI

Building a concrete model of the Belgian transmission and distribution grid that would centralize cus-tomer data (consumption/production). The smart metering technology fulfills this objective and would be able to feed this centralized data platform.

For the CWaPE, understanding the network needs could start with smart grid technology by control-ling levels of tension in the power lines. Following him, waiting for the rollouts of smart metering is too ambitious and deviates from the initial objective: measuring capacity at vital nodes. While smart metering only measures consumption/production points one by one, smart grid monitors power at vital nodes of the network aggregating information of multiple injection/off-take points. This is mainly why smart grid constitutes the best immediate solution, according to Francis Ghigny (CWaPE).

Furthermore, he mentions that with smart grid logic, balancing procedures would be adapted to the requirements of the infrastructure and not based on financial volatilities of the market.

“Smart metering technology is not necessarily a precondition to develop smart grid across the country.”, Francis Ghigny, CEO at CWaPE

Another important element is brought by Hubert Lemmens (Elia), who specifies that today the balanc-ing is maintained both automatically (control of reserve power) and semi-automatically (dispatch). Since balancing management is instantaneously required, multiplying sources of power generation with high level of volatility increases the need of more costly automated reserve capacity. This en-dorses the real added value of smart grid and/or smart metering technologies in order to focus on local load/generation balancing.

Finally, this volatility could be minimized through an extended use of storage devices. Following Francis Ghigny (CWaPE), storing the energy produced but not immediately consumed would reduce consumption peaks that directly impact the grid capacity. The simplest storage devices are batteries but these require high investments and costs of maintenance. However, using other domestic devices to store the energy (boilers or electric cars) lowers these costs.

Adapted Tariffs for DGO

Revenues for distributors are inevitably expected to decline if these are not adapted to the microgen-eration context. Indeed, it is not the Decree of 12 April 2001 on the organization of the regional elec-tricity market that offers free of charge connections for local producers that will motivate DGO in in-vesting in a DG-oriented infrastructure. Furthermore, the decentralized producers of power will also lower their consumption because of the current DGO’s tariff structure. According to Francis Ghigny (CWaPE), the current DGO’ tariffs will not encourage the performance and the optimization of the line capacities. Hubert Lemmens (Elia) and Daniel Raes (Sibelga) add that distributors should be stimu-lated to manage optimally power line capacities thanks to tariffs based more on bidirectional capacities rather than on consumption.

Microgeneration Services for Consumers

Although suppliers seem to adopt a “wait and see” strategy, they are in reality carefully studying future opportunities that could be offered by new and smarter technologies, recalls one of them (Electrabel). Consumers, who deploy their own system for local production, will probably need a full set of services for maintaining their installation or improving interactions between their equipments (microgeneration, storage devices, electric car, home automation…).

“Suppliers won’t disappear. Actually they are expected to seek opportunities in services related to DG.”, EACI

Perspectives and Advices

The arrival of distributed generation will challenge the current infrastructure and its limits. The entire energy value chain intends to face the coming evolution by thinking about complementary solutions. Among these solutions, smart information technologies will continue to offer more efficient and cost-effective solution for enhancing the networks while securing the reliability. However the required in-vestments could reach around €135 Billion between today and 2030 for a new transmission infrastruc-ture in Europe following the International Energy Agency (IEA), reinforces Hubert Lemmens (Elia).

In order to match requirements and investments, Sia Partners believes that all the actors should define together a coherent strategy for the coming decades. This strategy should be shared by all and discussed regarding the future in innovation, research & development and maturity of the technolo-gies. Processes and procedures should be agreed by all with objectives oriented toward more green energy and easier power exchanges on the network.

“The TSO and DGO are colleagues. The congestion management know-how has to be shared with DGOs because the TSO and DGO mutually share the solutions to grid congestion.” Hubert Lemmens, Grid Services at Elia

As an illustration, the collaboration between the TSO and DGO is seen as a key success factor in the future infrastructure. Today, such dialogue while existing and working is sometimes not sufficiently activated, entrusts Daniel Raes (Sibelga). According to Francis Ghigny (CWaPE), Elia could for example share with Belgian distributors its know-how in matter of managing interruption contracts at lower voltage levels. Not only better management of congestion at lower levels could reduce grid losses for distributors but also could decrease the use of tertiary reserves at higher levels for balancing.

Actors hold all the cards to make it right, and work together in order to come up with the best scenario for the future generations.

Cristina Morere and Jean Trzcinski

This article is also available in the Metering International magazine, Issue 3 2010.

Given the strong potential of these resources, the global gas market is being reshaped. Sia Partners gives an overview of the new American scene and explains the recent overhaul of the global gas market.

What’s an unconventional gas?

Unconventional hydrocarbons are gas and oil resources that cannot be extracted by conventional drilling techniques and requiring innovative extraction approaches. Though, the extracted gas sample has the same characteristics as conventional natural gas and is used for the same purposes like electricity generation or home heating.

Two recent technological breakthrough in terms of drilling techniques are at the origin of this new craze in the production of natural gas, namely: the “horizontal guidance”, which allows to maximize the drilling surface and thus improve returns, and the “hydraulic fracturing” consisting of breaking the deep layers of schist by injecting a mixture of water, sand and chemicals, which gives access to deep and little-permeable surfaces.

These major innovations have resulted in the extraction of gas from previously unusable gas fields. As illustrated in Figure 1, the natural gas production has evolved from 18% in the last three years, thanks to drilling of new unconventional gas wells.

Figure 1: Global resources and extraction costs

The main types of natural gas deposits are the following:

Coal Bed Methane, “Grisou” comes from methane vapors that are trapped in the coal mineral. It represents 50% of the unconventional gas production in the U.S. in 2008 (the remaining 50% are shale gas).

Tight gas sand is trapped in little-permeable structures (i.e. the gas does not circulate much). It is therefore necessary to crumble the rock before exploiting this gas. However, it is currently considered to be not very much or not profitable but could account for more than 50% of available stocks in the United States. The appeal for tight gas sands heavily depends on market prices and could become a great resource if the gas prices were to stabilize around a certain threshold. Four of the ten largest gas deposits found in the United States over the past 20 years were made of tight gas sands.

Shale gas, known since 1858, is considered to be a non-conventional gas resource with very high potential. It comes from fine-grained rocks such as clay, as opposed to limestone or sandstone cavity as for conventional natural gas. In the U.S., production of shale gas has tripled between 2004 and 2008 passing from 19.4 billion m3 per year to 57 billion m3 and probable stocks (not to be confused with proven stocks representing only 10% of total stocks) are constantly being reassessed upwards: they are actually estimated between 9.8 and 17.7 trillion m3.

Gas hydrates, also known as clathrate, are solids composed of methane and water lying at the bottom of the ocean. This type of gas is also found in very cold regions like Northern Canada. Although so far unexploited, the gas potential contained in these clathrates is colossal, more than twice the amount contained in all known fossils of the planet! Compared to other unconventional gases, operating costs, too high because of the fields’ location, does not allow us to consider production at industrial scale yet.

Non-conventional gas should, according to Petroleum Economist, allow reassessing the global gas stocks from 60-250%. Inconceivable up until a few years ago, – at the time the United States considered even importing gas from Russia – the recent and numerous discoveries of additional resources as well as the systematic exploitation of gas fields are factors making the United States a net exporter of natural gas today. Consequently, the analysis agrees on a long lasting decline in prices on the U.S. gas market.

Figure 2: Evolution of natural gas production and drilling activity in the United States between 2004 and 2008

American Liquefied Natural Gas (LNG) imports are naturally the first impacted by the emergence of unconventional gas. Indeed, the methane carriers redirect their routes to Asia, well equipped with LNG regasification infrastructure and to Europe where LNG projects are rapidly growing.

These somewhat unexpected supplies challenge the rationality of some LNG projects not only in North America but also in Europe where the spot market prices are pulled down: the Russian giant Gazprom recently announced that it would delay of 3 years its gigantic Chtokman LNG project in the Barents Sea due to the vagueness of profitability of such an investment.

On the other hand, supply contracts in Europe differ from U.S. contracts because of the indexation of gas prices to oil prices. In the mean time, the price of oil keeps increasing, while the gas market fears excess supply. This would call into question the validity of energy companies’ contracts.

Energy companies signed long term contracts (up to 30 years) with fixed drawing rights in order to cover the investments made to improve and develop the gas infrastructure (drilling, transport, distribute), fear that this new call will jeopardize their operational viability and profitability of their heavy investment.

Consequently, the companies have lodged claims in order to obtain a review of their contracts by their suppliers and in particular regarding the prices: last February, German E. ON Ruhrgas, agreed with Gazprom to review their contracts and obtained that a share of the supplied gas would be indexed on the spot price instead on the barrel price.

Hence, Europe could be the big winner against its suppliers: not only would the price of gas supply diminish, but also, its dream of having a spot market like in the U.S. will finally materialise in a significant volume and with price based on supply and demand. In parallel, the hypothesis of a real diversification of sources that would protect Western Europe from geopolitical uncertainties, such as the one of January 2009 in Ukraine become possible, and why not achieve a relative energy independence. Because the hegemony of Russian supplies is threatened, Russian officials acknowledge they are concerned over the events: Gazprom secures the loyalty of its customers (Eni, E. ON, Gasunie, electricity, etc…) and invite them to join in the long-term by taking stakes in major pipeline projects in Central Europe.

The specialists in new drilling techniques enter into the crosshairs of the majors, the great unknown remains the EU’s potential

With this enthusiasm, both upstream and downstream of the gas sector, many new industrial players appear on the world energy scene such as IGAS, San Leon Energy or Green Dragon Gas. The big companies of exploration-production adjust themselves by quickly developing new skills by acquiring specialists of unconventional, lapped with the new extraction techniques. As illustrated by the acquisition of XTO Energy by ExxonMobil in December.

This huge deal of about 30 billion euros betrays the fact that the largest oil company wants to regain ground it has ceded to its non-conventional rivals, especially in terms of shale gas. This transaction is one of many where major oil companies have got hold of stakeholders or promising patches in terms of resources.

On the other hand, ExxonMobil, ConoccoPhillips can hardly hide their interests for the 1.36 trillion cubic meters potentially in reserve in the Polish soil. The governments of Central Europe applaude the specter of unilateral energy dependence to Russia evaporating. France, meanwhile, would benefit from probable reserves of shale gas in the south of the country, witnessing the recent acquisition of exploitation licences in Ardèche by GDF Suez. But the exploitation of gas in France is not quite relevant because, despite the strong industrial interest aroused by these resources, non-conventional gas have not only qualities and are questionable from the ecological perspective. Indeed, these new extraction techniques require carrying out many drill holes close to each other. In Europe, as illustrated by the example of the wind mills, population density is such that these new gas facilities near populated areas will not be socially acceptable for reasons of landscape preservation.

Finally, the extraction of non-conventional gas requires a lot of resources. The significant amounts of energy and water needed for the drilling phase deteriorate the environmental appraisal of non-conventional gas in comparison to the conventional gas. Finally, during drilling, many chemicals are used and the possibility of groundwater contamination has not yet been determined. New regulations are expected to determine the validity on the long-term of non-conventional gas, from a financial point of view but also an environmental view.

How much CO2 do airplanes reject?

To fix ideas, it is estimated that for equal distance covered, a person taking the plane for a long-haul flight consumes almost the same as by car. This calculation takes into account the occupancy rate of the aircraft and the average number of people in a car. Nevertheless, in reality, the car only competes with the plane for short-haul flights, for which the plane is far more polluting. This is due to the consumption of take-off and landing.

Figure 1: Evolution of the CO2-emissions by transport type and by passenger-Km
Note: The fuel consumption for freight transportation in the baggage hold (significantly over the long-haul) is here assigned to passenger
Source: According to data from the DGAC (Direction Générale del’Aviation Civile), France

It is widely accepted that aviation contributes about 2% of global anthropogenic emissions of CO2. This relatively low figure is often put forward by airlines to reject regulations aimed at reducing their emissions. However, this value of 2% should be discussed.

What is the impact of an aircraft on climate?

First, the figure of 2% only takes into account the impact of CO2- emissions. However, the devices also emit ozone, soot, sulfates and slipstreams, which aggravate the greenhouse effect. The fact that the gases are released at high altitude must also be taken into account. Thus, the climate impact of aircraft is much higher than that of CO2 alone. Consequently, according to the IPCC, commercial aviation would amount to 3.5% of global warming due to human activities. This calculation does not take into account the action, still poorly understood, of aircrafts on cirrus cloudiness. Aircrafts are suspected of promoting the formation of these high clouds that also contribute to global warming.

Let’s add that the emissions of the aviation sector are rising fast. According to the IEA, CO2-emissions related to the fuel consumption of this sector increased by 87% since 1990. This increase is mainly due to traffic growth, estimated at 50% since 10 years by the IFP. Though, technical advances aimed at reducing consumption of devices are undeniable: according to Airbus, a new generation aircraft like the A319 consumes 20% less than equipment delivered in 1980 and 40% less than an old generation devices. But these improvements are insufficient to offset the development of the sector.

Moreover, the trend should continue: The IPCC report of 2007 foresees an increase of 3 to 4% per year of emissions coming from the aviation sector.

An economic model in danger

Obviously, this situation constitutes a risk for airlines. Kerosene is a major cost item. It was, for a long time, stabilized between 10 and 14% of the total costs of a company because the rising fuel prices were counterbalanced by less and less consuming devices. Note that this percentage varies greatly from one company to another: it is much higher (up to 10 points) for low-cost airlines, which have reduced other cost items.

But this percentage is, in recent years, increasing. It was estimated at 18% in 2004 by Airbus. “Globally, oil, given the quality of our hedges, represents approximately 21-23% of our operating costs, but if we argue on fuel costs before hedging, this percentage would have been very close to 30%” , explained in 2008 Philippe Calavia, CFO of Air France-KLM.

Thus, companies are exposed to the fuel price risk, for which they are covered by long term supply-contracts. They recently also are exposed to carbon risk, i.e. the risk that environmental measures being taken to reduce emissions of greenhouse gases (GHGs) cause a high price per ton of CO2 emitted.

Exposure rate to carbon risk

To measure this risk (not only in the airline industry), the rate of exposure to carbon risk has been created. This indicator is defined as the amount of GHG emissions (tons of CO2 equivalent (t eq. CO2)) to generate a net income of 1,000 Euros. For air transport, the exposure rate is in the order of tens of t eq. CO2 k €. This value is given for information but the rates of exposure to carbon risk are really meaningful when applied to a particular company because of the very varied situations. In practice, this figure means that if a ton of CO2 emitted by airlines is valued at 15 Euros, a company must pay 150 Euros “tax” for 1000 Euros of net income, an aspiration of 15%.

This calculation is only valid in the case of the introduction of a carbon tax, a solution still under review at European level. Regarding the aviation sector, the chosen mechanism in Europe is the integration in the system of emissions trading scheme which will become effective in 2012. Only tons of CO2 beyond the allocated quota must be purchased on a carbon market, which severely limits the impact to the company. Indeed, quotas are usually very close to the observed emissions and only impose a slight decrease in emissions. The bill can still be cumbersome: the mechanism of the European CO2- emissions allowances would cost around 1 billion Euros per year for airlines. The risk is thus highly dependent on carbon regulations decided at the political level.

However, the changing of the competitive landscape with the disengagement of some oil tankers in both refining and distribution, the refocusing of the wholesale players on the core business products suggests new models, new services and even new low cost entrants wishing to enter the market. Meanwhile, new regulatory constraints could change the current situation, and may greatly modify the economic model

Towards a robots development?

Not profitable enough and too much competition from supermarkets, some stations are now mostly replaced by robots. They are also called ghost stations because no service is offered, no person is physically present to enquire the customer and payments are made only by credit card.

The U.S. oil giant ExxonMobil, better known by the name Esso in Belgium, has converted almost one third of its Belgian service stations in Esso Express stations. Stations are fully automated, neither staff nor services, what enable it to offer the lowest prices and to compete with the stations of the supermarkets. The Esso Express stations offer improved over the years of services to meet the needs of its customers. A partnership with the Casino Group has set up a system of automatic robots offering between 200 and 300 different products ranging from candy bars to vital products.

However, according to Christian Roux, “in the Elf network, nearly 30% of customers pay cash. The ghost stations do not take them.” If they want to continue to buy fuel in the coming years, these customers will necessarily have to move on to the credit card.

Remaining actors will be those who have the right location to provide many services

For others, the oil stations of tomorrow will be rather multiservice. Next to the fuel distribution pumps we will find “minimarkets, small garages, services related to maintenance of the car,” said Philippe Guillard, Deputy Director of Energy. Thus, the primary interest of this infrastructure could be deeply transformed: goods delivery place, hotel, cultural sites, multimodal place as a complement of a fast loading of fossil fuel.

The stations should also expand their range of products. Indeed, it will no longer provide only conventional fuels (petrol and diesel) but also hydrogen, natural gas-enriched biogas … Moreover, a new public fuel station combining different sources of renewable energy should be built and put into service before the grand opening of the Berlin Brandenburg International Airport in the suburb of Schönefeld in October 2011.

Finally, some people believe that gas stations could become the place to recharge electric vehicles. The reality will certainly be completely different. A long downtime of users is not compatible with a steady stream of consumers. A business model remains to be invented.

Whatever happens, a radical change in the existing model is to be expected. The reorganization of cities and towns as well as the changes of use will shape this new model.

It is easily understandable that oil companies are willing to turn to these considerably large deposits, located in stable geographic areas. So what is the ecological balance of these projects, which were not taken into account in the commitments in the Kyoto Protocol?

The oil sands represent important reserves of oil but are difficult to access

The oil sands are a mixture of bitumen, sand, clay and water born of the bacterial oxidation of conventional crude trapped in rock reservoirs. The main reserves of what is known as unconventional oil or crude bitumen are currently located in the state of Alberta in Canada. These deposits are significant: proven reserves (1) of bitumen in the Canadian soil amounted to 143 billion barrels, placing Canada in second place in terms of largest oil reserves in the world with 176, 5 billion barrels of oil, only to be preceded by Saudi Arabia , whose reserves amount to 264.5 billion barrels.

Map of oil sands deposits in Alberta
Source : www.rncan.ca

However, the exploitation of such reserves is not easy:

• Oil sands are not liquid at the reservoir temperature, thus requiring the implementation of very complex extraction methods
• Hydrocarbons collected are extremely viscous and resistant to flow, they are not transportable in pipelines and cannot be sold directly.
As the traditional methods of extraction “cold flow” production are ineffective on such deposits, oil companies must implement innovative methods of extraction depending on the depth of the bitumen:
• Shallow reserves (less than 75 m) are excavated by surface mining: the ore is dug up from open pit mines using giant shovels and then transported to the processing plants by giant trucks. Once arrived, the oil sands are then crushed and mixed with hot water and solvents to separate bitumen and sand. With this method – which can only be applied to 20% of estimated reserves – two tons of oil sands are needed to produce one barrel of oil at the end of the chain.
• Deeper reserves require the implementation of complex in-situ methods known as “thermal”. Here, bitumen is heated by steam injection (SAGD – Steam Assisted Gravity Drainage) or solvents to the fluid for reassembly. It is then processed to separate oil and water.

Classification of oils according to API gravity and viscosity
Source : Sia Conseil

Such techniques of production and processing of bitumen require huge volumes of water and a lot of energy (steam, electricity, heat), generating significant emissions of CO2.
Moreover, oil extracts are very viscous and very rich in impurities (sulfur and heavy metals in particular). They cannot be commercialized in this form and therefore have to be be exported to other sites with high conversion capacity. In order to transport the oil, it must be made less viscous. For this, the heavy crude can be blended with lighter petroleum, but this technique is complicated by the lack of availability of diluents in the country of production. It is also possible to heat the heavy crude and isolate the pipeline, but in this case the heat loss and corrosion problems are limiting the effectiveness of the solution. An alternative to transport is the in-situ conversion into synthetic crude that is directly usable by refineries. Within an “upgrade”, the extra-heavy crude is subjected to various treatments: desalination, atmospheric and vacuum distillation, coking, hydro cracking and hydro treating. The result of this process is a light, high quality synthetic crude oil that can be sold directly on the international markets.

Thus, exploitation and processing of oil sands require extremely complex, costly and carbon intensive technologies at all levels of the upstream chain: extraction techniques are new, treatments are numerous and the used resources are very important. However, these deposits are of interest to large oil companies because the profit they hope to make.

The emergence of the oil sands is an economic opportunity for the producing countries

It is extremely complex and expensive to exploit oil sands: in addition to Canadian incumbents (Suncor, Syncrude, …), only a few actors (Shell, Total, …) already mastering the entire oil value chain have access to this market and this at a very high cost of investment. However, high oil prices in recent years have made the projects financially attractive. The National Energy Board of Canada estimates that the oil sands, either by mining or in situ, is profitable when a barrel of WTI (West Texas Intermediate) costs between $ 30 and $ 35 (per barrel of WTI is early July 2010 around $ 72).

Moreover, these investments are all the more attractive because oil sands – unlike conventional oil – are located in politically stable regions. It is therefore not surprising to see that the stakes of the major oil companies in oil sands projects have been booming in recent years.

The cumulative production should thus triple between 2007 and 2015 from 1.5 to 4.5 million barrels per day and this while 69% of areas of oil sands in Alberta have not yet been allocated. To date, 3,360 permits were distributed and only 2% of proven reserves have been extracted. These investments stimulate strong growth in Canada, who views oil sands as an opportunity to become the preferred energy partner for the U.S., leading consumer of oil in the world with 18.7 million barrels in 2009.

Indeed, the estimated reserves in the Athabasca oil sands amounted to 2,400 billion barrels. The Canadian State intends to build on the momentum created by the many projects in oil sands development that are expected to satisfy nearly one third of energy needs of the United States in 2015 (the State of Alberta estimated the value of oil investments in 2004 alone to be 6 billion Canadian dollars).

These projects present a real problem at the ecological balance of the Kyoto Protocol

Unfortunately, the extraction of oil from oil sands has a very strong environmental impact: use and contamination of water, soil excavation, waste production, emissions of greenhouse gasses and huge energy consumption are important challenges and optimization issues for these projects.

Quantity of water and CO2 emissions required to produce a barrel of oil
Source : Sia Conseil

Even if exploiters invest heavily in R&D to find ways to reduce the carbon footprint of the oil sands exploitation permits (Methods of clean extraction, carbon capture, etc.), oil sands represent a real economic and political problem for producing countries who want to enjoy the wealth of their resources but are heavily penalized by the pollution generated by oil sands in achieving their objectives of reducing greenhouse gas emissions.

As a result, Canada’s emission levels at the end of 2009 represented an increase of 34% compared to the reference level in 1990, even though Canada had committed to reduce greenhouse gas emissions by 6% by 2012 under the Kyoto Protocol. Prime Minister Stephen Harper does not seem prepared to sacrifice the economic windfall that the oil sands are for Canada on the altar of ecological prudence. Perhaps his Albertan origin is not unrelated to the Prime Minister’s bias…

The development of new techniques leads to a profound change in the energy landscape

The exploitation of oil sands poses an enormous challenge for the oil companies to find new techniques of extraction, transportation and conversion to produce more bitumen with less impact on the environment. These new techniques may also allow the exploitation of other sources of oil (extra heavy oil, shale oil, gas-to-liquid, coal-to-liquid, …), in order to offset the depletion of conventional oil reserves. Among others, Total and Shell invest heavily in R&D to develop new innovative mining techniques, to master CO2 capture, etc. Finally, it seems that the new technologies are putting off the realization of a world without oil.

Sia Conseil

Notes :
(1) Proven reserves: recoverable reserves in the current economic and technical conditions.
The world’s proven oil reserves are 1,476.4 billion barrels (Source = BP Statistical Review 2010)

Although not intuitive, this system encourages the consumer to reduce its energy consumption and thus its bills for those playing the game. But under what conditions is the CWaPE going to implement this reform without penalizing the end-consumer? Moreover, how to guarantee the geographical equity of prices in a country that locally manages energy supply? Let’s take a closer look to the provided report.

Exclude supply from the progressive pricing system would avoid pernicious effects

According to the World Business Council for Sustainable Development published in April 2009, “The unit price charged by the operators is such that it can encourage wasting since discounts for large consumers exist. Typically, the unit price per kWh decreases when consumption exceeds a certain level. Thus, according to the same report, “Reversing this trend would increase the cost of energy for larger consumptions, [but would encourage savings]. »

In California, the first region to accept this principle, the electricity price per kWh increases with the total consumption. The definition of prices being framed by the local regulation committee, prices per unit increase significantly depending on which tariff bracket the client is located, whatever the electricity supplier.

Examples of progressive pricing in California
Click to enlarge the graph
Source: CEC Workshop on Rate Design, Incentives & Market Integration, June 2008

According to the CWaPE, this principle has its limits: indeed, besides the significant increase of clients’ bills in the first place, allowing suppliers to sell their energy at a higher price if their clients consume more could encourage them to propose more energy-using equipments in their bids. Moreover, this would penalize suppliers who have opted for a customer’s portfolio of small consumers. Another contextual viewpoint peculiar to Belgium: energy supply is managed at the federal level and reforming prices would introduce discrepancy between the regions.

To overcome these obstacles, the CWaPE has proposed to establish a progressive pricing only on the share of electricity transportation. Indeed, the network being neutral and managed across the state, to propose a progressive pricing only for the transportation of electricity could increase the end-customers awareness of energy restraint without integrating geographical discrepancies in rates and without forcing suppliers to change their offers. Moreover, the transportation share only represents a minimal part of the total bill and the customer will not see his bill increasing too much in the transition to the new pricing principle.

Only one point is to be regretted in this proposal: the gas would not be concerned by the reform.
Indeed, changing the pricing of gas could cause a transfer of use towards fuel heating and thus increase the carbon footprint of the consumer. Because this reasoning can also be done for customers using an electric heater that will ultimately opt for a gas heater, the CWaPE has recommended in its report the implementation of aids for high-performance means of electric heaters to prevent transfers of uses and keep the competitiveness of electricity. The environment and the electricity distributor will therefore remain the two winners of this reform.

A new source of income to finance the major projects of the electricity distributors

Besides the incentive for the end-customer to control its consumption, the reform proposed by the CWaPE would allow the electricity distributor to have a new and fairer source of income. By penalizing intense energy-using consumers and adjusting invoices for customers who consume less (often the poorest), the national distributor might receive a new lever to fund its projects.

Nicolas Goldberg

Renewable energies and electrical network

European leaders committed themselves to increase to 20% the share of renewable energy sources in the EU consumption by 2020. The intermittency of those sources however still remains a big barrier that needs to be overcome in order to significantly reduce the greenhouse gas emissions linked to electricity generation. Wind and sun can’t indeed be controlled, their forecast is rather imprecise and the generated electricity can’t be efficiently stored.

Denmark, for example, has the biggest wind capacity in Europe but produces a very high-carbon electricity. When the electricity demand from the network is too high, Denmark has to restart its thermal power stations generating thereby pollution.

Solar and wind energies are not flexible enough considering the network balance. It would therefore be interesting to have non-intermittent energies with low gas emissions that could be used as a backup in case of high increase of the demand (following the example of hydropower). Osmotic power plant could fully meet those restrictive specifications.

Basics and technology of osmotic power plants

Osmotic power plants generate electricity through pumping process just the same way as a hydraulic dam does, however when it comes to osmotic power the water is driven back upstream of the pump. This allows having a regular electricity generation but also provides a way to balance supply with demand on the network if water is stored upstream of the pump.

Osmosis is a physical process that happens in many biological mechanisms. Its reverse process can also be used in order to desalinate seawater. The mechanism is the following: when two tanks, one filled with fresh water and the other one filled with salt water, get in touch across a semi-permeable membrane, water from both tanks mix naturally together in order to balance the salt concentration. Only water molecules go across the partially-permeable membrane leaving the salt. Fresh water goes across the membrane and the level in the salt water tank gets higher.

This movement is used to transform the potential energy of the raised water into electric energy with the help of a pump. The Norwegian public company Statkraft has started the first prototype end of 2009 (see figure).

By using natural resources – fresh water and salt water- this technology is neutral for the environment. It can be introduced every place where a watercourse gets into the sea, in the countryside or in the subsoil of port industrial areas for example. Thereby the electricity generation could be moved closer to the consumption place. The combination of osmosis/reverse-osmosis within the same plant would allow choosing between producing electricity and desalinating water and therefore would be also an interesting solution for many developing countries.

However the efficiency of the membranes needs to be improved in order to make this energy competitive. Stratkraft seems to be confident about it: a 25 MW power plant is foreseen for 2015, for a cost of 50 to 100€/ MWh. The world potential production is valued at 1700 TWh per year that is the equivalent of half of the total electricity production of Europe. For Europe, the theoretical capacity is 200 TWh. As for France, our estimates are about 6 TWh which is equal to the French photovoltaic and wind production in 2008.

Electricity production through osmosis seems to be standing for many years to come. If the environmental and energy performances of the membranes also improve, this renewable non-intermittent and environment friendly energy source will most probably be part of the future energy landscape.

Bertrand Demolliens and Romain Cariou

Background
Bertrand Demolliens and Romain Cariou are 22 and just finished their studies at Centrale Paris. During his studies, Bertrand has worked on biomass. Afterwards, during a gap year, he acquired his first experience with a steel manufacturer and in management consulting. Romain joined Centrale Paris in the third year after his studies at l’Ecole Normale Supérieure of Cachan. He carried out several research internships in theoretical physics and also did a study on the energy optimization of a logistics park.

Sources:
- Roadmap for renewable energy sources, synthesis of the EU legislation http://europa.eu/legislation_summaries/energy/renewable_energy/l27065_fr.htm
- Report of the International Energy Agency on CO2 emissions, pg 103: http://www.iea.org/co2highlights/co2highlights.pdf
- Security system of RTE in order to avoid Black Outs :

http://sciencesetavenirmensuel.nouvelobs.com/hebdo/parution/p755/articles/a415887-.html?xtmc=centraleelectriquetournealeausalee&xtcr=

This article of Bertrand Demolliens and Romain Cariou won the second award of the student “Génération Energies” contest on the “Energ’ ETHIC” topic, organized by Sia Conseil, L’Expansion and RTE. You can also find all the articles of the nine winners of the contest on the website of L’Expansion (Chaine Energie de l’Expansion) and the interview of Romain and Bertrand on the RTE blog (Au delà des lignes).
Génération Energies

Génération Énergies is a competition created by Sia Conseil, in partnership with RTE and the Expansion. The principle was for all the participants to write an article on the topic “Energ’ ETHIC”. For its second edition, the competition met a very sharp success, thus illustrating the importance for the students of the stakes connected to the future of the energy sector. In the presence of a prestigious jury, the nine best articles shared a sum of 6400€ and are progressively published on the blogs of Sia Conseil and L’Expansion.

The small world of microalgae is jubilant: the New Year is promising. In December, the Secretary of State for Energy, Steven Chu, opened the ball: he announced investments of $54.5 million for Sapphire Energy (Project Sapphire Energy promised in an investment of 600 million dollars in 19 projects biorefineries. It has a loan guarantee of up to $54.5 million. See the DOE website). The company sponsored by Bill Gates wants to develop a method that grows and transforms microalgae into biodiesel.

One month later, $44 million were mobilized for a consortium working on microalgae production (The National Alliance for Advanced Biofuels and Bioproducts was built around industry and universities to develop technologies needed for sustainable production of biofuels from microalgae. It is funded over three years under the American recovery plan. See the DOE website). In a few weeks, the U.S. State put $100 million on the table: a massive investment that confirms the growth of the new green gold. The U.S. government announced a target of $160 billion of liters per year for biofuels production by 2022 (See document of the White House “America’s Growing Fuel, An Innovation Approach to Achieving the President’s Biofuels Target”, 2009 (PDF)). In other words a potential market of nearly $100 billion dollars that is accessible for microalgae at the current fuel price in the United States.

A growing section

Investors are seeing an opportunity in microalgae: the proliferation of companies working on the subject is significant. In 2001, their number rose to 15 in 2006… and 75 in 2009. Among the most advanced companies, Solazyme has already collected $76 million in three rounds. After seven years of existence, the start-up is not the first that went into production and entered several markets (Solazyme has signed a contract of $8.5 million in 2009 – 80,000 liters of fuel – with the U.S. Navy, provides the manufacturer of dietary supplements and Garden of Life and has just announced an agreement with Unilever for bathroom products from microalgae). The company is backed by the powerful oil company Chevron. Rival ExxonMobil has also entered the race by financing a program of $300 million of research on biofuels with algae with Synthetic Genomics. Everybody presents the biofuel with microalgae as the more credible alternative to oil for transportation means. The most promising target is the biokerosene with algae (While EADS invests in research, the most optimistic experts predict that this fuel could become standard in ten years) and has already been tested: in June 2009, Boeing announced that it aircrafts have flown with a mixture of biofuel made from algae.

But this new green business is not riskless: in 2009 GreenFuel Tech, a pioneer industry, collapsed (GreenFuel Technologies has won a contract of $ 92 million with the Spanish company Aurantia for the supply of 25,000 tons per year of microalgae, but has not been to fulfill it due to funding difficulties). The start-up, spin-off of a research lab from MIT, invested $70 million.

Microscopic view of a microalga

Algae too greedy

The strong need for funding is a major obstacle for start-ups in this sector. Bob Metcalfe, a partner at Polaris Venture Partners – which has supported GreenFuel – says (See the analysis of Bob Metcalfe in the Boston Globe) : “The start-ups of the energy sector are not suitable for venture capital”. The funding required to move from the laboratory development phase to large scale production is enormous – especially compared to start-ups active in the information technology sector – and sometimes exceeds funds that are available.

Another hard blow happened several days after an announcement of the Secretary of State for Energy. In a study published in the “Environmental Science and Technology ” newspaper (Environmental Life Cycle Comparison of Algae to Bioenergy Other Feedstocks by Andres F. Clarens, Eleazer P. Resurreccion, Mark A. White and Lisa M. Colosi on the site of Environmental Science & Technology), researchers highlight some unfavorable results of the “third-generation biofuel”. The authors point the finger at the huge needs for energy. Production could generate following them more CO2 emissions than the volumes that can be captured by microalgae – one of the biggest advantages of microalgae is their ability to fix CO2 by using it to grow. This problem comes from the need to feed algae with nutrients, whose production requires considerable energy level. The Algal Biomass Organization (trade association of manufacturers involved in the development of biofuels with algae) denounced the use of old and “outdated” data – for example nutrient needs can be fulfilled by the use of wastewater. To avoid making waves, the professional group announced the end of hostilities by proposing to the scientific team to develop jointly a complementary study.

Bolts on track to be lifted

The manufacturers know they are in a key phase of the development of the sector: the observers foresee a real presence of algal biofuels on the market within 5-10 years. To be competitive, biodiesel must match a sale price of about $0.6 per liter, but the current production cost is about $7.5 per liter. Professionals of the sector brought together for the Conference on biodiesel in San Francisco on the 5th of February 2010 bet on being able to reduce that figure to $0.8 by congregating resources on the production site and maximizing co-products. The goal seems within reach: a public laboratory already announced some results getting closed to this objective (The Defense Advanced Research Projects Agency claims to be able to produce $ 2 per gallon, or $ 0.5 per liter).

The funding announced by the Energy Department should reassure investors and allow overcoming the tricky phase of the crisis. Money, technical advances and consolidation of the sector: all the ingredients are in America to provide a green ocean tide…

Sources:

• US Department Of Energy: www.energy.gov
• The Boston Globe: www.boston.com
• Environmental Science & Technology: http://pubs.acs.org
• Oilgae: www.oilgae.com

This article has been written by Marion Solletty. She obtained the third price student contest about the “Energ’ETHIC” subject, organized by Sia Conseil, L’Expansion and RTE. You can also find all the articles of the nine participants of the contest on the website of L’Expansion (Chaine Energie de l’Expansion) and two interviews of two winners on the RTE blog (Au delà des lignes).

Génération Energies

Génération Énergies is a competition created by Sia Conseil, in partnership with RTE and the Expansion. The principle was for all the participants to write an article on the topic “Energ’ ETHIC”. For its second edition, the competition met a very sharp success, thus illustrating the importance for the students of the stakes connected to the future of the energy sector. In the presence of a prestigious jury, the nine best articles shared a sum of 6400€ and are progressively published on the blogs of Sia Conseil and L’Expansion.

The Conference of Copenhagen of December 2009 was the occasion to remind that the environmental cost of the comfort and mobility level which we acquired is heavy. In the Union of the 27, the energy industry and transport are respectively responsible for 32% and 19.5% of the CO2 emissions of the zone. In order to reduce our contribution to the climate warming, it is essential to limit the share of hydrocarbons in our energetic mix by developing the electric vehicle and by benefitting constantly from the electric potential offered by the energy sources which don’t emit CO2. There exists a clever system conceived to carry out these two objectives at the same time: the V2H or Vehicle-to-Home.

The V2H concept uses the battery of the electric car to modulate the electricity consumption of the house. Each vehicle, thanks to its battery, potentially constitutes a power storage unit which can be placed at the disposal according to the domestic needs. It enables to smooth the load curve of the network by connecting the battery to feed the house at the time of the consumption peaks, when the network resorts to the production via polluting hydrocarbons power stations and provides power with high carbon contents. In off peak period, the battery refills on the network with baseload power produced by power stations not emitting CO2. If the consumer benefits from an offer with peak and off peak tariffs, he will be able to strongly decrease its invoice of power. And if the implementation of a carbon tax on power is created, the potential savings will be higher.

“Vehicule to Home”concept

This system also constitutes a remarkable means of development of local renewable energies production capacities. More and more residentials produce their own power thanks to solar installations. Whole districts organize themselves to ensure their energy independence, let’s quote the successful example of the Vauban district in Germany: residential zone able to ensure its own energy needs. In spite of the rise of initiatives aiming at promoting renewable energies, their intermittent character is a serious obstacle with their development. With the V2H, the totality of recoverable produced energy can be stored and placed at the disposal according to the needs. This system also enables to start the transition towards the power vehicle which is essential in order to reach the energy independence of the European Union: the road sector depends to 96% on oil products and the share of imported oil could reach 90% in 2020. The power vehicle requires a network of charging terminals distributed on all the territory.

The needed infrastructures are lacking. The installation of a V2H system offers to the residential a means of reloading his vehicle at home. The deployment potential at large scale of the V2H concept is immense. The communes can use the public transport network, when it is not in service, to supply the buildings or public lighting. Photovoltaic power stations can be installed in parkings, as the Dutch Neville Mars imagines, with the “solar forests” and reload the vehicles stationed the day. The quantity of energy to be recovered for later uses is considerable: a parking with 10.000m2 of photovoltaic power stations could generate between 800 and 1200 MWh per year according to the area, equal to the average annual needs for 213 to 320 electric vehicles.

V2H features will go increasing with the development of batteries. The capacity and the output of the lithium-ion batteries considerably increased and charging times clearly decreased. The manufacturers now propose power vehicles comparable with the thermal vehicles. The V2H offers to the EU a solution which would ensure the continued existence of the development mode which characterizes our modern society. Thanks to the funds exempted by the European Commission and the projects as the CONCERTO program which supports the local steps which exploit renewable energies and the sustainable home, the Union gave itself the means of successfully developing and diffusing this concept in all the area.

Marie Urban

Marie URBAN is student in Sciences PO Paris with a financial and strategy master. With an international profile, via its expatriation in Tanzania and by the Asia program of her school, her points of view about the energy evolutions are declined on the technical, economic and international plans. Her « Ecocampus » association intervenes in the awareness of universities about sustainable development. Marie URBAN already won an award at the first edition of the Generation Energies competition last year for her article about the future of energy storages.

Sources :
- Site de l’ADEME : www.ademe.fr
- Programme européen concerto de construction de quartiers :

http://cr-bourgogne.fr/download.php?voir=0&document_id=2846

- Site d’Eurostat : http://epp.eurostat.ec.europa.eu
- Site de l’Agence européenne pour l’environnement : http://www.eea.europa.eu/fr
- Site du ministère du développement durable :

http://www.developpement-durable.gouv.fr/

- Site de Cnet news : Electric cars seen as killer app for smart grid June 20, 2009
- http://news.cnet.com/8301-11128_3-10269723-54.html
- Site de CSIRO : Australian Commonwealth Scientific and Industrial Research Organisation: Plug-In Hybrid
Electric Vehicles http://www.csiro.au/files/files/ptec.pdf
- Plugging Into An Electric Vehicle Revolution ScienceDaily (Oct. 27, 2009)
http://www.sciencedaily.com/releases/2009/10/091027101409.htm; Car Prototype Generates Electricity,
And Cash ScienceDaily (Dec. 9, 2007)

http://www.sciencedaily.com/releases/2007/12/071203133532.htm

- Site de Toshiba: New battery offers unsurpassed recharge performance and high energy density 25/03/05

http://www.toshiba.co.jp/about/press/2005_03/pr2901.htm

- Site de American Geological Institute The Race to Connect Cars, Communities and Renewables

http://www.geotimes.org/aug05/feature_pluginhybrid.html

- NREL National Renewable Energy Laboratory of the US department of Energy, Office of Energy Efficiency and Renewable Energy : http://www.nrel.gov/¬vehiclesandfuels/¬hev/¬plugins.html

Génération Energies
Génération Énergies is the competition created by Sia Conseil, in partnership with RTE and the Expansion. The principle was for all the participants to write an article on the topic “Energ’ ETHIC”. For its 2nd edition, the competition for met a very sharp success, thus illustrating the importance for the students of the stakes connected to the future of the energy sector. In the presence of a prestigious jury, the 9 best articles shared a sum of 6400€ and are progressively published on the blogs of Sia Conseil and the Expansion.

During the EU Sustainable Energy Week hold in March 2010 in Brussels, Europe multiplied conferences on those topics and tried to stimulate concrete actions based on last year’s directives on renewable.
Low carbon energy with sustainable benefits is the target objective for Europe. Microgeneration is one of the leading options; the customer base can have quite easily access to it. However, some strategic thinking is needed to define the necessary guidelines so as to maximize the outcomes of potential wider actions directed to the member citizens.

Euro deputies are convinced that a lot has to be done to change the psychological mindset of the European citizens and the next step in the “green revolution” is to convince the population of the conviviality of microgeneration. Not only can microgeneration be fun because people are able to control their own appliance (i.e.: tune your solar panels so they collect more power), but is also attractive because you can measure the financial gains.

Still, in order to convince the mass, some fundamental elements are needed:

1. The objectives of Europe must be relayed to the final customers. The roles and responsibilities of every individual have to translate in simple words that are accessible for all. The only way to reach the targeted objectives is to ensure the participation of all by bringing clarity and transparency in the messages toward the populations,

2. A widespread roll-out of the smart grid network is fundamental for the take-off of the microgeneration all across Europe. It is also a necessity if Europe wants to be able to cope with the energy demand growth from all Member States and the energy security increase in a coherent way (optimizing the balance between sunny southern and windy northern parts),

3. Customer incentives (grants) are also the drivers to capture the attention of customers when the technologies are ready to be used,

4. Creative functionalities and associated marketing messages targeting mass customers.
Europe has a role to play to build these three first fundamentals, but companies also have work to do in order to improve customers’ awareness and play on the fourth fundamental. They must design technologies and associated services that will convince people of benefits of deploying green energy sources and market the usability and the controllability of microgeneration units.

The essential element is to create technologies that everyone in the population can afford not only financially (with the support of governments), but also in terms of comprehension and possession of the technology.

Two factors must be taken into consideration by the Industry to make microgeneration units attractive:

1. The control the appliances

Starting from the installation, solar panels, micro wind turbines, heat pumps, CHP must be easy to install (couple of hours), must be customer friendly, must fit in the current infrastructure and must require only a minimum level of maintenance. Then, the configuration and the daily operations of the technologies should be automated, but ideally in such a way that customers still have the possibility to override the system manually. For instance, people should be able to play with the orientation of the solar panels and a monitor should indicate the optimal angle to generate power. Another example is the custom control of HVAC via heat pumps in the rooms that the customer personally selected in advance. Home automation devices will allow the customer to play with their consumption by remotely reducing the consumption in some part of the house or manually controlling the hours during which e.g. the dish machine and the laundry machine can run. Current communication systems (internet, phone, laptops) should be part of the model.

Example of HVAC via Heat Pumps controlled via a chip card configurable on the personal computer @ RIBO. (Source: www.ribo.fr)

2. The financial/environmental benefits of the appliances

Besides giving more control to the customer, the industry must also support the transmission of information toward the customer. In order to understand and get possession of the appliance, the first thing to do is to display relevant information for a residential customer. The best way to do this is to integrate functionalities that people really care about: money and environmental savings. The benefits of investing in clean and low carbon technologies must be passed on by word of mouth. People should start talking with their friends and families about the 30€ they saved last month with their new solar installations, or about the 400grC02 reduction of their carbon footprint after having installed a micro CHP. Not only it is carbon reduction related to financial gains through efficiency, but it is also the only thing the population can understand easily when talking about energy.

Example of In-House Remote Displaying software (here via Iphone): consumption and costs @ VisiblEnergy. (Source: www.visiblenergy.com)

For Europe, the right channel to communicate and deliver concrete outputs from directives and other initiatives is probably via corporate organizations, industries and energy professionals. Those market actors have longstanding relationships with the customers and a concrete view on the difficulties to balance environmental considerations with the competition and the global growth of economy. For those reasons, Europe is right to promote the use of microgeneration for the mass market and to be assisted by the most important vectors, which are the experienced and creative professionals. Europe must become the entity that will deliver the most optimal solutions by gathering and distributing information regarding technologies, returns on experience and best practices in matter of microgeneration and its marketing.

Cristina Morere – cristina.morere@sia-partners.com
Jean Trzcinski – jean.trzcinski@sia-partners.com

A. Abstract

The key messages to keep in mind after reading this position paper can be summarized in two points:
- Sia Partners thinks that the grid optimization process has to be reviewed along a trajectory, including
an intermediary step towards more active short term optimization based on demand response.
NB: Due to our core business activities, we have not focused on the engineering parts of the
document.

- The document should address several weaknesses of structure, including but not limited to:
hypothesis, stakeholders’ benefits, financial figures. More generally, Sia Partners thinks that ENTSO-E
could clarify the design of the ENTSO-E R&D Plan document through a project-like approach,
where results would be displayed along a roadmap with the following main matters addressed:
o Description of the current European grid situation,
o Description of new rules lay down by the Third Energy Package,
o Impact analysis on the European grid,
o Definition of the target in term of European grid characteristics,
o Description of the main projects defining the roadmap,
o Risk analysis on the overall program.

B. Sia Partners’ point of view

1. Grid optimization process

Currently, short term optimization of the grid is based on forecasted information coming from both power generators and power suppliers: the power demand capacities and the production power capacities. For the TSO, the process of balancing is critical from the day-ahead to the intraday in order to stabilize the grid. This model of optimization is passive. Limited actions can be done to third parties infrastructure.

On the demand side, with the arrival of a more decentralized generation landscape, the challenges for the TSO but also for the DGO will be to gather enough information to forecast the gross consumption of the final consumers. In other words, not to know what they will consume but the difference between their consumption and their local production. In addition, a non-negligible share of the local production will be generated from wind or solar powers which are two sources that are extremely difficult to forecast, especially when plenty of units with low capacities are spread all around the grid.

On the centralized production side, as mentioned on page 37 of the consultation document, the quality of the generation forecasts is becoming much poorer due to current processes of cost and revenues optimization.

The R&D Plan document presents a vision aiming to bring an effective solution with the use of “demand response to better control the system”. The concept of an active model for optimization intends to create “sufficient controllable load” that TSO could operate via financial incentives toward customers or producers of power to reduce their impact on the networks. However, today, no studies can prove the benefits of the demand response. What share of the total load will be adjustable through demand response mechanisms?

No centralized system can forecast the local effects of the weather on local production.
As summary, on one hand, “real” grid off take will become much more complex to forecast. On the other hand, the concept of demand response is not mature yet. Sia Partners believes that a trajectory must be designed for the future model of short term optimization (including partially the results of the demand response studies). The roadmap toward a more active short term optimization based on demand response should include an intermediary step studying mainly the:

- Redesign of process for data collection including forecasted volumes for local production,
- Enhancement of data quality reducing residue factors,
- Standardization of statistical modeling techniques across TSOs,
- Powerful software forecasting wind and solar capacities in day ahead for TSO on centralized
networks and for DGO on decentralized networks.

Finally, the findings related to the benefits of demand response – if confirmed relevant – have to be included as one element among others in the process of short term grid optimization.

2. Hypothesis related to the R&D plan

ENTSO-E R&D Plan sets different projects that have to make sure that in 2020 and beyond the grid technical characteristics will cope with new constraints: more renewable sources, increase of local production, numerous cross borders integrations… To move forward within an integrated European grid solving those issues, it’s mandatory to identify which parameters are used to define the models of the existing TSO European network. Indeed, each TSO having its own grid architecture managed by its own social, economical and environmental rules, discrepancies in their parameters and thus in their modeling processes should interfere with the implementation of the project 6.1 (A Toolbox Allowing New Network Architecture Assessment In The Pan-European Transmission System). Indeed, this project expects to gather relevant, accurate and complete common information from the TSOs to start with building a simulation tool.

This first step of getting information should be set up in a specific project which could avoid leading to a delay in the project 6.1 if difficulties are met to define a model with shared characteristics. Sia Partners would advise ENTSO-E to setup e.g. a project 6.0 where each TSO involved in ENTSO-E R&D Plan will define its grid parameters according to the 6.1 project requirements.

This project 6.0 could also benchmark each TSO with topics useful for the rest of the projects:

- Shareholders and financial figures,
- Organization,
- Role, obligations and relationships with other Stakeholders of the electricity value chain,
- Tariff structure,
- Catalogue of products and services,
- Mechanisms of data exchange,
- Environmental, social and economical commitments.

To design projects belonging to the Cluster 4, it could be interesting to point out from this benchmark the best local practices of each TSO (e.g. organization, rules).

ENTSO-E R&D Plan mainly focuses on the technical scope of tools that have to be developed to support the grid expansion. The topics defined by the cluster “Market rules” must also tackle incentives mechanisms that should be put in place to reach the expected technical expansion (e.g. penalties/incentives to avoid too high volatility with RES generation, combine RES and grid extension licenses). These incentives could be tackled within a specific centralized project to avoid non optimized individual mechanism.

3. Involvement of other stakeholders

As the pursuit of a pan-European grid requires more than only TSO involvement, it is clearly stipulated in ENTSO-E R&D Plan that other stakeholders can and should be involved into the consulting process of this roadmap, first in an informal way and further in a more formal consultation.

Despite the extensive description of the base work streams including the detail of the partners that should be involved, Sia Partners believes that an inventory work should be organized prior to the start of the R&D activities in order to identify the relevant skills and profiles for each field of investigation. This inventory work should aim to create a complete Expert Contact Book. This Contact Book would certainly allow ENTSOE to quickly benefit of the existing knowledge available on the market by contacting the relevant expert or academic. Efficiency of this Expert Contact Book will be conditioned to its good maintenance and to an appropriate platform to share the information.

A first description of the potential involved partners per base work streams is provided in the Annex 1 of the R&D Plan document. The identification provides already a good view on the type of partners that will be invited to participate to the R&D work. However Sia Partners believes that a larger involvement of the ERGEG in the R&D activities would be appropriated to facilitate the industrialization of the results. Indeed, the association of European regulators, through the national regulators, will certainly deliver its opinion on simulation results or envisaged market and infrastructure design.

Therefore Sia Partners believes that regulators’ involvement at an earlier stage would speed-up the approval process at the national level for the implementation on the different markets. On specific topics such (but not limited to) the Congestion Management and Renewable integration, Sia Partners recommends to involve the Power Exchanges’ expert in order to leverage on their market expertise.

Involvement of stakeholders such as academics and external experts in the framework of ENTSO-E R&D Plan would need to setup an ad hoc organizational structure to coordinate their contribution. This aspect is a critical factor to successfully integrate heterogeneous teams and deliver results in the shortest possible time. In order to achieve that, Sia Partners would recommend ENTSO-E to setup a structure which allow each stakeholder to identify their roles, their deliverables, the decision making process, etc

Sia Partners detects that there is within the base work streams not one work stream where TSOs are not involved (chapter 6); compared to the already existing projects (chapter 8), where there are two (DESIRE and ADDRESS) without TSO involvement. Then, Sia Partners recommends ENTSO-E either to mention explicitly that there are no other initiatives to be triggered not needing any TSO intervention or to provide an overview on initiatives to take not only with the other industries but also within the other industries.

Cooperation with other partners is mentioned in the base work streams but cooperation with other industry associations is not mentioned. Therefore an investigation should be done to highlight projects that need to be delivered to make ENTSO-E R&D Plan possible at other industries such as DSOs, producers, Power exchanges, telecommunications, electrical car manufacturers, energy storage industries and other stakeholders of the electricity value chain.

Once highlighted, these projects would be described with the same level of detail than the existing ones but with also dependencies with other identified projects. It could benefit ENTSO-E to define these projects (with a high level) and to highlight them as milestone within ENTSO-E R&D Plan roadmap. If such projects are lead by DSOs, Manufacturers, or Regulators, ENSTO-E will have to define, follow and mitigate risks that should occur on its own R&D Plan projects.

Opinion of every stakeholder is taken into account in this R&D Plan, but the real benefit they can retrieve is not sufficiently highlighted. The danger is that some stakeholders won’t have enough incentive to participate in this R&D Plan and that the development can therefore go in a too much directional way without taking sufficiently into account the diversity of existing stakeholders. This lack of precision in stakeholders’ benefits is as well present on the general description level (chapter 5) as it is in the base work streams (chapter 6).

For example, Sia Partner recommends in base work stream 6.5 “Demonstrations for renewable integration”, to refine on what basis DSOs, generator companies and manufacturers will be selected and convinced to participate in this project. Also, more precise information can be given concerning the cooperation on new technologies and IT solutions of competing players and what the benefits would be for them. A second recommendation can be done in base work stream 6.13 “Tools for the integration of active demand in the electrical system operations”, where is mentioned the need of stakeholder coordination and the problem for “early adopters on sunk costs and integration and interoperability issues”. But again the precise procedure on how to contact and convince other parties (eg. Telecom providers) to participate in this R&D project is not stipulated in enough details.

4. Financial figures

ENTSO-E R&D Plan provides costs spread by cluster (p46 table 5.1). This view has to be established at “projects” level of this roadmap. Indeed, as shown table 5.2 p47, ENTSO-E R&D Plan is defined by several projects that will basically involve TSOs, DSOs and all other stakeholders and will be led within individual Project Management structures. Project management activities will contain a periodically budget control due to the fact that TSOs and DSOs will have got commitment from their national regulator to be paid back for their investments in these projects (via the application of their tariff). TSOs will only get this commitment from their national regulator only if they can provide them with a project which can be justified socially, economically and which guarantees the security of supply per country. In order to avoid any late break down in the tariff negotiation process due to lack of demonstration towards the regulator, ENTSO-E R&D Plan should highlight per project:

- The total R&D costs,
- TSO costs’ share and more generally all stakeholders costs’ share,
- A cost benefits of each project spread among involved country (with highlights on hypothesis and
criteria that have been used),
- A risk analysis and associated mitigations that should make the regulator confident with regard to the success of such projects,
- An assessment of the costs that should be invested for the second part of the roadmap
(the project implementation).

5. Implementation phase

The second cluster aims to demonstrate the upcoming development of technologies in the field of innovation. For the ENTSO-E members, the challenge not only resides in listing the technologies which will cope with the future grid architecture but also to foresee when the technology will be ready to be used.

Sia Partners believes that the relevant R&D projects should enclose a detailed business case for each
technology. The business case per technology will be made in collaboration with the manufacturers and will demonstrate the estimated “innovation life cycle” of the technology on a timeline. The technology assessment will provide:

- A view on the time-to-market: year, range of years,
- An estimation of the cost in euro across the years:
o peak prices,
o high prices but sufficiently low to allow demonstration,
o affordable prices for mass deployment of the technology,
- Delays, advances in development,
- Necessary requirements for waiving technical barriers.

The use of such a business case should be seen as a best practice in each R&D project. Indeed, a systematic and mandatory document could provide a complete listing of technologies and their maturity in one sight.

The global overview will help to take decisions based on concrete elements when considering budget
allowances, planning, R&D project’s content and therefore optimize ENTSO-E R&D Plan as a whole.

Also, it would structure the R&D projects by using identical hypothesis all along the research. Year by year, those hypotheses will be dynamically updated with new discoveries, new data and new concepts. The results of each previous R&D could be adapted in a more rapidly standardized way.

The real competitive advantage is not really to identify new technology but to evaluate the time to market of technology in order to take the most advantage of it on the right moment by preparing the infrastructure, adapting operational processes and training the human resources.

http://www.entsoe.eu/uploads/media/03_Sia_Partners_Consultation_-_ENTSOE_R_D_Plan.pdf

The starting point for the development of an integrated market was the liberalization of the European energy markets initiated in 1999. Ten years later, the Third Energy Package enumerates several measures whose objectives are the security of supply, competitive prices (lower and more stable prices), social welfare, etc

In the long run the Third Energy Package aims to reduce the barriers between Europe’s electricity submarkets and should lead to the creation of one single European electricity market. In order to enhance cross-border exchanges, the European institutions enacted the Regulation CESE 758/2008. Effective from the 1st of July 2004, it directly imposes effective rules on cross-border energy trade in electricity in the European Economic Area. The Regulation identifies efficient usage of cross-border capacities by the introduction of day-ahead market coupling mechanisms such as implicit allocations where buyers and sellers on Power Exchanges get automatic access to cross-border energy trade thereby automatically acquiring the corresponding transmission capacity provided by Transmission System Operators.

Currently several market coupling projects have been initiated in the framework of seven regional initiatives which have been created by ERGEG as follow up actions of their public consultation organized in spring 2006 and which are now closely monitored by the European Energy Regulators association. Those projects however have independently adopted different design assumptions and apply different coupling mechanisms. This diversity leads us to the next challenge which is to couple these diverse regional clusters to reach pan-European integration.

How to go about integrating the regional initiatives?

Two approaches are to be considered:

Bottom up approach: This approach, which is currently noticed in Europe, is born with the establishment of the independent regional initiatives. Consequently, the speed and concept of the projects is not harmonized. The regional initiatives follow their own route and present potentially different solutions. Several important lessons learned have already been drawn from the ongoing regional initiatives, which should be taken into account in order to avoid further diversity and to start applying best practice. In a first attempt to couple the EMCC project with CWE market coupling initiative, this becomes already apparent.

At this stage it becomes clear that regulatory guidelines are getting more and more critical. Indication of the best practices, priorities, harmonized standards and working approaches, would make the integration of regional energy markets and ultimately a European energy market more feasible.

Top down approach: The top down approach aims to be more directive in the way to align or to integrate the diverse regional initiatives. It should build a common vision on the best practices and concepts, the staging and calendar of interregional integrations.
In the Third Package, European authorities provide tools for implementing common approach for the European initiatives integration, and consequently with a privilege for the top down approach, considering that approach allows for a more solid long term vision.

In order to implement this Third Package principle and initiate the switch from the bottom up to the top down approach, two roadmaps are considered:

• Dome coupling: diverse regions get coupled by a “central entity or function which determines efficient flows between the coupled market regions (that each uses their own mechanisms to resolve interregional flows and market prices)”
• Horizontal integration: gradually merging adjacent countries into an existing regional initiative with, “where market regions progressively merge, sharing more efficient coupling mechanisms and leading to fewer, larger market regions” (Development and implementation of a Coordinated Model for regional and inter-regional congestion management, ETSO, April 2008)

Once the different market coupling actors will choose compatible approaches, a fast and efficient integration will become possible. However, the time-scale for this ultimate initiative is difficult to predict and partly depends on the success of the current regional initiatives.
Indeed, in order to promote the integration of European power markets, there are several success factors such as (but not limited to):
• Establish a feasible governance structure, installing good and constant communication & commitment between market partners
• Harmonized products and gate closure times,
• Get further support from regulatory authorities who have to adapt local rulings but also to consult with other regulators across their borders, to accommodate coupling initiatives

Those factors have to be taken into account by the different regional integration initiatives, whose short term objectives are not always similar.

Way to go forward in the Integration of the European Market

By analyzing the different ongoing initiatives and the existing mechanisms in place, we can conclude that the difference between the regional projects is important. This situation, being a consequence of the bottom up approach, should evolve towards a better harmonized situation. Indeed, the European integrated market will be a reality only if common practices can be found on several topics and in particular on the four points below:

Source: Sia Conseil

I. Allocation mechanisms
Explicit and implicit allocations of capacities
Main divergences can be observed in allocation method in Day ahead. Out of the fourteen allocation mechanisms identified in the report written by ETSO and Europex, four were realized through an explicit allocation. It’s important to note that this allocation mechanism generates inefficiencies such as sub-optimal use of capacities, non rational use of those capacities and bad valorization.

The inefficiencies of the explicit allocation are mainly caused by the fact that the market participant has to acquire the capacity right separately from his power deal through auctions organized by the TSO without knowing the price of the energy on the national market.

With the implicit allocation, the capacity right is delivered with the energy traded on the Power Exchange. This reduces the risk of the participant as he does no longer have to acquire the capacity right before knowing the price spread between the different markets. This mechanism facilitates market players’ operations and reduces the inefficiencies observed with the explicit allocation.

Implicit allocation through Price and Volume Coupling
Nowadays, there exist different market coupling types (mainly Price and Volume coupling) which can influence the efficiency of the overall mechanism. Price and Volume coupling both have the particularity to implicitly allocate the interconnection capacity by matching demand and offer of the coupled area.

• Price Coupling
The price resulting of the coupled area is calculated by a central algorithm based on the order books of each hub. Once loaded, the algorithm determines the optimal price and volume for each hub under the constraint of the capacity available on the relevant borders.

• Volume Coupling
The volume coupling mechanism works similarly to the price coupling except that only the volume exchanges between hubs are centrally calculated. A local recalculation of the price is performed on a national level which generates inefficiencies due to a local price calculated by different algorithms.

- Implicit allocation of the capacity should be implemented on all borders to guarantee an optimal use of the capacities.
- Price coupling must be the “Targeted model” even if volume coupling or hybrid mechanism could be envisaged as intermediary solution to facilitate problematic linked to the governance.

II. Capacity Model
The Capacity Model is used to define the available interconnection capacities between two countries taking into account the daily parameters (long term nominations, defects on the grid, temperature …). In a market coupling mechanism, a part of the available capacities is put at the disposal of the Power Exchanges to operate the day-ahead coupling of the region.
Here again, two different models are identified with their respective advantages and drawbacks.

Available Transmission Capacity (ATC)
This model is commonly used in the different countries. The representation of the grid and the interconnection are simplified under the ATC model. Indeed, instead of considering the reality of the network (which could be quite complex), this model considers the interconnection as a virtual tunnel that allows to transfer a certain capacity of energy from A to B. ATC model has the favor of the market players due to the fact that they are used to work with it and that the forecasting of the price is much more easier than with the Flow Based.

Flow Based (FB)
The European authorities via the European regulators promote the use of Flow Based model. More complex, this representation is closer to the reality and physical interference of the grid. This model allows a better forecasting of the cross border capacities and therefore a better use of the grid which contributes in the improvement of the coupled area social welfare while respecting the constraints of security of supply. Beside these advantages, European TSOs are struggling to finalize the setup of the new model due to the complexity of it and lack of practical experience related to the Flow Based.

- Transmission System Operators in Europe must acquire empirical experience on the Flow Based and spread the knowledge prior to the use of this model on the Grid.
- Each market players will have to adapt their internal practices and strategies in order to deal with the Flow Based model

III. Governance
The Governance challenges are gigantic and discussions to come up to an agreement take time and resources. Basically, two options are available to the different actors of the regional initiatives in order to guarantee a good governance of their coupling mechanism.

Set of agreements
As a first option, collaboration and responsibilities can be arranged through a set of agreements. However, due to the often numerous actors, having their own interests, the discussions and negotiations to reach an agreement are tough.. The contracts should consider also ways to deal with potential extensions.

Common entity
Establishment of a common legal entity for the governance of such a mechanism centralizes the majority of the negotiations at the beginning of the collaboration. The status of this entity should be designed to facilitate the extension of the coupled area by providing access to shares of the common entity.

- To achieve the integration of the European market, a strong and flexible governance structure must be designed to gather all regional initiatives under a Pan European Governance structure
- Rationalization of the number of stakeholders taking part of the coupling operation would ease the discussion and the elaboration of a robust governance structure facilitating the extension to new initiatives or markets.

IV. Harmonization of the rules
The harmonization of rules applicable on each market is also a precondition to successfully finalize the integration. So far, commonly accepted market rules have not yet been defined. In fact, to be successful in this regional coupling matter, the regulating force should also be passed on to a supra-national level. This point remains a major challenge for the market coupling actors, as the initiatives have to be validated by the common regulators involved in their region, which is an additional negotiation process to be handled as such. The harmonization in terms of transparency, process timing such as gate closure, nomination deadlines and standards remains critical for the ambitious project of an integrated European power market.

There is an absolute necessity to give enough power to a supra national authority, such as the European Agency as proposed in the Third Package, in order to facilitate the standardization of the practices related to the international operations. (interconnection capacities, Cross border trades, cross border nominations, etc)

Final Thought

The status update elaborated in our paper demonstrates that the bottom up approach has been a successful first step since it puts in action stakeholders on different markets and gave birth to several crucial initiatives which allowed to identify best practices. However the diversity of the different market coupling projects also shows that a second step has to be taken to achieve the European integration of the power market. On this point, the Dome coupling and Horizontal Integration proposed in the final report published by ETSO and Europex are relevant and should capture the attention of all stakeholders involved in the integration. The two models are currently feasible and should be analyzed in detail in order to contribute actively to the harmonization of the four common practices tackled in our analysis.

While Dome Coupling seems to facilitate the progressive integration of the different regional initiatives and to respect specificities of each coupled area, the horizontal integration is an eligible final model to achieve the European integration of the electricity market because it naturally builds on the favorite Price Market Coupling model. Within this period of uncertainty about the right approach for the future, it is very positive that the DG TREN of the European commission has recently started to share its thoughts about the staging and calendar of the inter-regional integration process.

The completion of the electricity markets integration will be challenging due to the level of “harmonization” and “robustness” requested to the central entity responsible of the coupling activity for the European region. It is reasonable to think that those two characteristics can be fulfilled if the number of stakeholders involved in the integration can be rationalized. Reduction of parties shall definitely happen via common entities – representing TSO’s, PX’s, and regulators – created to couple the European Market. It should speed-up the integration process while respecting the interest of each actor (individuals TSO’s, PXs and regulators) involved in this ambitious project.

Let’s bet that the power market integration will follow its way and that the concerned actors shall take the appropriate actions to facilitate the finalization of an integrated European Market for Electricity and take a leap from there to start thinking about an integrated market for the Gas markets.

Florence Carlot – florence.carlot@sia-partners.com
Alexandre Torreele – alexandre.torreele@sia-partners.com

To make their customers’ portfolios grow, those suppliers can basically use market characteristics commonly shared by all of them (e.g. device’s time of used, subscription of power, spot & future prices). That’s why, after a few years of market opening, the suppliers have to find other levers to provide competitive prices: the costs used to make the pricing can be optimized for many suppliers by following an analytic approach based on the analytical accounting.

The main Belgian energy suppliers have their electricity products for Business customers mainly spread within three main categories, Fix/Floating, Indexed and Green Fix:

Electrabel / ECS and SPE are sharing most of the energy market with a range of offer covering all categories. One option that could be foreseen for alternative suppliers to compete with Electrabel / ECS and SPE is to offer the same products but with a lower price issued from a cost optimization approach.

The main objective that a supplier should stand is to optimize the costs of the activities used to provide customers with products and services. In this context and since IT is now closely linked to the business activities, it becomes possible to propose the suppliers an approach using the analytical accounting figures to calculate faithfully the costs of their products and services.

Several methodological approaches (e.g. Balanced Scorecard, Activity Based Costing / Activity Based Management, UVA) can be applied to reach such objectives of costs optimization without deterioration of the quality and the performance of the processes.

Based on its extensive knowledge of the financial processes, Sia Conseil considers that energy suppliers could take advantage from an Activity Based Costing (ABC) and Activity Based Management (ABM) methodology by following a rigorous analytical approach that could be designed as below:

Source: Sia Conseil

In the ABC/ABM methodology, the heart of the success lies in different key points:

• The Cost Accounting System is detailed enough to provide usable cost pools to apply the ABC/ABM methodology,
• The energy supplier commits in modeling its Business Processes and procedures
• The Top and Middle Management, the departments of Cost Accounting and Controlling guarantee the full access to the requested materials (accounting data, existing processes and activities, existing costing/pricing models, metrics…)

The first step of the analytical approach that Sia Conseil delivers focuses on the capacity to link direct and indirect costs of the energy supplier to the price of its services or/and products. It consists to establish mathematical relations between costs, resources, activities and services/products by using the Business Process modeling approach.

The actions that should be set to perform this first step can be summarized as follows:

• Get resources, activities and services/products from the Top and Middle Management,
• Define the model components linking resources, activities and services/products:

o Define the processes and their related activities,
o List the resources (employees, place, ICT, consultants, advertises,…) involved in the activities,
o Build the catalogue of products and services delivered by the activities,
o Define dependencies between resources, activities and services/products

• Get from the Middle Management and the Accounting Department the consumption metrics:

o Allocate resources to activities (man/days, square meter, number of people,…),
o Link services/products and activities (time per unit, number of cases,…)

• Design the cost model linking resources, activities and services/products
• Get data from the different account systems and load data within the model
• Simulate the customer tariffs calculation:

o Design the model linking the costs with the tariff,
o Identify cost levers that could be used to reach a tariff optimization.

Once set, this model becomes really useful for the energy supplier because it can pursue with the analytic heart of the approach which consists in building scenarios to improve its performance and then defining action plan to implement the selected scenario(s).

The performance is basically monitored by KPIs defined according to the strategy and issued by the modeling of the Business Processes and working procedures. The goal is to simulate the tariff behavior by creating scenarios where modifications are applied to the triptych costs-resources-procedures while being still acceptable in term of performance and costs reduction.

Energy suppliers don’t have to be afraid by such analytic approach because they already own numerous data which are stored in their IT systems such as accounting systems. Usually however some effort is required for data collection and assessment of its quality.

The potential of these activities in terms of creation of wealth and employment – however difficult to measure – is undeniable.There are numerous reasons to believe this is not simply wishful thinking: the increased awareness of environmental issues, exploding global energy demand, rising fossil fuel prices and the growing importance of energy security are all factors favoring the development of a green economy. Will Europe and its member countries be able to benefit from this? The answer is yes, but only if they succeed in maximizing the investment in these sectors. Two essential issues in this regard are the management of public policy regarding these activities, and a good choice of technologies and subsidies associated with them.

Public policy as the main determinant of investment decisions

The International Conference for Renewable Energies held in Bonn in 2004 made it clear to governments that public policy is the main determining factor for investment decisions in renewable energy. In their “Finance Sector Statement”, the international finance community laid out an effective policy framework on green matters:

Loud – the signal to the market, through incentive structures or other means, needs to be ‘loud’ and clear to attract capital into the sector;
Long – rules and incentives need to be stable and sustained for a duration that reflects the financing horizons of the projects or deals; and
Legal – a legally-established regulatory framework based around binding targets or implementation mechanisms is needed to provide the basis for long-life capital-intensive investments.

A big challenge for governments is not the lack of commercial maturity but the diversity of all the different technologies, because this affects the use of subsidies. One has to bet on the “right” technologies and then apply the most effective subsidy methods to each of those technologies.

What technologies and what means?

EU member states can individually determine which green activities are of strategic importance to them, based on the estimated market growth potential and the industrial potential within the member state. Based on these strategic priorities and the current state of development of the different green technologies, governments can decide on how much effort is needed to develop for each of them further. As for the EU, according to the Strategic Energy Technology (SET) plan, the 8 strategic green initiatives Europe will invest in are: Wind power (est. €6Bn), Solar power (est. €16Bn), Electricity Grids (est. €2Bn), Bio Fuels (est. €9Bn), Carbon Capture and Storage (CCS) (est. €13Bn), Nuclear Fission (est. €7Bn), Fuel cells and Hydrogen (est. €5Bn) and Energy Efficiency (est. €11Bn).

However, it is far from sufficient to simply define strategic priorities and allocate budgets. The next step in the development of public policy on green matters is the choice of financial stimulus or aid, tailored to each technology in function of its maturity. Two types of subsidies can be identified: investment subsidies and production subsidies. The former targets immature technologies at the pre-commercial development stage where investment costs are very high, in the form of direct grants, loan subsidies or tax credits. The latter can take among others the form of rebates. It is much more suited for technologies in the early commercial introduction stage, because it requires investigating the performance of production facilities over time and it does not prevent the emergence of less mature technologies.

Indeed, there is not just one “right” form or financial stimulus that works for all segments of green technology, so public policy must be tailored to each technology in accordance with the strategic priorities. Subsidies for investment are suitable for thin film solar cells, smart grids, CO2 storage, offshore wind, ocean energy, second and third generation bio fuels, geothermal and biomass facilities. On the other hand, bulk solar cells, onshore wind and first-generation bio fuels should benefit from subsidies for production only.

Will Europe benefit from green development?

Since the signing of the Kyoto Protocol in 2005, investments in renewable energy have grown rapidly and have mostly been focused in Europe, as shown in the chart below. Even if the crisis caused investments in renewable energy to practically come to a halt, the trend for the future is clearly one of growth. A study conducted by an audit firm among a panel of executives from the energy and financial sectors in early 2009 shows that 78% of these business leaders believe that investments in renewable energy projects are economically viable. Unfortunately for Europe, if we look closely at the geographical distribution of the investment intentions, it is likely that most of these investments will be made in the United States and China. The United States are technologically ahead and Chinese industry can already generate economies of scale on certain technologies, including solar photovoltaics. Both countries have allocated a very high share (respectively 67 and 68 billion dollars) of their recovery and reinvestment plans for 2009-2010 to green matters, and China made very large subsidies (up to 2.93 $ / W installed) available for solar photovoltaics. As a result of these efforts, China has quickly become the world’s largest exporter of solar photovoltaic panels. Finally, the United States sent a strong message to investors by communicating very clearly on the budgets allocated to each technology and their maturity dates.

There are many ways in which the government can boost the economy but money spent on renewable energy and energy efficiency has been shown to create more jobs than spending in most other areas. A study by the Political Economy Research Institute at the University of Massachusetts released late last year, outlined that an investment of $100 billion dollars in greening the economy (investments in energy efficiency, clean energy and infrastructure) would yield 2 million jobs over a period of two years. They projected that this number is four times as high as the number of jobs that would be produced if that same investment were made in oil and gas production.

Evolution of global investments ENR 2002-2008 (in million €)
Source: Finance New KPMG

In conclusion, public policy must be targeted and tailored to markets and investors. If Europe truly wants to position itself as a “green” leader, decisive choices between different technologies and for the right subsidies will have to be made. For solar technologies for example, the rebates given for the first photovoltaic generation are not suitable for the much less mature thin film solar cells. But these rebates prevent the development of the second generation of solar photovoltaics because they are not profitable in comparison. To promote the development of thin film solar cells and increase its market potential, subsidies should be given for the installation. The geothermal technologies and technologies such as Smart Grids must also be developed because of their potential: countries, in addition to putting in place grants, could therefore also consider increasing its direct investments in R&D sector. Finally, communication on matters of public policy should be clearer and the mechanisms should be simpler, so as to reassure and give more visibility to investors.

Sources :
- Chatham House, Kirsty HAMILTON, Unlocking Finance for Clean Energy: The Need for ‘Investment Grade’ Policy, December 2009.
- UNEP, Sophie JUSTICE, Private financing of renewable energy –a guide for policy makers , June 2009.
- New Energy Finance, Global Trends in Clean Energy Investment, September 2009.
- KPMG, The Winds Of Change, June 2009.
- CIRED, Dominique FINON, L’inadéquation du mode de subvention du photovoltaïque à sa maturité, December 2008.
- PERI, Robert Pollin et al, Green Recovery – A Program to Create Good Jobs and Start Building a Low-Carbon Economy, September 2008.
- Investing in the Development of Low Carbon Technologies (SET-Plan), October 2009.

The emerging mega projects

The lines with D.C. make it possible to see large and far. Thus, since their effectiveness is recognized in the world of high voltage transmission on long distances, many projects were born. New interconnections, still considered to be whimsical a few years before, are in the course of design, even of construction. Let us quote among them the most ambitious :

• Brazil considers to build the longest electric line of the world: the electricity produced with the water falls of Rio Madeira will be conveyed for 2375 kilometers until the South-west of the country. This project, whose project superintendent will be Areva T& D, is envisaged operational since 2013 and will transport more than 6300 MW through the country.

• China, in its race with electricity, energized the greatest hydroelectric site of the world. The Three Gorges Dam approximately produces 85TWh annually, which corresponds to the yearly consumption of Belgium. Three lines to feed Changzhou (with 860km), Huizhou (with 940km) and Shanghai (with 900km) were inaugurated between 2003 and 2006. A new line of 2070 km this time, will be finished in 2010 to supply Shanghai in electricity produced on the Blue River this time since Xianjiaba. China expects a lot from HVDC lines to benefit fully from its immense hydroelectric potential.

• Europe also positions on the sector since most ambitious of all the renewable projects, Desertec, is economically viable mainly thanks to the effectiveness of the HVDC. Indeed, the project the Sahara Wind estimates that the average losses between North Africa and Europe will be of 7,5% for a maximum not exceeding 15%. Desertec could make profit Europe from a energy up to a total value of 17% of its consumption only by concentrated solar power.

Energy sources and interconnections of Desertec project
Source : Desertec

Supergrid : A tranmission super-grid

Since the election of Barrack Obama, HVDC projects are also launched in the United States. One of the researchers participating in these projects, Gregor Czisch, advances that the supergrid of transport brought to be created through Europe within the framework of projects as Desertec will allow a generalized connection of the whole sources of renewable origin. This grid will represent a source of electricity more stable than renewable productions taken separately, since the zones of sunning and wind will be equal to the size of Europe and the Maghreb. It will be thus possible, not to produce electricity locally in a limited way, but well where it is more in abundance. Their objective is also to build a supergrid in the United States.

However, this “super-grid” raises some technical interrogations. The question of the interconnection with the existing grid system requires an economic optimization, as well in the choice of the converters localizations as in their natures. The management style is important to develop because this grid could be seen like a power source, such as a power station, or like a part of the grid system, and thus been subject to the balancing rules. One can estimate however that the problems of the HVDC will not affect the projects on the distribution networks (as for example Smart Grid) with which they do not interact directly.

The estimated invoice of the European “supergrid” is up to 1,2 billion euros. However studies showed that it was possible to convert part of the high voltage alternatives lines used currently into HVDC. This option, considered inexpensive, requires a modification of the pylons, in particular to lower the height of suspension of the lines, which could present security issues. Let us note that, without more changing the equipment, the usable tension doubles with conversion with the D.C., therefore the transportable power would be more than tripled!

HVDC lines have the potential to create a power grid for a whole continent. It would make it possible to produce broad quantities of renewable energies on optimal sites, and to convey them for the whole of the places of consumption, without problems of distance or compatibility between networks. The technical main difficulties to solve are rather about the safety of the installations and its optimization compared to our existing grid system, and to find an adequate financing. But, according to the promoters of this technology, the return on investment will be fast in comparison with the assessed increase of the carbonaceous resources costs.

It can represent a major turning in the structure of our electricity networks. Discover initially why this type of current interests the engineers again

Why our current is alternating

If the A.C. was a real success in the American States then the whole world, it is thanks to its great technical maturity. During the emergence of the electricity networks at the end of the XIXe century, the D.C. of Edison saw its power falling quickly with the distance. It was impossible to distribute the current beyond one kilometer through a reliable manner. The first networks installed in the United States were frequently subjected to power cuts, due to important losses by Joule effect of the distribution networks in low tension.

The A.C., invented by Tesla and marketed by Westinghouse, was able to modulate its tension easily. What made it possible always to distribute the current to low tensions, for safety reasons, and to strongly increase the voltage for transmission and to reduce the losses. The alternating current was thus able to transport energy to high voltage on approximately 50 kilometers. The networks of D.C., them, could not technically modulate their voltage; while remaining with weak tensions, they required the implementation of many generators in cities.

Thus, the lines with High voltage developed thanks to the alternating current allowed the electricity transmission at larger distances and thus the geographical separation of the production and consumption for the comfort of the residents. However, beyond 500 kilometers of distance, on-line losses become significant.

This mean of electricity transmission was completely adapted to the production and electricity consumption structures of the XXe century, where the power stations were built relatively close to the industrial centers and the cities. These thermo plants required only the routing of the fuels, and the presence of water to make turn the turbines.

The difficult interconnections reopen the way with the Direct Current

Historically, the D.C. reconsidered the projects of electric transmission whenever the cables could not be air and required to be buried or immersed. Indeed, the alternating current is electromagnetic. According to the environment in which it moves, it shows more or less magnetic losses. In the particular cases where the power must be on in the ground or sea water, the alternative systems show more important losses. Like the D.C. which required disseminated generators on the entire network, the passage of the current in non air alternative lines would require multiple stations in order to provide the reactive power compensating for these losses.

The direct currents do not require any reactive power; they have major losses only by simple Joule effect (heating of wire related to their resistance), which represents between 1 and 3% of losses every 1000 kilometers according to technology used. This type of line still has other advantages: it does not require any coordination of frequency or phase of the inter-connected networks. Moreover, at equal power, a line with D.C. is less expensive with construction than a line with alternating current. The problem of investment is only at the level of the converters, imposing and complex.

Thus since 1961 the “Cross Channel”, one of the first modern lines with high voltage with D.C. (called commonly HVDC for “High Voltage Direct Current”). Renovated in the middle of the years 1980, this connection ensures today the electricity supply of more than 3 million British households by the French power stations. Let us note that the future interconnections between France and the adjoining countries, Italy and Spain, will be done by underground HDVC lines.
The characteristic to be able to inter-connect easily is often proposed by the manufacturers of HVDC lines. They indeed allow the independence of the networks between adjoining countries, and to sum powers produced in a multiple or of even diffuse power stations park.

Conversion losses

Why doesn’t one have created our grid systems with D.C. buried lines? Quite simply because to convert strong powers of D.C. into alternating current (and vice versa) requires complex and very expensive installations and involves additional losses.

• The first conversion technology is the “line switching” (LCC for “Line Commutated Converter”) based on electrotechnical components called thyristors. Formerly very polluting because containing mercury vapor, one manufactures some today in a more effective way containing silicon. These installations are controlled for a long time and can go up to 600 to 800 Kv of tension. They require that the alternative networks on both sides are of very strong power, as well as other technical components (filters, condensers,…) to stabilize the installations. From his high cost, one can use this technology only within the framework of great projects.

• The second technology, simpler, was developed in the end of the year 1990, it acts of the “source of tension” (VSC for “Voltage Converter Source”) based on IBGT transistors (“Isolated Gate Bipolar Transistor”). The installation is less complex and thus economically more interesting. However this technology for the moment is limited in power and voltage, and shows more important losses. This more accessible technology supports the opening of HVDC lines other than in the great projects.

Technologies comparison : LCC and VSC. VSC technology is more recent and less expensive. Its capacities are currently limited and conversion losses more important.
Source : Sia Conseil

Thus, the D.C. profits from a technical development while its use was until now only situational. The problem of conversion into alternative in order to modulate tension is a complex and expensive process, which has constrained the electricians to choose until now for an alternative grid system, simpler to control and more accessible. However, HVDC lines have many advantages: low losses, capacity with being buried or submerged, absence of phase constraints and frequency of HVDC lines. This technology is increasingly impossible to circumvent in the great projects of electricity transmission. We will see in a forthcoming article for which projects it is planned to use HVDC lines.

The European Motor Show Brussels opened its doors in January under the theme: “Heading for tomorrow!”
The objective was clear: To promote the technological revolution through which the automotive sector is undergoing, in the development of vehicles more environmentally friendly. A full showroom, a booth theme and a runway demonstration was dedicated to electric vehicles.
The arrival of these electric vehicles will create new challenges and bring changes in our immediate environment: We are clearly in a societal innovation and not only in a technological one.

While auto industry is hardly touched in its fundamental, where the safety of energy supply and energy independence are part of the multilateral stakes, the impact of the electric car is unique by its width on a major part of the economy. In Belgium, as in other countries, the development of the electric vehicle implies a powerful support of the public authority, through political and economical commitment.

Beyond the macro economic issues and policies, the development of this sector cannot be done without addressing several issues for which solutions exist:
• Autonomy: autonomy is a complex technical challenge because the battery must not exceed a certain size, a certain weight while competing heat engine cars which, with 40 liters of gasoline has five times more autonomy than an electric car.

However the last batteries, with a range of about 180 km, are enough to meet needs of most urban citizens. Moreover, lithium-ion batteries are the future of batteries for electric vehicles as they provide greater performance and allow fast and partial charges. But the land reserves of lithium, although they are very abundant, are not easily accessible since few extraction sites which could quickly lead to a net increase of the operating costs and ultimately costs of batteries.

• Recharge of battery: battery life is still limited, it is necessary to think about putting in place a network of charge spots and/or exchanging battery station based on the separation of ownership between the car and the battery pack. The battery pack is not sold with the car but would be leased. The development of fast charging stations and the establishment of stations change battery (replacement of an empty battery by a full battery) would be supported by new operators offering thus new services. Companies like Better Place are pioneers in this type of services and are already present in several countries like the United States, Israel, France, Denmark, Australia and Japan.

In Belgium, only Flanders has so far taken concrete initiatives by announcing the installation of charging stations and reserved parking spaces. Moreover, the first charge spot was inaugurated last December 17 and companies like Total have already decided to equip some of their stations with charge spots. Cities like Brussels, Antwerp and Mechelen have also planned to install their first charge spots during the year 2010.

• Cost: the relatively high cost of electric vehicles remains an obstacle to its commercial development. Despite the competitive cost of electricity compared to gasoline, the cost per kilometer of this type of vehicle is higher than that of a heat engine vehicle, mainly due to the extra cost of renting the battery. According to Renault, which is one of the most advanced European companies in this area, the overall cost of an electric car should aim to be equal to that of a diesel car.

As electric vehicles do not still meet the criteria for acceptance of the majority of the population, only financial support could encourage the leap. This assistance could take the form of purchase aid, tax reductions or even an attractive integration of electric vehicles in a global eco-tax project. Eco-taxation aims to change the taxation in a more coherent view with environmental objectives. In terms of eco-tax related to electric vehicles, Belgium is rather late compared to other countries as France where businesses are exempt from tax on electric company cars, and where a premium is paid € 5,000 to buyers of electric cars. But things are changing recently as the Belgian state has recently implemented a tax reduction of 30% of the acquisition value of an electric vehicle by an individual and a tax deduction of 120% at the federal level for companies.

• Electricity generation: the arrival of electric vehicles on our roads will create an increased demand for electricity to recharge batteries. For a fleet of 150,000 to 200,000 vehicles, it would produce about 260 MW dedicated solely to recharge electric vehicles. Therefore, the federal government as well as producers and distributors of electricity will face increased demand for electricity and, at a time when the nuclear phase-out is at the heart of concerns, energy policy of the next 20 years will probably have to be readjusted.

Despite these obstacles, Sia Partners insists on a powerful lever for policy makers and economic support for the advancement of electric vehicle: reduction of CO2 emissions. While it is true that the 100% electric vehicles do not emit CO2 directly, plants producing the electricity needed to recharge batteries emit a variable amount depending on the energy mix of each country. Thus, in Belgium, the production of one kWh emits 268g of CO2 unlike Germany with 517g CO2 per kWh. The low emission rate is due to our energy mix which consists of 60% nuclear energy. Thus, if we make the comparison between the carbon emissions of an electric vehicle operating in Belgium and a heat engine vehicle, the first one indirectly emits 46g of CO2 per kilometer while the second emits between 148 and 160g per kilometer.

With this low-emission, Belgium would be at the level of nations which emit the less CO2 for its electric vehicles but also largely under the emission limits imposed by the EU for heat engine vehicles.

The development of the electric vehicle market also depends on a number of factors beyond the strictly technological approach.

It must be considered that this type of vehicle will be primarily devoted to urban use, and / or short trips, and therefore with vehicles rather low / mid-range. This corresponds perfectly to the needs of small countries like Belgium, where the average annual mileage traveled by cars is a little more than 15.000km. Furthermore, over 90% of commuting by car is less than 40 km and more than 95% below 80 km.

Sia Partners believes that the rise of this market will be supported primarily by captive fleets (communities, Utilities: Electricity, gas, water). Thanks to feedback seen in these fleets and technical improvements made; the deployment then widen to:

o « Car-Sharing » : an urban irregular use make this model (e.g. Cambio) the first rental market for electric vehicles of tomorrow.
o Individuals, and the bi-motorized households that represent a significant potential (penetration rate in 2020 estimated at 2.5%)
o Professionals and Taxis in which the penetration is likely to remain relatively low due to low battery life.

In Belgium, the sales development of electric vehicles cannot be achieved without a greater investment and economic policy of our governments. Policies should go beyond symbolic initiatives and promote the rapid development of a network of charge spots throughout the country. Using a suitable eco-taxation, they will encourage people to buy cars emitting no CO2. The federal government and the producers and distributors of electricity will have to adjust their methods of forecasting the energy requirements and the volumes which will increase significantly in the next 15 years.

When Belgium will have lifted the latest issues relating to the charge spots, the establishment of financial aid and its energy policy, they will bring through its current energy mix a real answer, effective and pragmatic, to the issue of reducing CO2 emissions for some modes of road transport.

The costly luxurious objects will transform in practical, small and easy concept cars more adapted to reality. Current road shows present energy saving, low consumption engines and praise green, hybrid, power motorized alternatives. Yet, social and environmental responsibilities are strongly underlined.

Brussels, 88th edition’s, has always been a commercial showcase for the European Market. Actors can take the pulse of their customers in the beginning of the year. Yet, 2010 is already a cruel year for the Belgian industries. The country has long attracted companies for its central position but the industry is now under pressure and see the manufacturers leaving the country.

However, Brussels also brought certain amount of hopes in the market evolution. A big part of the show was dedicated to the electrical cars under the sponsorship of GDF SUEZ. One could test the new Volvo C30, the Mini-E, the Mitsubishi i-Miev, and admire the already mythic roadster Tesla. On a small circuit, the cars confirm their attractiveness and comfort. Totally silent, their accelerations are impressive and their comfort is not different from the originals. Although the Mini is still a prototype with a 200 cv engine, the i-Miev, already for sale in Japan, is on production. Couple of steps from there, the models of PSA can be observed at a worldwide major first: Citroën C-Zéro and Peugeot Ion, which will certainly be the stars during the fall in Paris. The group PSA which was seen as a timid actor reveals a strong commitment in this new segment, presenting among others a concept car, BB1, embedded with a rear wheel system propelled by electrical engines developed by Michelin.

BB1 aims to be set in mass production soon. Also Peugeot uncovers the 3008 Hybrid4 with a dual fuel-power engine (2l diesel, 163 cv and 37 cv power), a 4×4 machine on sale as from 2011 with interesting performances (99 g of CO2 per km) or the hybrid roadster RCZ, with a level of 95g of CO2 per km. Concerns regarding the consumption and emissions is also highlighted on classical vehicles (C3, DS3 are under 100g of CO2 per km). Peugeot launched its challenge “Peugeot Eco Cup”, competition dedicated to the European drivers for a responsible drive.

Renault, largely involved in the electrical vehicles, presented the ultra fast reload mechanism by changing the battery pack in less than three minutes, the QuickDrop system, and the Fluence, well-designed car which is the main element of the BetterPlace project with an electricity powered engine in Israel.

With conventional vehicles, Renault also participates to the global effort for reducing the emissions thanks to its Clio Dci 90 cv which emits 99g of CO2 per km. Volkswagen believes, as BMW, in the future of optimized internal combustion engines by deploying its BlueMotion offer to the Polo, diesel engine 1,2L, 87g of CO2 per km, to the Golf, 99g of CO2 per km and to the Passat, 118g of CO2 per km. The secrets relay on the start stop system, long gears in the gearboxes, low resistance pneumatics and great aerodynamic designs. BMW reuses its approach “Efficient Dynamics” to all cars and proposed a very fuel-hungryX6; other electrical, hybrid concept cars.

With the first hybrid model, Toyota can be proud of its emblematic model, Prius, already 12 years old and 1.2 millions of sales which gives a leg up over its competitors among which Honda with the new family car Insight judged less performing.

The industry reacts quite quickly in regard of new contextual elements –the environment. However, the reactions of the customers are almost unknown. More vehicles, more possibilities will make the choice of buying a new car even more complex. The price signals resulting from the efforts of manufacturers and the governmental incentives will have to be clearly readable by the market, as well in cost of acquisition as of use.

Next step: Geneva in March.

Jean-Pierre Corniou, assistant director @ Sia Conseil and former member of the Board @ Renault.

But we are clearly in a society innovation, not only technological. While auto industry is hardly touched in its fundamental, where the safety of energy supply and energy independence are part of the multilateral stakes, the impact of the electric car is single by its width on a major part of the economy, as well from the point of view of the supply as of the demand. It is the whole sector which must be called into question. Also the development of the electric vehicle implies a powerful accompaniment of the public authority, and thus a commitment of the political community. It is a complex stake, because it will be necessary to call into question certain choices of society, to take bets in terms of employment and to transcend the various levels of the political system.

It is necessary to set up networks and new operators who will manage the battery and vehicle fleets. Thus a new ecosystem! We have today stations with gasoline, tankers, mechanics, an experiment over 120 years for the spark-ignition engine, a whole system which set up progressively. It is necessary to test the new one over several years, and there will be failures, errors. The necessary transformation asks for arbitrations of the public authorities. Without that, few things will occur, in any case in the short term. However it will take time to movethe automobile ecosystem. It is obviously not without risks. The first risk is the pure and simple failure of this sector. However, on the new two million vehicles sold in France each year, one speaks about several hundreds of thousands of electric vehicles produced by year within five years. It is indeed the critical point for the sector. The development of the sector thus gathers several challenges to take up.

What are those challenges? Initially to settle the question of autonomy. With 40 liters of gasoline, a thermal car has five times more autonomy than an electric car. Only one figure: a modern car with ion-lithium battery transports in energy the equivalent from 8 to 10 liters of gasoline. Compared to the best thermal cars, it is 200 km of autonomy.

A first idea is to separate the property from the car and the battery. In other words one could provide the car without the battery pack, which is rented. One can also envisage refill stations of the batteries. In fact new tasks imply intermediaries and operators, therefore financings. We think to service providers, like Better Place. It is an unknown factor as regards costs, but let us not forget the current costs: the delivery of the liquid fuel is not very simple and cheap.

Which cost for the user? As a fuel, electricity is much more competitive than the gasoline. On the other hand, it is necessary to add the rent of the batteries. According to Renault, which is advanced in this field, the overall costs of an electric car (including purchase or lease of the car, lease of the pack battery, and purchase of electricity, for an average mileage of 10.000 km per year) should aim to be equal to an equivalent diesel car. Which cost for the community which must increase the electric production? We estimated, for the 2010 decade, that a park from 1 to 1,2 million electric cars represents a section of EPR nuclear plant, thus 1.500 MW.

Also let us take into account an immaterial advantage: the electric vehicle is very pleasant to lead: flexibility with low mode, automatic box, total silence. It is a very new experiment of control. The bet of the manufacturers is thus a new quality of control. With moreover an ecological pleasure: the electric car does not pollute where it is used… To set up this new ecosystem, good development vectors of the electric vehicle will be the large fleets (La Poste type) and also the leasing of vehicles, which are either the traditional firms or the new companies which are implied in the car-division. Because to divide the car makes also part of the new society system.

The subjacent industrial stakes are enormous, because behind the adoption of this sector also a race with the world technological leadership with many employments of tomorrow is played. And for once, France does not have to seek for a European agreement to progress. It has indeed the size, all the industrial base and a know-how as regards urban development which opens the way to it, with the condition to take it in time.

Belpex provides a trading platform for the negotiation of spot electricity trades and green certificates. Purchase/sale transactions are concluded directly, but anonymously, between the market participants
The interview of Ms Vandenborre, led in December 2009, focused on the integration of the European Electricity markets initiated in 2006 and the Green Markets. These topics have been chosen among others since 2010 will undoubtedly be rich of achievements in these fields.

European integration of electricity markets

Belpex is involved in the Central West Europe regional initiative which should be implemented in May 2010. How do you see the next integration step?

With regard to spot markets, integration will be achieved both by extending the market coupling to new geographical areas and by consolidation between market operators.

Belpex was one of the six founders of the market coupling between France, the Netherlands and Belgium, which started in November 2006 and has been proving to be a success both in terms of market design and at the operational level. For Belpex, the next major step is the enlargement of the market coupling to Germany and Luxembourg, meaning that the whole Central West Europe area will benefit from an integrated spot market. Other European areas, like the Scandinavian markets, Iberian and EMCC, also developed market couplings while other initiatives are ongoing, such as BritNed, NordNed, CWE-Nordic or the PCR,. Therefore the next stage will no doubt be interregional coupling, which aims to provide a market coupling at the level of several regions. It will be difficult to perform all these projects: priorities will have to be set, preferably by the EU authorities, who are acting in the general interest.

Does the integration of electrical markets mean consolidation of the market players?

It is clear that a grouping of market operators will bring added-value. Cross-border power exchanges will facilitate discussions about market coupling by reducing the number of contributors to these projects. The integration of the spot markets will also benefit participants in operational and financial terms: in operational terms by reducing the number of platforms and harmonising market rules, which will help to simplify their operations; and in financial terms since a reduction in the cost of market operations will eventually be passed on to the participants in the form of reduced fees or enlarged product range. In this way, transaction costs will be reduced, helping to create a European electricity market.

One of the great challenges of the Market Coupling projects is the governance. According to you, what would be the most effective governance model to accelerate the extension of the coupled areas? For which reasons? How to manage the growing number of actors implied in this type of project?

The success of market coupling projects depends on good cooperation between the market operators, grid operators, regulators and participants. The only governance model which will enable the existing market couplings to be enlarged is the model promoting a partnership between all these stakeholders. At this stage of the market liberalisation process, I don’t think a centralised model in which the market coupling would be run by a single entity bringing together some of the existing activities of the exchanges and grid operators could facilitate the extension process. But the models based on sets of contracts defining the roles and responsibilities of each contributor have proved to be reliable and must continue to be used. The implementation of these models will be facilitated by the reduction in number of contributors, via mergers between market and grid operators and creating groupings of those operators.

What role is Belpex playing and what role would it like to play in future coupling projects?

Belpex has always been a driving force behind the market coupling projects. From the beginning, we identified the limits of a model based on national platforms and focused on market coupling, which enabled the quality of the signal price to be improved by increasing market depth and optimising the use of transmission capacities. We put our extensive know-how of algorithms at the disposal of the CWE project. We will continue to also push for interregional coupling, initially in day-ahead timeframe, while also promoting the market coupling for intraday timeframe. We aim to act as a facilitator while encouraging innovative and powerful solutions that meet participants’ requirements.

The target model makes state of intraday markets integration. Belpex has already an intraday market but not integrated. What are the initiatives taken by the different actors? What are the difficulties to which each actor will have to face in the realization of this integration?

With the expansion of intermittent power generation sources, such as wind and photovoltaic energy, it is essential to offer platforms to the market which enable electricity to be exchanged right up to the time of delivery rather than until 24 hours in advance. For us, the first phase was to set up a platform that was available for cross-border exchanges using explicit capacity allocation. This platform is well developed since it provides our participants with extra flexibility. The exchanges currently account for almost 2% of the volumes exchanged on the DAM. The second phase now aims to support cross-border exchanges with a view to further increasing liquidity and thus the quality of the price signal. Therefore we have just signed a cooperation agreement with NordPool Spot and APX to launch market coupling on the intraday timeframe at Belgium’s northern border. This coupling mechanism is based on the Elbas system that has been used in the Scandinavian market for several years now and is recognised as a market standard. Many challenges lie ahead. These challenges are obviously technical – the closer we are in real time, the more sophisticated systems are and the more complex solutions are – and also conceptual, in terms of the establishment of market rules that will have to offer more flexible products to the participants.

Abnormal price spikes on EPEX France in October 2009

As it was indicated in the report published by the CRE following their investigation into the situation on 19 October (when the MWh price on EPEX France reached €3,000 for four hours), the increase in prices was partly related to publication of the results on the Swiss market. Indeed, a delay in publication on the Swiss Hub made it impossible to implement all the operational measures that are in place in the TLC (Trilateral Coupling) to avoid this type of situation.
It is precisely the market integration process that enables the risk of price peaks occurring on a national market to be reduced by sharing the liquidity between several markets, therefore reducing the risk of a local imbalance between supply and demand. In the case you mention, without market integration, the number of hours with a price of 3000 euros/MWh on the French market on this 19 October would have been even higher.

Do you think that this type of situation is likely to happen more often in the intermediate phase of the market integration process? If so, what do we have to do to avoid it?

However, the market coupling mechanism can only be efficient if cross-border capacities are sufficient. It should be seen how the capacities allocated on the market can be increased to facilitate the realization of a large European electric market. Several areas for improvement can be looked at in this respect:

• Investments in interconnections should be encouraged there were there are bottlenecks.
• Changing the methods for calculation of capacities,by integrating a better knowledge of the grid constraints, could reduce the safety margins applied by grid operators.
• Introduction of Financial Transmission Rights and the allocation of all cross-border capacity in day-ahead operations.

But it should not be forgotten that high prices are one of the features of the design of most of our European markets. The idea is simple: in a situation of scarcity of supply in relation to demand, prices increase – sometimes very sharply – to reflect this scarcity and to encourage generators to invest in new units. From a conceptual perspective, the model already played its role since, in a situation of imbalance with many French power stations stopped, prices increased to reflect the scarcity of supply. The problem is that when high prices are calculated they are deemed unacceptable for risk management reasons. In this case, peripheral measures are not enough, and therefore more drastic measures need to be considered, such as technically limiting the prices on the spot markets to lower levels and organising a generation capacity market to balance the relationship between supply and demand.

Green markets

Belpex has been a player on the green markets in Belgium since March 2009, organising the green certificates market for Flanders and Wallonia as well as the cogeneration certificates market in Flanders. What is your initial assessment?

There was a rather slow start, because of the time when the platform was launched, in March 2009, in the middle of the economic crisis. The crisis resulted in lower demand for electricity, and therefore a reduction in the number of certificates to be given to the regulator. The demand for certificates on the platform was thus relatively weak. However, in recent weeks we have seen an improvement: we are processing more certificates (between 500 and 1,000) at each trading session and there are more active participants. In addition, we are receiving positive market signals and remain optimistic about future development.

Do the green markets present a real opportunity for a player like Belpex?

Yes, they do. With regard to green certificates, we want to offer a liquid platform to which suppliers and generators can turn to balance their demand for certificates with a transparent price signal. Obviously, the system could be improved if the exchange of certificates was organised at the national level.

We are also examining the possibilities for developing other products that offer added value to our participants.

Catherine Vandenborre started her career in 1993 at Coopers & Lybrand before going on to a range of financial positions in banking institutions and at Elia, the Belgian transmission system operator.
Catherine Vandenborre became CEO of Belpex in 2006. She is also a member of the General Council of CREG.
Ms Vandenborre has a degree in applied economics from the Catholic University of Louvain (UCL).

This goes by the simplification and reduction of the dimension of the vehicles. These two axes of transformation imply an acceleration in the innovation. The automobile industry, often criticized for its apparent passivity, keeps its position as a leader in the matter of innovation: one out of five certificates concerns the automobile industry and 35% of them consists of carbon reduction.

The supply is being shaped
On the subject of electric vehicles, the manufacturers in Frankfurt have proven to be unsatisfied by concept cars only and are rather answering to the needs rather in terms of stabilized products.
Renault has taken a long way upfront compared to its competitors thanks to its partnership with Better Place and the synergies with Nissan and its partner NEC. Renault has announced four models: Zoé, Fluence électrique, Kangoo Be-Bop Ze and Twizy. The Fluence has been ordered by Better Place for an amount of 100 000 pieces in Israël and Denmark.

The German manufacturers, penalized compared to the European standards for CO2 emissions (130 g/km in 2015) were not very active compared to the electric vehicle solutions. They preferred to choose for an optimization of their diesel and gasoline engines, recognized for their performances.
However, they engaged themselves to follow a strategy of small electric vehicles based on existing models.
The Daimler group communicated about its electric version of the Smart which will be manufactured in France as of November 2009 in small numbers (1000 vehicles) and in a larger number as of 2012.
BMW starts off in California, followed by Europe in 2010, with a fleet of 600 Minis-E, at the same time sport (150 kW) and high-end.
Volkswagen, being reserved for a long time on this matter, engages with its concept car, E-Up!, that will end up as a 100% electric model of the type of the Lupo.

In the United States, GM confirms on the launch of the Volt, an entirely electric car but equipped with an auxiliary thermal generator who lengthens its autonomy up to 500 km. Chrysler-FIAT has taken the decision to launch a range of electric vehicles. Ford still has confidence in its hybrid solution and has still high hopes for its Fusion, sold at 32.000 $, which can achieve 2.325 km with one full fuel tank, which is a world record. However, Ford also envisages to launch a smaller electric version, the Transit Connect, next year and the Focus in 2011.

The Chinese manufacturers have identified this market that represents the electric vehicles and have started to announce a great number of products. China bets largely on the electric vehicle to conquer the world leadership on the car and has a technical capability enabling them to control the full value chain. BYD (“build your own dream”), manufacturer of batteries and car manufacturer since 2005, announced the launch of its E6 model, which, according to its marketing director, exceeds the standards technique thanks to its batteries with iron phosphate with an autonomy of 400 km and a maximum speed of 180 km/h. A fast system should make it possible to reload it to 50% in ten minutes. Warren Buffet has just bought 10% of BYD, for 230 M$. Volkswagen signed a contract for collaboration in this matter with the Chinese manufacturer. The objective of BYD is to become the first Chinese car manufacturer in 2015 and in the world in 2025…

In Japan, Toyota exploits its ten years experience on the hybrid vehicle by developing a complete range of hybrids, from which the Prius 3 is the leader with more than one million sold vehicles and with high production rates of 50.000 vehicles per month. Nevertheless, Toyota does not ignore the pure electric vehicles with its FT-EV 2 Concept. Honda is also very committed in her quest for solutions in diversification. Its vehicle with hydrogen, Clarity, functions and drives without problems in California, but it is especially the Insight and the Civic hybrids which represent the know-how of the manufacturer on the roads. Honda presents in Tokyo a concept car of a mini electric urban vehicle, the EV-N, retro lines included.
Nissan announced in August in Japan to launch its electric vehicle in 2011. This vehicle, the Leaf, will be manufactured in the United States, Great Britain and Japan.
Equipped with ion-lithium batteries, it will have an autonomy of 160 km. But unlike all predictions, it is the Mitsubishi i-Miev, a urban, four-places-vehicle that will be the first standard vehicle being sold to the general public in Japan in 2010. It is this model which the group PSA has chosen to introduce under its mark: Peugeot Ion is envisaged by the end of 2010.

Nissan advances quickly within the framework of its common research with Renault and NEC. Nissan EV-11 is close to commercialization. It offers 160 km of autonomy and a system of sophisticated follow-up on consumption and geo-localisation making it possible to assist the driver in the process of refilling its vehicle.

The Korean manufacturer Hyundai announces two electric vehicles, i10 electric that should be commercialized in Korea within the second half of 2010 and the electric Sonata.

The electric opportunities are there to be seized by the manufacturers in the niches

One should not forget in this inventory the role of the pioneers, manufacturers who do not come from the traditional automobile sector, but the ones that opened the innovative way by popularizing this concept. Even more, certain manufacturers have been created to exploit the technological rupture which represents the electric vehicle. The technical challenge to develop a car of this type is much lower than that of their thermal equivalents and the chain of value is moving towards the suppliers of batteries. A new offer, exploiting the Web and new telematics is emerging.
It is of course necessary to quote the Bolloré, which is developed around its system of LMP batteries (polymeric lithium metal), the Blue Car, whose commercialization was committed to with its presentation at Geneva in March 2009 and who should come out in 2010 if its industrial partner, Pininfarina, is able to face its engagements. Heuliez fights to industrialize its Friendly model with the support of the public authorities and the Chinese manufacturer Cherry. Friendly, equipped with lithium phosphates iron batteries, is in pre-reservation for a price publicly announced on the site of Heuliez at 12.000 € (tax excluded). The delivery is envisaged to start from April 2010 for the companies and in 2012 for the private individuals.

The Norwegian manufacturer Think announced his intention to establish itself in the United States and to develop in the countries of the European Union. The Indian firm Reva Electric Car from Bengalore presented to Frankfurt its model NXR, put in pre-sale on the Web for 15.000 € and its concept NXG (next generation), which will be sold at 23.000 €.

Electric sport vehicles

Tesla, the Californian pioneer, of which Daimler possesses 15% of the capital, comes out with a vehicle, Model S, which supplements its emblematic offer of the roadster sport, sold at 101.000 $.
For the (new) chapter of electric supercars, it is also necessary to assess the concept presented by Audi with its R8 equivalent: an ultra sport vehicle equipped with four electrical motors of 313 horsepower, able to go up to 100 km/h in 4,8 seconds, the e-tron. It would seem that the story of this exceptional vehicle will have a commercial ending.

The characteristics of these vehicles converge

Two families of vehicles will be available: the urban ones of small size, 3.5 m, and average vehicles with four doors. The market concerned is mainly that of the second urban car. Their motorization – 60 kw – authorizes largely sufficient performances, like a top speed of about 130 km/h but especially a capacity of acceleration and an immediate couple available, which makes them very sharp.
The manufacturers announce a real autonomy around 160 km rather than the 250 km sometimes referred to with ion-lithium batteries. These batteries are completely reloaded in 7 hours on a traditional 220V plug, but can profit from a fast load of 80% in 30 minutes on a three-phase special plug. The Alliance of Renault-Nissan is the only one to have developed an automatically interchangeable system of batteries which bring back the refill to the time of a full of gasoline (3 minutes). It is the solution which will be deployed in Israel by Better Place.

It should also be stressed that the market of the small commercial vehicles is very appropriate to the electric vehicles, in particular for the deliveries and interventions in a urban environment. The diversification of the vehicles will contribute to create a continuum going from the assistance of the electric bicycle until the smaller utilities.

How to quantify the emissions objectives of the emergent countries?

According to the Kyoto protocol, in order to limit the impact of climate warming, the industrialized countries will have to return on their level of emissions of 1990 and to decrease it by 20%. For the emergent countries, it is decided to found the Clean Development Mechanisms (CDM): the countries subjected to the objectives of Kyoto will be able to develop “green” technologies, like fields of wind mills, and to gain CO2 credits in the name of the emissions which will have been avoided. Today, calculation is less simple since it is question the G20emergent countries are also subjected to reduction objectives of emissions.

On this point, China decided to reduce its CO2 emissions of 40 to 45% per unit of GDP by 2020 compared to the level of 2005. A great ambiguity is to be noted in this news: in addition to the reference year, it is the intensity carbon of the economy which is concerned, and not the total emissions. In other words, it will be necessary for China to emit 40 to 45% less carbon than in 2005 to produce 1 $ in 2020. But if GDP increases significantly from here 2020 (about 70%, assumption more than reasonable for Chinese growth rates), the intensity carbon will certainly be reduced, but the CO2 emissions will have increased. Worrying due to the fact that China is the actual first CO2 transmitter.

This raises an interesting question for Copenhagen: which references and which indicators to take to fix objectives to G20 emergent countries? It is of course not reasonable to take 1990 as reference, the industrialization rate of these countries being radically different today. But it will be necessary to define a significant indicator of emissions reduction for the emergent countries in order to quantify the furnished efforts.

The following table shows that the situation is alarming: even if China and India have a print carbon per capita relatively low, they are respectively the first and the fourth larger pollutants, in particular because of the intensity carbon of their economy. That’s why it is necessary to fix emissions reduction objectives.

An alarming declaration, in spite of creditable initiatives

The Joint Declaration of November 28 indicates that they do not wish to lay down objectives which would penalize their economy. India, Brazil and South Africa did not announce besides any figure of reductions, insistent on the fact that the control of the emissions will not be able to be made without financial and technological transfers from rich countries, responsible according to them for the current climatic situation. If France and the United Kingdom propose assistances funds of 10 billion dollars per annum, the developing countries estimate that this sum must be regarded as intermediary and that it will have to go up to 300 billion if we follow the report written commonly by these countries. We can have doubt on the chances of agreement during the Summit when one reads that these quotations are qualified “non-negotiable points”.

In spite of these declarations, some initiatives remain creditable. Brazilian president Lula da Silva announced that it would reduce by 80% deforestation from here 2020 compared to 1990. It is besides one of the reasons for which it defends” the control by an international agency of actions against the warming not financed by foreign aid”. The Indonesian president Susilo Bambang Yudhoyono preaches the geothermic potential exploitation of his state, quantified with 27 GW (the equivalent of 17 EPR engines), which would lead to a reduction from 26 to 41% of the gases with greenhouse effect emissions of Indonesia compared to its level of 1990. These initiatives are virtuous as one knows the economic difficulties with which these countries are confronted. However, they could be followed by the other emergent countries only if the two larger pollutants, China and the United States, engage on such ambitious objectives.

Thus stated, it appears obvious that the programs of deforestation/avoided degradation and the projects of reforestation must be included in the mechanisms of carbon credits. However, the forest was forgotten in the Kyoto protocol (less than 0,5% of the quotas) and their integration in the new international treaty on the climate still makes debates.

If the Kyoto protocol voluntarily restricted the access to the projects of fight against deforestation by prohibiting the exchanges of carbon credits associated with the forest projects, it is especially to prevent that the developed countries do not precipitate on the enormous potential which represents this field with the detriment of the emissions reductions actions of their industrial instrument. Moreover, the assessments methods of the forest projects, still badly controlled, were quickly shown more complex than one could not imagine it. Indeed, the effectiveness of the forest protection is difficult to prove and requires a thorough knowledge of the environmental and economic context in order to show that the carried out actions simply did not move the problem of 50 or 100 km.

At the time of Kyoto Protocol negotiations, the risk to see a flow of forest carbon credits subjected to suspicion made fear to weaken a delicate mechanics to set up, with the still dubious results. Now, the Kyoto Protocol proved reliable and, even if certain ONG still remain very wary on the effectiveness of market mechanism to prevent deforestation, the evaluation methods became ripe.

Then under these conditions, can one speak about a consensus on the forest for the Copenhagen Conference? It is probably the question about which we are closest to an agreement, in particular because the majority of the participants in the climatic negotiations found a new interest there.
For the tropical countries, the forest became one of the best means to benefit from international financings via the Clean Development Mechanism (CDM) which today are rather turned towards industrial problems which are not their direct issues. For illustration, one estimates that South America lost in one century nearly 70% of its forests (33,19 million hectares today against 100 million hundred years ago).

For the developed countries, this mechanism constitutes a first step to obtain an engagement of the emergent countries on the reduction of their emissions. But “forest countries” (Argentina, Brazil, Congo,…) await consequent financial liabilities on behalf of the industrialized countries which they estimate at 2 billion dollars for the next decade…

However, in Copenhagen or elsewhere, there will be no agreement without decision-making on financial means!

The first advertisements could appear hasty and premature. It indeed takes three years to launch a new conventional model, and the major rupture that represents the electric propulsion poses a series of complex problems which hustle the usual calendars. Moreover, the car manufacturers were at the end of 2008 in a situation as brutal as unforeseen vis-a-vis a market became bloodless.
However, the vigorous action of the public authorities has improved the market situation and the manufacturers, after a first wave of rationalizations, seem to have taken again their destiny in hands.

A spectacular rallying

This feeling of optimism should not make illusion. The fundamentals of the market didn’t change. The policies which restrict the use of the car in urban environment and the evolution of the consumers practices can only in the long term confirm the saturation of the developed countries markets.
If the demand remains sharp for the populations of the emergent countries, anxious to reach the form of independence which confers the individual motorization, the barriers with the development of the market remain numerous: low income available, weakness of the infrastructures, urban pollution and rarefaction of oil at a cheap rate.

The electric vehicle represents a scenario which was not given gaining two years ago vis-a-vis the hybrid vehicules or in the long term hydrogen, or especially vis-a-vis a new wave of optimization of the conventional engines, more realistic and less expensive. If the electric scenario is confirmed gradually, it is that each part of the puzzle of this new ecosystem is set up and gains in coherence and in credibility. But an important work remains to be achieved to make this solution attracting for the customer.

All the manufacturers, even most reticent, have for a few months accelerated the rhythm of their advertisements and better defined their strategy, their products and their plannings. The two shows plan in autumn 2009, Frankfurt as Tokyo (whose topic is “Fun Driving for Us, Eco Driving for Earth”) should thus mark a rupture in the history of the car. But this choice would not have been possible if the States had not clearly supported the electric vehicle like made by president Obama. The governments thus clarified their positions throughout the year on the infrastructures, the government aid and the taxation. Even if all the outstanding points are far from being solved, industry and the public authorities drew up in a short period of time a credible framework for what must represent the first serious alternative to the car with gasoline.

The interests of the prospect customer remain still undefined: which models will be available on the market? When? At which price? On sale or in hiring? What will be the residual value on the second-hand market? What is the real autonomy of these vehicles? Where and when will it be necessary to reload the batteries? It is essential that these questions find acceptable answers so that the first vehicles available meet a real market. On these various points, each day brings announcements which reinforce the overall credibility of the file. It is however obvious that it is about a transformation of long terms and that the decade 2010 will be a slow maturation and experimental phase of the solutions.

The public policies are more and more present

The strategy of the governments is similar in the various industrialized countries. It is indeed a question of quickly creating an active market with attractive supply and dynamic demand to make it possible to the actors to engage the development of the electric vehicle with their own means.
To dissipate the doubts of the opinion on the cost of acquisition and the continuity of a relevant electric offer, it is necessary to massively subsidize the batteries, which represent today average costs of 10.000 € per vehicle, and to stimulate R & D to identify new economic and ecological tracks of storage of energy. It is also necessary to reassure the motorists on the autonomy of the vehicles and thus on the capacity to reload the batteries quickly. Lastly, it is necessary to compensate for the current overcost of the batteries by attractive ways of financing: hiring, premium with the purchase, etc
All the government plans announced to try to solve these various points.

In Belgium … and in the rest of the World

The Belgian federal government finalized its 2010 budget by setting up favorable measures for the vehicles to zero CO2 emission. Indeed, these cars, mainly electric vehicles, will benefit from a tax deduction of 120%! Remain to see if the offer proposed by car manufacturers as regards electric cars allows the companies to equip with such vehicles.
The French government took a series of strong initiatives to show its will to reinforce the credibility of the electric vehicle. Jean-Louis Borloo revealed on October 2 an ambitious plan in favour of the electric vehicle. The government aims at accelerating the natural development of this market to quickly give it a critical size, informing to want to reach a car fleet of 2 million electric cars and hybrids from here 2020.
In March 2009, the US government set up 2,4 billion $ funds for the development of the electric vehicle and offers 7.500 $ for the purchase of an electric vehicle.
Germany has just launched in August 2009 a policy in favour of the development from the electric vehicle. Great Britain envisaged a rebate from 2.500 to 6.000 € as from 2011 for the purchase of an electric car. China gives already 6.600 € and Japan 11.000 €. The Korean government also announced series of measures intended to instigate the offer of the national manufacturers and to prepare this country, very set on new technologies, with a massive development of the electric vehicle.
Under the crisis effect of the demand, the geopolitics of the car will deeply change. From American, heavy and with gasoline, the emblematic model of the years 2020 will become probably Chinese, small and electric.

The consumption outburst is mainly due to plasma or LCD screens and to games consoles, followed by Internet boxes and TV decoders. In the following section, Sia Conseil is dealing in particular with boxes and decoders. Even if those devices are not the most energy-consuming, most of the consumers leave them around the clock turned-on.

Energy-consuming devices

Thanks to “triple play” offers (internet, television and phone) that are now available on the market, internet boxes and TV decoder are more and more numerous in households. And yet those boxes have a high electric consumption whichever maybe the Internet Access Provider (IAP). According to a survey published end of 2007 (1), those devices consume more than 9W in sleep mode and nearly 10W when in use. Another study (2), published in July 2008, established the average power of internet boxes around 9W. Comparing to the consumption of a late-model domestic fridge-freezer, an internet box consume more than the half of this consumption. As for the TV decoders, the average power is 8,5W in sleep mode and it is above 10W when turned-on (even 21W for models with a hard disk).
The boxes consume almost as much in standby mode as in turned-on mode. Thus for an internet use of 3 hours per day and a TV use of 4 hours per day, the annual average consumption is 165kWh per household. This results in an increase of 18€ in the annual electricity bill. It is costly for the consumer but also for the environment.

Coming European standards

On a European level, the electric consumption issue of internet boxes is in line with the global issue of the consumption of electric devices in sleep mode. The European Union has adopted end of 2008 a new regulation in order to reduce this consumption: starting from 2010, it will have to be below 1 or 2 watts depending on the device type. Those limits will be reduced by half in 2013 (3). This measure may lead to a significant decrease of the consumption of boxes and decoders, provided that the standby mode is used by consumers…

Most of the users leave both boxes switched on 24h/24: the daily average operating time of boxes is 21 hours a day. 70% of the boxes are on around the clock and 11% of them are turned-on during at least half of the time.

Currently, the use of the sleep mode for those internet boxes and TV decoders doesn’t lead to substantial energy savings as the consumption is almost the same in standby or turned-on mode. The implementation of the new European standard may change the situation: if the devices’ standby consumption would really go under 2W, it would then be interesting to reduce their operating time.

Towards programmable devices?

In most of households, the home attendance time is regular, it is therefore possible to consider a programming of the boxes in order to go off and on at a fixed time. For about ten euro, it is already possible for a customer to have a timer that can be directly plugged in to the socket. This timer allows to switch off and turn on again the connected devices at the wanted time. As for the internet boxes, such a device is profitable within a year…

Other innovations are possible. The integration of new functionalities directly in the boxes would allow them to be programmable from the customer computer (or even from his mobile phone). A basic system would consist in turning on and off at the same time the internet box and the computer; and the same would be for the TV decoder and the television. The activation of the standby mode after a period of inactivity is also a possibility. However some parameters have to be taken into account: for example, the fixed phone line has to stay active as users still can be reached. Those more or less sophisticated solutions may grow only if the IAPs decide to involve themselves.

An opportunity for the IAPs?

In the highly competitive sector of internet access supply, the communication does not focus on Environment, and this in this day where marketing only swears by green. It must be said that Environment respect is not a selection criterion in the phone and internet sector (4).
Playing on this green image may be an asset. But in order to differentiate oneself, the IAP’s will have to go beyond the respect of the regulation. In this context, the launch of programmable devices that some operators are already developing seems to be a good opportunity.

Important savings at stake

On the supposition that the standby consumption was under 2W, the energy savings would be substantial without having to switch off the devices completely. For example, for a customer who is leaving his box and decoder permanently switched on, putting them on standby mode 20 hours per day would allow him to save 14€ per year (5).

(1) Study pubished in “60 millions de consommateurs”, released by the INC (Institut National de la consummation.
(2) Study carried out by Enertech
(3) According to Brussels, this new regulation will allow to save 30 TWh per year, which correspond to the total annual consumption of Hungaria
(4) The usual criterion given in studies are quality of service, price and associated services.
(5) On an annual electricity bill of 20€ which correspond to the consumption of boxes and decoders.

However, it could be that a new form of energy marketing appears on the Belgian market.
Lampiris, alternative supplier of green energy accounting for 2% of market shares in Belgium, has just concluded a contract with Carrefour. Thanks this collaboration with this actor of large distribution, Lampiris sells its energy in mass and develops its exposure on the Belgian energy market. This practice enables the green energy actor to benefit from the Carrefour brand and from its distribution network through all Belgium.

This energy marketing by large distribution is pioneer in its kind. Indeed, Belgium is used as pilot by Carrefour which could plan to extend this marketing to its subsidiary companies in order to diversify its offer. In addition, by this new offer, Carrefour positions as a green actor, this can only improve its brand image.

These new suppliers of energy could be named “EVS” (Energy Virtual Supplier) by analogy with the MVNO (Mobile Virtual Network Operator) of the market of telecommunications. These mobile telephone operators, who do not have telecommunications infrastructure, buy minutes of call to the traditional operators and resell then to their customers. This business model would thus apply to the suppliers of energy who would sell a volume of electricity or gas to resellers in any kind while preserving the management of the database, technical maintenance as well as the non-payments. The EVS would have for only responsibility the sale of energy and the administrative approaches related to a new agreement.

The recipients of this offer are also the ultimate consumers for who the administrative approaches are taken in charge by a corporate name already accustomed to provide ancillary services such as mobile telephony.

Today, Lampiris has an agreement with large distribution. Consequently, it seems logical that this offer meets a success only near the residential. To widen the target, it could be under consideration in the future that Lampiris or other suppliers contractualize with other sectors or EVS which would only develop the activity limited to the energy marketing. These new actors would then allow to satisfy the energy needs as well for residential as business.

If this business model develops like it was the case for MVNO, we would then see appearing EVS, which would instigate a Belgian market still very concentrated on two or three actors.

Florence Carlot – florence.carlot@sia-partners.com

This event is a unique opportunity to contribute to the debates on the energetic stakes of tomorrow. The candidates will be evaluated by a prestigious jury issued from company, policy, research and press leaders.

More information on www.generation-energies.com

The prospecting phase allowing determining the human impact on the aquatic ecosystem will end at the end of 2009. For more than 75 % of basins, restoration actions (control of evacuated water quantities, water cleanup…) must be launched from 2010 and the invoice risks being huge.

Some historical facts

Within the framework of its harmonization policy, the European Commission published from 1975 a first directive about water management, related to the treatment of superficial waters used for the food, followed a bit further by other directives concerning bathing waters and fish farming waters. Then, in the 1990s, with the emergence of the concept of sustainable development and the signature of the Treaty of Maastricht, directives on urban or industrial waste water disposal and the agricultural pollutions (nitrates, pesticides) are born. In 2000, considering the number of human activities having a relationship with water and their impact on the ecosystem, the European Parliament launched the EU water framework directive that coordinates all the previous directives. Finally, in 2008, sub-directives related to priority substances to be eliminated and the pollution of subterranean waters were ratified.

Source : europa.eu

The launch of the EU water framework directive

Taking into account interactions between the various types of water, the framework directive defined a set of measures and imposed a very ambitious time schedule which has to reach its objective by 2015: restore the ecological quality of water in all the basins of Europe. At the moment, the preparation phase of the program consisting of an administrative reorganization and a study of basins to determine the actions to lead is almost finished. A first report published in 2007 states this progress .
A new administrative and geographical structure that bears fruit
One of the important contributions of the framework directive lie in the administrative boundary changes of water management. From now it follows the hydrographic basins, zones corresponding to the whole river or to a sea independently of the borders between states, offering then a global vision of their ecosystem. A central management authority was appointed for every basin to make the restoration actions a success. Among the 110 listed basins, more than 80 are spread out on several countries, what makes more complex the appointment of the authority. For certain basins where non-member States of the European Union are concerned, the situation is not solved yet. It is the case for example for the Baltic Sea because Russia does not accept the European level of standards. For others, this division has already allowed to obtain encouraging results. Indeed, the cooperation between states in the Rhine basin, formerly called “Garbage dump of Europe” saw its efforts rewarded by the comeback of salmons, being a sign of cleanness.

Actions are necessary in more than 75% of the basins to fix the human impact

Once appointed, the authorities have for first task to realize an analysis of their basin which contains three parts:
• Analysis of the physical characteristics (demarcation, location of the modified zones),
• Analysis of the human impact, and
• Economic analysis of the use of water (treatment costs, restoration costs…).
The analysis of the human impact allowed to list all the types of pollution and to shape the main trends. In the 12 new European countries, it is the punctual pollution due to the wastewater disposals that has the biggest impact because these countries did not have any policy on the subject. On the contrary, in the countries of EU-15, the main pollution is diffuse because of agricultural weedkillers which are spread on vast surfaces.

Source : europa.eu

The economic analysis was difficult because restoration costs were hard to estimate. To help states with this study, the European Commission set up a geographical information system (WISE ). This database allows centralizing all the geographical and physical information of the basins which were previously detained by the various local administrations, and very often not computerized. WISE thus simplifies largely the availability and the exploitability of this information, what allows to target better the rehabilitation actions and so to optimize costs.
All these analyses were then used to estimate the risk of each basin not to reach the objectives fixed by the directive, the purpose being to determine the restoration actions to lead before 2015. The result is that only 20-25 % of basins are not risky. For the rest, precise programs of restoration must be set up by the end of year 2009 in order to be launched in 2010.

The main changes are about to come

At the beginning of year 2010, each authority administrator of a hydrographic basin will have to launch a management program to protect and restore their basin. It will be followed by a second plan in 2012 which will have to allow reaching its objectives in 2015.
The main evolution lies in the implementation of an incentive tariffs policy from the end of 2010. According to the “polluter pays” principle, this policy will consist in reflecting in the tariff all the rehabilitation costs:
• Financial costs (supply, administration, operation and maintenance)
• Environmental costs (repair of the damages on the ecosystem, salinisation and the degradation of grounds)
• Resources costs (costs related to the impoverishment of the resource which limits the possibilities of other users)
This policy will thus follow a twofold objective: limit pressures on the environment and finance the maintenance of infrastructures.
Considering the money involved – as example, the change of the lead pipes represents a 15 billion € budget for France – the policy will have to come along with an advertising campaign for consumers to explain how their tariffs will evolve and sensitize them on the impact of their consumption.
Furthermore, to control the risk of tariff drift, the directive also plans to establish a strict control of the prices which will thus constitute a constraint for the current administrators. Nevertheless, centralizing the power within the authority managing the basin, the grants and the profitable systems set up like WISE will have to allow carrying out successfully the change.

Sia conseil

Sources:
- europa.eu
- water.europa.eu
- WWF
Articles in : Articles, Water
Article reference: SEC(2007) 362
The WISE (Water Information System for Europe) viewer is central location where geographically-mapped information on water-related issues can be found for the whole Europe. The user navigates on the map and accesses to characteristics and histories of measures realized on hydrographical basins. He is even invited to contribute by giving their opinions on bathing waters’ quality.
Link: http://www.eea.europa.eu/themes/water/mapviewers/bathing
Since the directive of 1998 on drinking water, resumed by the framework directive, one of the biggest changes was the implementation of a quality control of water up to the faucet of the user while before it stopped to the network of the distributor and did not include the internal network of a house where water can be polluted again. It is particularly the case for the lead of the pipes of numerous houses that dissolves with water. The replacement of pipes is chargeable to the owners for private buildings and to the suppliers of drinking water for all the public buildings.

Indeed, this new system would make it possible to answer the need for an evolution of the energy usage and to encourage customers to moderate their consumption.

The Belgian press revealed recently that Electrabel would again increase electricity prices by 9 to 10% within the end of the year. This is added to the raise of 13% for gas last year… whereas world prices of energy lowered half this year. In this context, Sia Partners has been investigating on the innovating pricing method that would make it possible to compensate tariff increases by giving incentives to energy sobriety.

Japan and California, pioneers of progressive tariffs

For all current consumer goods, it seems logic to be invoiced less by unit, when buying higher volume. This commercial technique is used by big companies in order to get economies of scales, but also by all commercials to sell higher volumes. However, applied to the energy sector, the method doesn’t lead to lower consumption. Following the World Business Council for Sustainable Development published in April 2009, « by offering reductions for big consumptions, the unit price per kWh invoiced by operators leads to a waste of energy. Typically, unit price per kWh diminishes when certain consumption is reached ». As a consequence, « Reversing this tendency, i.e. increasing energy cost for bigger consumptions, [would lead to economies] ».
Japan and the USA are the two countries having agreed to take up the challenge to reverse the tendency. Japan being a island, controlling energy demand is a major stake in order to get the network balanced and to avoid cuts. In California, due to various energetic crisis beginning of years 2000, governors had to control the increase of electricity consumptions. In order to do so, they introduced progressive tariffs for electricity. Thus, as explained in the table below, if you live in Tokyo, you will pay a fixed tariff function of power subscribed, and a unit price per kWh effectively consumed depending on the slice of volume consumed.

Progressive prices offered by Tokyo Electric Power Company
Source : Tokyo Electric Power Corp., April 2008

The tree slices of volume consumed monthly are fixed, contrary to the USA where slices evolve daily according to public holidays and temperatures. Indeed, a « Baseline » is defined for each day, i.e. first need electricity, defining five different slices :
• Slice 1 : Baseline, approximately 12 kWh/day
• Slice 2 : 101-130% of Baseline
• Slice 3 : 131-200% of Baseline
• Slice 4 : 201-300% of Baseline
• Slice 5 : > 300% of Baseline

Closely controlled by the California Public Utilities Commission, the local regulation authority, « each electricity supplier must include an inverted tariff for commercials and residentials ». Slices are common but tariff system is specific to the supplier having to get it validated by the regulation authority. For Pacific Gas & Electric (PG&E), Southern Carolifornia Electric and Gas (SCEG) and San Diego Gas and Electric (SDEG), we get following tariffs : 

Example of progressive tariffs in California
Source : CEC Workshop on Rate Design, Incentives & Market Integration, June 2008

The American model is more precise than the Japanese one since it depends on a baseline function of the considered day and since the invoice is calculated daily. But in this case, a reliable system of invoicing can be set up only with real time metering and daily posting of the consumptions, in order to avoid the complaints. With already 11 millions installations, smart meters are already matured in California, which is not the case yet in Europe. Once smart meters get commonly used in a country, progressive tariffs can be introduced, showing up a sustainable image. On the other hand, the Japanese system, where slices are fixed and defined monthly, can be introduced without smart meters.

Steps for introducing progressive tariffs in European countries

Once smart meters are deployed in a country, it still has to go through different steps in order to introduce progressive tariffs. Firstly, the regulation authority of the country will have to take the lead in the reform, as it is the case in the USA, to not distort competition. Indeed, if only one operator proposes this kind of tariffs, its clients will rather move to another operator, the market being open to competition in Europe.

Then, an economic model will have to be built by operators in order to define how to adapt offers to the inversion of tendency.
• Should same packages be offered, with prices function of subscribed power ?
• Should low prices be proposed for first slices and very higher prices for next slices ?
• Should tariffs increase homogenously per slice of consumption ?
Although tricky, this modeling should help if it is well carried out : big consumers would be taxed for their excessive consumption and households would get higher purchasing power by adapting their consumption in order to fit to the first slices. In addition, suppliers won’t be penalized by those economies of energy since big consumers will compensate by paying surplus.

Finally, the most delicate step remains in the definition of slices of consumption. As in Japan, fixed slices can be defined. Although easy to implement, this solution doesn’t take into account the consumption dependency on the geographical situation, the housing nor the season. Such a segmentation by region, housing type (collective or not) and temperature could be interesting but introduces complexity : a trade-off should be found.

Steps to go through are touchy but are promising in terms of energy savings. In California, the consumption increase is much slower than in the neighboring states and in Japan the network gets balanced. In Europe, some regions could meet difficulties regarding provisioning, in particular in winter peak period. Introducing progressive tariffs at this horizon could thus constitute an interesting way to secure the network and control electricity consumption.

Sia Conseil is presently developing the marketing of associated smart services and has the strategy to support energy players in their innovative move toward smart metering. Most of them (supplier, distributor and regulator) are witnessing issues in the choice of the functionalities. In addition, a functionality that adds values for one player can only bring costs for another

1. Main functionalities

Please find enclosed a non-exhaustive list of functionalities that should be part of the meter. Those functionalities will be the means for creating energy efficiency and reducing emissions. Sia Conseil reckons that all functionalities have to be assessed through sensitivity analysis, very detailed business cases and/or customers’ survey in order to confirm the relevancy and the ROI for each of them.
The following functionalities are suitable for electricity meter but the methodology can be extended to gas and water meters:

Note: the meter has to comply with all legislative requirements in terms of metrology and security.

2. The Relayed Information

Sia Conseil also confirms the importance of having the appropriate information on the meter display (custom vs standard). Communication and awareness have to surround the use of this information in order to maximize the benefits. Again, displayed information has to be assessed for maximum return.

The following information is suitable for electricity meter.

 
3. The Standalone Display

As expert in energy marketing and experienced with smart meter displays in Europe, Sia Conseil really believes that real added-values – cost and emissions’ reduction – come along the remote display. The above-mentioned information has to be relayed on a friendlier device. However regulatory measures have to be taken in order to take full advantage of the functionalities without the side effects. Many actors (ICT companies such Nokia, internet companies such Google have understood the power of such media for managing consumption. If not regulated, abusive position of energy suppliers can limit competition in this niche marketing.

The danger lays here. By granting access to supplier or distributor within the living room of a consumer (thanks to the display), the government is creating a situation of suppliers’ empowerment vis-à-vis the consumers. The display is a new media which have much more power than any others:

• By default presence in any households;
• No need for the consumer to buy it (not as newspapers);
• Always active (not as the television which can be shut down);

The launch must be paired with strong regulations:

1. Display real time bills in Euros
In addition to the previous argument, almost 50% (internal data of Sia Conseil) of the French households are receptive to such initiative and demanding for a remote display in their house.
Consumers will become aware of their consumption only if they can have a look at it. Quite often, meters are outside or in the basement. 7-10% of the energy saving (and emissions reduction) made by the final customers can only occur if the household is aware not only of the total consumption but also the amount of money he is pouring in its appliances. The display of the bills in real time and in Euros is the real leverage for cost cutting and emission reduction.
In addition, alerts on amount of energy and money spent have to be part of the display’s functionalities. Comparison with the previous bills and the past year bill is also essential.
Finally, the concept of pre-paid services is based on the display of this information. This kind of services is already in use in the Netherlands and currently tested in Belgium. A strong demand is made the customer segment with limited budget.

2. Promote Energy
As you mention the display is an opportunity to relay “information to make intelligent choices on energy management and consumption”.
Information relayed through the device has to be monitored:
• The government can use this tool to promote incentives for the installation of more efficient appliances or future obligation to cap carbon emissions. The display must be embedded with messaging functionalities.
• The government has to make sure the suppliers are not using the device to promote opposite messages. Messages promoting more consumption or exhorting negative effects on the environment or merely on basics objectives for smart metering have to be prohibited.
Example: 50% off on the energy consumed during the summer if contracting now.
The device is also an opportunity to develop the economy through the creation of new services. However, the people can be easily influenced by such user friendly devices and protecting the weakest consumers is also part of the mission of the government.

3. Interoperability
The technology behind the display must be flexible enough in order to allow other companies and other service provider to offer services via the display (ie: weather provider, security systems …).
The government should build strong policy guaranteeing the access to the unique display by any parties from basics to most innovative domotic services.

4. Opportunity for developing new business
The suppliers or the distributors will have the opportunity to create associated home services. The commercial messages will probably pass through the devices. Other companies (ICT companies) or competitors will have more difficulties to penetrate the market with their regular media (ie: flyers, commercials…).
The government has to make sure that the display won’t be a powerful media that limits the competition.

5. Use of the display
Even if the device is quite expensive (5-10% of the total cost), it is also probably the functionality which will create the more benefits. In order to maximize its use, basics have to be respected:
• User friendliness
As mentioned in the study, the device has to be user friendly. Studies have been made to integrate usb hub allowing storage of family pictures or recipes, to connect with weather information and to manage family calendar. The display has to be used by the whole family easily and for diverse goals.
• Fixing
The remote device has to be transportable and can be easily hanged to the desire location (ie: kitchen, living room, office). The consumer must have the choice to locate the display wherever he wants. The display must be therefore equipped with the necessary fixing means (magnet, easel,…).
• Connection
The display must also be able to be easily connected to a television screen or a laptop. By selecting the appropriate menu or channel, the consumer can access data related to their energy consumption. A standard connection to those electronic devices must be provided.

4. Expertise of Sia Conseil

The choice of functionalities, information and the selection of a standalone display are key elements in the implementation of smart meter solutions. Sia Conseil can help the energy players in their studies by providing expertise, experience and analytic methodologies that have been improved during multiple projects.

Jean Trzcinski – jean.trzcinski@sia-conseil.com

Finally, they refuse to introduce speed limits on their motorways which would significantly reduce emissions of CO2. With these contradictions in mind, Sia Conseil couldn’t resist to have a closer look at this paradox.

150 million Euros invested in R&D for renewable energy in 2008

In terms of wind energy, Europe is ahead worldwide and Germany is the leader on the continent with a production capacity of 23 901 MW followed by Spain and Denmark. Germany is also the second biggest generator worldwide in 2008 after the United States (source: Global Wind Energy Council).

The 20 000 wind farms generate a share of 8% of the German electricity, equivalent to 10 million households, preventing 42 million tons of CO2 entering the atmosphere. Germany foresees to build thirty more wind farms at the coast with some 2000 windmills at the border of the North Sea and the Baltic Sea. In the north-east of the UK, 20 kilometers on shore, several European energy companies are building the largest wind farm worldwide: 341 turbines on a surface of 235 km² for 2.7 billion dollars, will supply one third of the three million households in London.

Off the coast of the island Juist, a enormous offshore wind park of 250 turbines on 150 km² will appear in 2015. The nominal power of this park will approach the power of a nuclear reactor.

In 2004, in the heart of Bavaria, a solar infrastructure of 12 ha has become the biggest park in solar energy worldwide. Together with two neighboring parks, these installations generate enough energy for 9 000 German households. In 2005, Germany has taken over on Japan as a leader in solar installations with a worldwide market share of 57%. Recent estimations compute the generation capacity in Germany to be of 5 300 MW, of which 1 500 MW has been deployed recently. From now until 2012, Germany will produce 12 000 MW, sufficient to supply more or less 6 million households in energy needs the same efficiency as the nuclear energy industry in the entire UK.

In 2008, the federal ministry of environment (BMU) has financed 170 new R&D projects in the domain of renewable energy, for a total amount of 150 million Euros. The sector of the photovoltaic solar and the sector of the wind turbines received the highest financing, being 40 million Euros each.
Even though there is a real political intention of the chancellor to treat the climate change as a primary point of action, the groups of environment protection stay very skeptical on this matter. Behind this image of “exemplary conduct”, there is actually a reality of several contradictions.

Is Germany genuinely « ecological »?

In January, the federal German ministry of environment has published its roadmap fixing ambitious objectives for the horizon of 2020. One of them deals with the nuclear stop in 2022 and consequently the electrical mix consisting of 40% of thermal energy from coal. 23% of the production of electricity generated by 17 nuclear reactors, having generated 135 TWh in 2007, with a power of 20 GWe will be replaced between 2009 and 2017 by 30 coal power plants with a power of 26,4 GWe and an annual production estimated to be 210 TWh. Next to this, the old coal power plants will achieve the end of their life cycle between 2010 and 2020 and will be replaced by more efficient coal and lignite power plants.
As such, Germany is completely opposed against nuclear energy. However, the renewable energy installations are (for the moment) not sufficient to supply the energy. In the mean time, coal is, in Germany, an important energy resource. Thus, these coal power plants will lead to the emission of 170 million tons of CO2 in the future, being 20% of the actual German emissions, close to 5% of the total of emissions for Europe.

Energetic mix in Germany (2008)

Source: AG Energiebilanze

Germany has to reconcile its ecological ambitions with the necessity to guarantee its energetic security, threatened by the ageing infrastructures and its enormous dependency on the primary imported resources, especially to the Russian gas. In this view the government has adopted, on April the 1st, an enactment to support carbon capture and storage (CCS).

In parallel, other contradictions can be observed. Environmental organizations are already advocating for years to introduce a speed limit on the motorway network as an element to encounter global warming.

Indeed, Germany is the only country of the economic European community where the speed is not limited on the motorways even though the limitations do exist on 30% of the network. The withdrawal of this possibility of unlimited speed on the motorways has been a subject in a vivid debate in February 2007: the conservers of the environment were requiring such a measure. Chancellor, Angela Merkel, however was opposed to this: “with me, no such thing will happen. Solutions against traffic jams should be found, that are equally polluting as vehicle speed. The good answer, is a modern system of traffic circulation regulation […]”.

The German automobile lobby group is always fiercely opposed, following the president of the German General Automobile Club (ADAC, 15 million members), Florian Hördegen, “such a measure is completely useless because it will diminish the percentage of the CO2 emissions in Germany by less than a half. Most of the emissions are due to large concentrations of vehicles, because of traffic jams from morning to evening and during holidays. A speed limit would not change anything in this case. Would it be reasonable to limit the mobility of all drivers for such a weak result? We think it isn’t.” This situation promotes speed and furthermore powerful vehicles. The German constructors are talented in the production of heavy, big and polluting vehicles. Vehicles sold in 2008 in the European Union had emissions of 154 g/km on average. On a European level, the worst pupil is Sweden, with average CO2 emissions of 175 g/km on sales in 2008, followed by Germany (165g/km).

The European commission wanted to restrain the constructors to bring the levels of pollutions back to 120g/km in 2012, compared to 163 today. This project would have penalized Mercedes and BMW a lot. As a result, Brussels has made a review; from the 1st of January 2009 on, new vehicles with emissions less than 130g CO2/km will benefit a bonus that can reach 1000 Euros. In contrary, the ones with emissions above 160g / km will receive a penalty. Instead of the 465 million tons of CO2 that Germany asked for, the German industry will have the right to emit 453 million tons per year in the atmosphere.
In the country of the cars, the big engines still have a huge success. Because of a dissatisfied public opinion the fabricants of big and consuming cars on fuel, which decelerate the evolution to hybrids and electrical cars, are looking to improve their image through marketing and presenting new “clean” technologies. For these constructors, every argument would be good to prove their engagement in the fight against climate change.

For example, Mercedes-Benz settled in Baden-Württemberg, a constructor that keeps on encouraging the automobile mobility, presently invests “22 million of the 32 billion Euros in the budget in the fight against global warming”.

A study of the German Institute for economic research (DIW), the climate change would in Germany, in the coming 50 years, have a cost of around 800 billion Euros. However, to plea for new energies is in contrast with the contradictions. The political pragmatism is therefore in conflict with the economical interests. These politics are mainly a response to the European directives on global warming but also a reaction to the present crisis. Its goal is on the one hand to assure a more important energetic independence and on the other hand to diminish the energetic bill. Furthermore, this is also a response to strengthen the evolution and development of jobs in the sector of the environment with 500 000 more employees estimated between now and 2020.
After all it is not easy to join respect for the environment and economic growth.

Sources :
- Les bons résultats de l’Allemagne dans la lutte contre le réchauffement climatique
BE Allemagne 430, 01 avril 2009
- Le secteur du photovoltaique ou le courant électrique à partir de la lumiaire solaire
Renewables made un Germany, 2009
- Politique énergétique Allemande : en route pour l’innovation
Twin Partners – Tendances et Prospective, 9 mars 2009
- Sustainable Energy Supply – Potential of Solar and Wind Energy
Volker Wittwer, Fraunhofer-Institute for Solar Energy Systems ISE, World Future Energy Summit 2009, English
- Wind Energy Development in Germany: Status Quo, Perspectives and new Legislation 2009
Dr. Peter Ahmels, Deutsche Windguard Ltd., PowerMex 2008, English
- Wind Energy Development and Future Integration in Germany – a Perspective also for Brazil
Prof. Dr.-Ing. habil. Ingo Stadler, Institute of Electrical Power Engineering Renewable Energies & Energy Economics, Ecogerma 2009, English

The phrase “Climate Change”, and its forecast implications for the global population, has reached the agendas of Governments, companies and ever larger numbers of private citizens. High on the list of their considerations is the need for programmes to replace fossil fuels with alternative green energy strategies.

Against this background, the volatility of world oil prices, unstable for a generation, has in recent years created its own wide ranging economic problems for both industrialised and developing nations.
High petrol and diesel prices, which most recently peaked in 2008 and now rising again, gave a timely boost to green energy research by narrowing the profitability gap between the use of fossil and green fuel resources.
Somewhat lower oil prices in early / mid 2009 created new global economic patterns giving rise to speculation that short term lower fuel prices might have a negative impact on the development of green energies. But one certainty remains: without viable alternatives, the price of fossil fuels – particularly oil – will inevitably remain volatile due to the declining availability of the basic resource and the growing difficulty of extracting much of what remains from increasingly inaccessible locations.
As populations and economies grow, demands for energy in all forms will inevitably keep pace, in turn giving rise to ever increasing interest in the development of green and renewable energy technologies.

The growing interest in Green Energy Development

At many levels amongst developed nations, there is a realisation of the need for economies to switch their dependence to sustainable energy policies rather than relying on diminishing fossil fuel deposits.
Most developed nations acknowledge this is no longer merely a social, moral or a political question. Political parties may make election headlines based on their green manifestos, but more importantly, this has rapidly become a high profile business and an economic issue.
It is thus unsurprising that many in both industry and the financial sector have been quick to translate this rising interest into their own green investment strategies. Even in the current severe recession many hard-pressed companies are investing significant resources in green energy strategies, often balancing that by reducing their investments elsewhere.
Examples, amongst others, are Toyota’s recent investment in bio-combustibles, EDF’s investment in photovoltaic projects and Sanyo’s investment in solar panels.
It is encouraging that major banks and profit-focused enterprises continue to support such investments even as the crisis has deepened. It is evident that they have understood that climate change is no longer someone else’s problem, but one touching both individuals and global enterprise equally.
As an example, Colruyt’s investment in wind turbines and solar panels clearly reflects that company’s understanding that the future of its business will be significantly influenced by climate change and the need to manage that in the very best way possible.
Many other companies are investing similarly. However, presently available technology means that today’s green energy strategies cannot yet offer solutions that are completely independent of fossil fuels. Technological progress from investments in this sector is leading to significant increases in energy efficiencies. But for the world in general, there is a strong desire to see green energies, in many forms, progressively replace fossil fuels soon, and critically, before it becomes too late.

Green Investment Funds contribute to Green Energy Developments

The appearance of Investment Funds in this sector is now accelerating the development of a new economic segment based on green energies. The concept is straightforward. An Investment Fund sells financial products to raise money from shareholders and invests in a group of assets, such as wind energy, solar energy or other energy-sustainable technologies in accordance with the Fund’s declared objectives.
Shareholders may be private investors, companies, banks, mutual funds or in some cases government administrations.

A “selling point” of such Green Investment Funds is to encourage small investors to acquire a pool of securities and thus to contribute to the wider development of green energy technology. The commercial argument in favour of the Investment Fund is based on the premise that small investors, with little or no knowledge of green energies, will be more inclined to invest in a Fund which is managed by professionals.

Funds of this type contribute to the growth of the whole sector by investing their larger resources in the development of both existing, and new, technology projects.
For investors in a complex field such as green energies, conducting business through an Investment Fund is relatively straightforward:

- It reduces the micro economic risk by diversifying the investment. By purchasing a share in such a fund, the investor acquires a share in a large pool of securities from different companies.
- Funds are professionally managed.
- Financial products are easy to buy, and to sell.
- Funds can acquire or invest in companies that are not stock exchange listed.
- Individual investments do not necessarily have to be very large.

There is already an identified and real demand for financial products of this kind. In Belgium, the market now has the potential to grow at a faster rate than in many neighbouring countries. Recent estimates show that in 2007 Belgian investments in the green energy sector increased by a remarkable 30%.

However, a study carried out by TNS Nipo for Delta Lloyd Asset Management highlights that of the total sector investment; the proportion made through a Fund is smaller than in the Netherlands and other neighbouring countries.
In Belgium in 2007, only 8% of green energy investments were made through managed Funds compared with 17% in the Netherlands. These figures clearly suggest that Belgian investments through green energy Funds are at present far below their potential.

Significantly, the TNS Nipo study concludes that 75% of Belgian “green-focused” Investors would be prepared to invest through Funds if those Funds were themselves able to benefit from tax incentives.

It is thus evident that the emergence of green investment funds could contribute significantly to the development of green energy technology. There is a possible downside. A sudden major surge of new investment capital might achieve an adverse effect if Funds were to use these unexpected resources to invest heavily in the acquisition of existing companies. In that case, it is unlikely that additional financing would reach those concerned with the R&D for new green projects and technologies.

In turn, this could lead to the risk of overvaluation of companies in the sector and worse, could build a speculative bubble. To minimise that risk investors must select funds, and Fund managers, who are focused on companies clearly seeking to improve and develop green energy technologies and green energy production.

Improving the Attraction of Green Energy Investment Funds

Six key factors leading to the present poor investment in sustainable energy have been identified (see below) Linked to these is a widespread poor understanding of green energy matters generally and a fear of an inadequate yield from the products. In order to increase investments in this field, it essential to offer clear information to customers and potential customers, ie:

- Current products and their characteristics.
- The positive effects of green energy developments.
- Long term profitability forecasts.
- The sector’s constant growth trend and available capacity before reaching critical size.
- Investment risks
- Diversification opportunities (Each fund invests in a range of companies and / or green energy projects)
- Key actions to make the offer more accessible are:
- Improve communications to the public
- Make the investments more attractive for the uninformed potential investor
- Set up a marketing campaign.

Focus on Risks and Opportunities

Investment Funds specialising in the energy sector should not limit investments to one form of green energy, but should diversify across a wide range of projects located in different countries.
Such a strategy would mitigate the investment risk in countries where, at some future date, changing political priorities could dictate unpredictable changes to green and sustainable energy policies.

But in a global economic crisis is green investment an opportunity?

At a time of world economic instability, when the viability of many banks is in question, in the green sector very few companies have suffered adversely, and at present most appear resilient, continuing “business as usual”.
So, investment through a fund may still be considered as an attractive opportunity because many factors remain valid, and are mainly unchanged by the crisis:

- the certain increase of long term energy needs,
- the growing concern about the effects of fossil fuels on the environment,
- the rise in fossil fuel prices in the long term,
- the will to increase independence on fossil fuel producers (OPEC countries, for instance),
- a current low security value due to the uncertain economic climate

As the crisis has deepened, there has obviously been some risk that it could impact the green sector. The availability of cash could also become a limiting factor to the growth of existing green energy capacities in Europe. The “credit crunch” has had a dramatic, and negative, impact on banks’ liquidity and their appetite for long term debt.

Consequently, financiers and investment managers will pick only those they regard as the best and most secure projects. This means that the best investment projects in green energies will continue to be supported by banks and by private investors only if they are convinced about the future viability of those projects. This will, to a large extent, depend on the complexity of government regulation, the stability of local and global investment climates and available subsidies to support new developments.

Despite the credit crunch, encouraging financial resources are still available for green energy developers. Commercial and investment banks, in particular, consider that lending money, implementing a green investment fund or allocating funds to green enterprises will be profitable in the long term and could open the door for brand new business opportunities thanks to the growth of environmental consciousness. The value of many companies quoted on the stock exchange has decreased, but others like Sanyo, EDF or Suez have shown improved profits from the green energy sector.

This presents an opportunity for longer term investment profitability compared to many other industrial activities. In fact, the sector may more easily survive the financial crisis because all energy sources, and importantly green energies, are essential to global economies. Critically, in 10 to 30 years, many oil resources may be exhausted. Nevertheless, investment in green energies involves some risk because the exact consequences of the growth and evolution of the crisis are unpredictable.

It is still too soon to be able to assess the performance of dedicated green energy funds reliably. As yet, there is insufficient historical data. But many funds which have broadly followed green strategy investments have shown impressive yields in recent years. The valuations of green energy producers – especially solar and wind based technologies – have risen appreciably and consistently.

Prior to the economic crisis, the average price / earnings (PE) ratio in the sector was exceeding 30% – high by normal standards.

The key question is to determine if valuations at that level were simply high, but supportable, or as some analysts have suggested, were over estimates which would inevitably lead to a speculative bubble.

Some might ask, “Are we already on the way to the bubble?”

In order to answer this question, it is essential to know what the predictable signs of that phenomenon are. They are often vague, but in general a financial bubble has the following characteristics:

- Any sustained, surging and favourable economic pattern leading to rising (energy) prices.
- The appearance of “collective euphoric mimicry”. For instance, seeing some buy and make profits due to price increases, prompting others to do the same.

Before the current crisis, the green energy sector was characterised by many of the elements associated with a speculative bubble. The enthusiasm for alternative energies had provoked a value increase for many companies in the sector, which brought about an overvaluation of those enterprises. That overvaluation resulted from the heavy investments made by investment Funds and from additional State aids and similar subsidies. Significantly, in some countries State aid has been regarded as unacceptably high by the Energy Regulatory Commission (ERC).

In this instance overvaluation does not mean the speculative bubble (if it were one) has reached a bursting point. There have been no signs of “collective euphoric mimicry”. Even so, realistically the credit crunch could still lead to a bubble burst, due to the unpredictable spread of the financial crisis to affect all sectors…

The bubble, if it existed at all, may have already burst unnoticed, as part of the recent slide in the value of many securities and stock markets world wide. In contrast with the Internet “Dot-Com” bubble of the ’90s, green energy valuations are about tangible assets – wind turbines, solar panels etc – which seem set to guarantee long term profitability thanks to the continued rise in energy demands and prices for the foreseeable future.

Conclusion & perspectives

To conclude, the arrival of Green Investment Funds is considered a windfall for the development of green energies:
- it facilitates investments in green energies,
- it allows investors to diversify their portfolio in a fast growing sector,
- it enables start-up’s in renewable energy to raise funds to become active and to develop new technologies in the business sector.

Investors who are willing to take advantage of the global climate change still have to be wary of speculative excesses. That is why banks offering green products need an in-depth knowledge of the investments made by the Funds and must ensure their investment diversification in the best interests of their clients.

Investors and their funds take a risk if they massively invest in existing companies. That could cause the sudden speculative price rise of a targeted company and a resultant overvaluation of that company’s intrinsic value. A speculative bubble could result.

But, in the current period of economic slump, those companies too are suffering. As their turnover decreases, their value on the stock exchange falls and it becomes consequently harder for them to find the funds to grow.

However, funds will always be available for the best bankable projects. There are few who doubt that in the energy sector, the future will be green.

Sebastien Carion

Accused to be at the origin of the price increase of the raw materials and responsible of the decrease of the biodiversity, biofuels are often subject to contradictory debates regarding the reduction of CO2 emission and preservation of the nature. We propose here to make a status quo on the biofuels first generation and their potential future.

Back to the origin…

Biofuels are products manufactured starting from agricultural raw materials. They are mixed with regular fuels or used as additives or lubricants. Since couple of years, this new energy has been promoted to replace fossil fuel in transport in order to fight against the climate change. A fair reward to the sources because the biofuels were already used at the time of the inventions of the spark-ignition engine, supplied with ethanol, then combustion engine, which functioned thanks to the groundnut oil.
Currently it exists two types of biofuels belonging to the first generation:the bioethanol and the biodiesel. The first, produced starting from beet, sugar alcohol, of sugar cane, corn, is developed in Brazil and the United States. Both countries represent together 2/3 of the world biofuels market. Biodiesel worked out starting from oil of colza, sunflower or soya, is the option preferred by the countries of the European Union.

A pseudo good idea?

Since 2003, measures imposed by European Directives have created a real rush towards the “Green Fuel”. A success confirmed and encouraged by the EU in 2007 by the ambitious target announced: 10% of the energy used for transport in EU should come from biofuels in 2020. The biofuels first generation then seemed to incarnate a serious track to replace or in any case prolong the lifespan of the black gold.

However, their benefits were recently re-evaluated. The development of the biofuels raises the question of the assignment change of the ground. How to react with respect to a forest replaced by a field dedicated to the biofuels or food culture substituted by an energy culture? In Brazil, the deforestation of the tropical forests, where the exploitation of the grounds is more interesting, causes important Green House gas emission. Moreover, the use of pesticides and agricultural monoculture reduce the diversity of the plants, impoverish the biodiversity and facilitate the erosion of the grounds. Also let us note that certain crop plants for the biofuels consumes a lot of water, another product which becomes rare. According to an American study published in the review “Environmental Science and Technology”, between 5 and 2.138 liters of water are necessary to produce 1 liter of bio ethanol depending to the practices of irrigation and the choice of the plant.

Today, 1,5% of the cultivated surface on planet are intended for the biofuels. According to OECD, this surface could at least triple in 2030. The mobilization of the whole of the fallow lands of the EU, is approximately 6 million hectares, represents a potential from 7 to 14 Mt per year of biofuel. This is from 2,5 to 5% of fuel consumption in Europe. This increase in the demand of biofuels, by simple consequence of the law of supply and demand, caused the raising of prices of the food basic products, causing many famines in the world.

According to the World Bank, the biofuels would be responsible for 75% of the increase in the prices of the food products which are one of the causes of the recent food crisis of 2007-2008.
This rise of the prices generated a reduction of the purchasing power of the populations, essentially countries of the south, whose food is a big part of the household budget.

The biofuels first generation thus constitute a first brief reply to the reduction of GHG . Nevertheless this is not sufficient compared to the problems generated to biodiversity, of environmental impact and arbitration with the foodstuffs.

A matter of generation?

The biofuels second generation are produced starting from the whole plant, of wood, the straw or of the hemicelluloses or cellulose, lignin scrap. There exist two ways of transformation:

The first is the way known as thermochemical to produce biodiesel then mixed with the gas oil: This is about technology of gasification or “Biomass to Liquid” – BtL; it is the way explored by the European Union.
The second is that known as biochemical to produce ethanol and then to mix it with the gasoline. United States has the most advanced research on the subject.

The use of nonfood culture constitutes the first advantage of this generation. For example, the miscanthus and the “switch grass” are high-output cultures which adapt to less fertile grounds, drier and which require less manure.

According to the ADEME, the biofuels second generation could provide for height of 25 million Mtoe (ton oil equivalent) per year, that is 80% of the potential of biomass in France for energy and raw materials and have a better energetic efficiency. Thus, 1 hectare of surface makes it possible to produce 4.000 liters of BtL hydrocarbons against 1.500 liters of biodiesel or 2550 liters of bioethanol.
The production process of biofuels second generation uses 80% of the plant whereas those of the first generation use only 20% of them. For the two ways of transformation of this new generation, the first industrialized production units industrial could be operational between 2012 and 2015 in the United States and 2015 and 2020 in European Union. On its side, Brazil envisages to market its biodiesel second generation in Europe as from 2015.

Nevertheless, these production methods, in particular the thermochemical way, require large investments: the production costs of these biofuels are twice more important than the gasoline or the gas oil.

In France, project FUTUROL falls under logic to intensify R& D over 8 years in order to develop then to validate an eco-efficient process of production of bioethanol starting from the lignocellulosic biomass.
We can then expect in the long term the creation of large scale bio-refineries with integrating the two platforms biochemical and thermo chemical. They could even export heat and electricity, like the production units of ethanol in Brazil.

In addition, “the objective of the EU of incorporation of 10% of biofuels in the pool gasoline-gas oil by 2020 is accessible without threatening the food requirements and by leveraging on the existing production methods and the ones proposed by the second generation.

Also, the work of the scientists on the biofuels of 3rd and 4th generations – the algofuels produced starting from alga – lets think that the biofuels did not say their last word.

But we are clearly in a social innovation and not only in a technological one. We must develop networks and put in place new operators to manage vehicle fleets and batteries. So it is a new eco-system. We now have petrol stations, tankers, Garage, 120 years of experience on the engine explosion, all a system that was not put in place overnight. The new one must be tested over several years, and there will be failures, errors… But we have a world to invent.

What is it? First we have to solve the issue of autonomy. With 40 liters of gasoline, a car with a heat engine has five times more autonomy than an all electric one. One figure: a modern car with lithium-ion battery, well equipped, carries the energy equivalent of 8 to 10 liters of gasoline. Compared to the better cars with heat engine, it is 200 km of autonomy.

A first idea is to separate the ownership of the car and battery. Thus to provide the car without the battery pack, which will be rent. We can also provide recharging stations for batteries. Whatever the solutions, we will need someone to sell or lease the batteries, manage inventory, renew it… These new tasks involve intermediaries and operators, therefore funding. Better Place (1) could be an example of such services.

Which cost for the user? As fuel, electricity is more competitive than gasoline. Contrariwise, we must add the location of the batteries. According to Renault, which is advanced in this area, the overall cost of owning an electric car (including purchase or rental of the car, location of battery pack, and purchase of electricity for an average mileage of 10,000 km per year) should aim to be equal to an equivalent diesel car.

Which cost for the community which must increase the electric production? We have estimated for the decade 2010, that a fleet of 1 to 1.2 million electric cars represents a slice of nuclear-type EPR, or 1500 MW.

Also take into account intangible benefits: the electric vehicle is very pleasant to drive: flexibility at low speed, automatic, silent. A new driving experience! The challenges for manufacturers are a global equivalent cost and a new quality of driving. With a bonus of an ecological pleasure: the electric car does not pollute the environment where it is used…

To develop this new eco-system, good vectors of electric vehicle penetration could be the big fleets (like: La Poste) and also the rental of vehicles whether conventional or new companies which involved in car-sharing. Sharing a car is also part of the new social system (2).

Notes :
(1) See the articles “Better Place va vendre du kilomètre électrique au détail” on the Energie channel of Expansion.
(2) See the folder “Partager sa voiture ?” on the Energie channel of Expansion.

In the search with the new sustainable and renewable energy sources to satisfy the world demand, more and more ways are explored. Ground, sea, air and space are frameworks of reflexions around energy valorization: recuperation of the energy generated by the movement of the waves, construction of solar power stations in space in order to free itself from the intermittency problem, and still many other ideas which flower.

Among them, the establishment of solar power stations in full desert. The deserts, in general very slightly populated, have already the advantage of the availability of space.
Then, certain deserts like the Sahara are true energy oases because of a strong and quasi-permanent sunning (3000-3500 hours of sunshine per year against 1550 H in Brussels). In addition, solar technologies – photovoltaic and solar concentration- reached a sufficient maturity today to consider the deployment of large solar farms on the sites considered as being most favorable.

The most favorable zones for the concentrated solar energy utilization (thermodynamic solar energy)
Source : Stine et Geyer, 2001

Fields of cylindro-parabolic solar collectors established over 1/20 of the Sahara surface2 would be enough to cover the worldwide consumption of electricity which is close to 18.000 TWh/year.
Following this awakening, TREC network (Trans-Mediterranean Renewable Energy Co-operation), in collaboration with the German center aerospace (DLR) within the framework of the DESERTEC Project, has carried out studies for a few years with the aim of assessing the feasibility of a concept aiming at producing electricity and fresh water by means of solar concentration power stations established in the Sahara. The idea is to produce freshwater by desalination processes of sea water (by distillation or membrane) which use a share of electricity or heat produced by the solar installation.

The project aims, on the one hand, at giving developmental perspectives for these countries of the Sahara and on the other hand, to export a share of electricity produced to satisfy the European demand in green energy.
As often, the cost of a such project is the main brake with its achievement. The electricity transmission on long distances will have to be done in High Voltage Direct Current (HVDC) but the cost of this technology remains very high (approximately 500M€/1000km for a HVDC line of 2GW).

Nevertheless, this cost obstacle does not prevent that other European initiatives envisage the same type of solar valorization. Thus, the Mediterranean Solar Plan considers up to 20 GW of solar production on the Mediterranean circumference in 2020.

Developing this inexhaustible energy potential of the deserts will also require the installation of mechanisms of incentive and promotional instruments (tariffs of repurchases, green certificates) to make these investments competing. The repurchase tariffs guarantee a repurchase fixed-price of sustainable electrical production which enables the investor to recover his expenses. The green certificates are also a mean of promoting renewable energies: thanks to green certificates, a renewable energy producer can valorize them within a dedicated market.

There are well-known mechanisms which have already proven their effectiveness for a few years in the European context and which would make it possible to add value to the investment in the solar Saharan one.

Map of the DESERTEC project showing how the European energy fields and the Mediterranean region could be shared within the same unit.
Source : Sylvaine Thomas – Fotolia

Notes :
(1) Recently NASA carried out between 1983 and 2005 that the area of Agadem (Niger) is at the second rank of the zones receiving the most sunshine during the year with on average 6.78Kwh/m ² /day.
(2) Calculation data: net annual output of solar-electricity conversion=20%, average intensity of the direct radiation =2Twh/km ² /year.

This concept is crucial because, until today, the consumption of energy grows at the same time as the populations and the economies: this model is not sustainable. Efforts in terms of eco-efficiency aim at solving current contradiction goals between economic development and decrease of the environmental impact. Particularly, struggle against global warming, priority of industrialized countries, is directly linked to the reduction in greenhouse gas emissions, which are directly related on the fossil fuel utilization and thus to the energy demand.

First encouraging but unequal results between the countries

Ademe’s – French Agency for Energy Management – survey states an annual increase of 1.6 % in the world energy efficiency since 1990, mainly carried by the China growth (7.5% per year between 1990 and 2000). In 2006, CO2 emissions were less important than expected: 10 billion toe less, in which 4.4 billion are allocated to improvements in world energy efficiency. If about 2/3 of the countries take part in that worldwide energy’s performance, they are the least sparing countries and with economic strong growth like China and the United States (1,9% per annum since 1990) which progressed the most. Besides, there exist strong inequalities between the countries.

Europe has the best energy efficiency and keeps progressing up 0.8% per year since 1990

Thereby, per gross domestic product, Europe consumes 30% energy less than the USA and 40% less than China. Its energetic intensity is also weaker than the emerging and developing countries energy intensity. The chart here below compares the energetic intensities in the different parts of the world: it states that the higher energy efficiency is, the lower energy intensity is.

Primar energy intensity per region of the world (source: WEC – Ademe, Enerdata)

There are notable gaps within the European Union, with a factor of 3 between the two extremities, United Kingdom and Bulgaria:

Energy intensity in Europe (source: Odyssee – Enerdata)

In the Europe of 25, France has the 6th places and Belgium the 11th one. However, energy efficiency in France differs according to sectors. Transport represents 31% of energy final consumption, but France is the leader in energy efficiency in that sector thanks to the efforts granted by the automotive sector(1).
On the other hand, France took delay in the accomodation sector. A French household consumes around 30% more energy than in the Netherlands, one of the most performing in the accommodation sector. For heating, consumption per m² corrected by the climate is more of the double in France than in Norway. This explains the priority given to the housing sector:

Enterprises start to take initiatives

The companies account for 22% of the final consumption of energy in France. They have thus a determining role to play in the research of energy eco-efficiency. A true business strategy must be developed and can be based on the three following points::

The exemplarity of the companies ensure a positive and responsible image. Moreover, she sensitizes the customers, the employees and the partners with the necessary behavioral changes with respect to energy. Many companies took initiatives by developing projects of eco-efficiency beyond the regulations.

To start with General Electric, which launched in May 2005 the “Ecomagination”program, strategic initiative whose objective is to develop innovating solutions and recognized for their energy efficiency. According to their annual report, the “Ecomagination” portfolio rose from 17 products to more than 60 between 2005 and today. In 2007, the investments in the search for clean technologies amounted to more than 1 Billion USD.

Also let us quote Fujitsu Siemens Computers, which placed energy efficiency in the middle of its strategy, having taken into account which data-processing equipment was responsible for at least 2% of the world CO2 emissions. Since 1993, the group received the Blue Angel certification for its computers, whereas other companies only began to respect the European directive EuP (European Energy using Products) 2005/32/EC, coming into effect in July 2007.

Energy suppliers, through the development of partnerships with other entities or federations, joined an energy eco-efficiency approach. EDF for instance, developed several partnerships(3) in order to ease the energy eco-efficiency and trained professionals to adopt the eco-efficiency criteria.

The distribution sector reached a new milestone in October 2008: twelve big distribution brands, eleven DIY (do-it-yourself) brands, EDF, the Ademe, Récylum Organism, the DIY Federation and Commercial and Distribution Federation (FCD) came into an agreement and signed a convention aiming at eliminating definitively into 2010 the bulbs with incandescence, which will accelerate their replacement by bulbs with energy saving. This first success could constitute a base to quickly develop other equivalent steps on different products.

However, next to those initiatives, we are witness of the «green washing»(4)drift. This tactic creates a confusion in the spirit of the consumers. Counterproductive, the technique discredits any kind of communication on the environmental aspects and slows down concrete initiatives that companies launch to communicate on their exemplarity.

In this period of recession, the fight against climate warming is likely to become less prioritary, except if it makes it possible to also reduce the costs. According to a worldwide survey done by «The Economist» with regards to 538 corporate executives on their expectations on the Copenhague summit (that will describe the after Kyoto), 73% of the companies target as a priority improvements in energy efficiency for the two coming years. But the efforts must intensify, because in economic period of growth, the emissions continue to increase each year5.

Notes
(1) French cars consume in average 1 liter less for 100 km than German cars.
(2) Namely, the creation of an informative brochure on conserving energy in buildings, elaborated in April 2008 by the DGUHC that presents the plans to improve the energy efficiency in buildings
(3) With the “Fédération Française du Bâtiment”, the “Confédération de l’Artisanat et des Petites Entreprises du Bâtiment” and the “Fédération des Entreprises Publiques Locales “.
(4) «Greenwashing» describes a marketing prectaice used by the companies to get a environmental friendly image without doing concrete actions.
(5) The emissions growth rate is worrying: «Between 2000 and 2007, émissions rose up 3,5% per year in average, four times faster than between 1990 and 2000 (0,9%) », explains Corinne Le Quéré, member of GCP (Global Carbon Project).

Therefore states must find ways to ensure their independence on energy sources. Storage can fulfill this objective, since it optimizes the development, at a local level, of renewable energy sources. Hydrocarbons can be stored easily. On the contrary, energy storage represents a major technical challenge. Some very encouraging studies aiming at developing efficient techniques are emerging.

From a scientific and theoretical point of view, we should be able to cover all our electricity needs thanks to the existence of abundant wind and solar resources. These energies have some widely recognized assets: they allow for cuts in emissions of greenhouse gases, they are favorable to local initiatives, and they represent an alternative to nuclear power, which remains a controversial solution.

However entrepreneurs feel reticent to invest. In 2005, wind power and solar energy accounted for only 0.17% of the total amount of electricity produced in France. The point is that the return on equity is not dependable. Indeed, these resources are subject to the fluctuations of the climate. They are thus intrinsically instable which results in an imbalance between supply and demand. If we were able to use efficient techniques to store the energy accumulated when demand is low, and inject this energy in the grid according to the needs, it would help smoothing production’s defaults and increase the competitiveness of these energies at the same time.

Storage is not only an issue for such sources as wind and solar energies and the long term. Because it is greatly influenced by environmental factors, consumption can vary a lot. As a consequence, the energy market is extremely fickle and the spot price can reach extremely high values. What’s more, in order to meet peaks of demand, it is often necessary to start power plants, which is both costly and polluting. It is also a well-known fact that an important share of electricity is lost during the process of transport. In France, losses in line represent, on the average, the equivalent of the production of a nuclear plant. Storage close to the places where energy is actually consumed would greatly contribute to limit wastes. In other words, efficient storage would allow both to cut costs and to save energy.

At present, the batteries’ technology is the most common. It has evolved a lot but there are enduring disadvantages: every time a battery is put in charge, it inevitably loses a fraction of its storage capacity. As a consequence, its life expectancy is limited. The best ones, the lithium-ion batteries, can recharge up to 80% of their maximal capacity in less than a minute and just lose 1% of their capacity after 1000 charge and discharge cycles. However, a risk of explosion exists when the voltage is too high. Currently, all the efforts are focusing on alternative technologies which do not rely on a chemical process. A first system which converts and stores wind energy in the form of compressed air was conceived by the German group EnBW. It should be marketed in 2012. The Hydrosol 2 project in Almeria in Spain, which uses an accumulator of latent heat to store solar energy, may also be quoted.

Energy storage weights about 60 billions of dollars. Asia is currently leading the batteries’ market and research. The United States also realized the stakes and they are now investing in the field of energy storage. France and Europe would act in their own best interest to take a very active part in the development of such techniques. In this way, France and Europe would not only improve their independence on energy and reduce their emissions of greenhouse gases, they would also be in a position to share the economical benefits which will undoubtedly be associated with these innovative technologies.

Marie Urban

BIBLIOGRAPHY:

The evolution of the refining sector

Often encouraged by their government, more and more producing countries (Algeria, Saudi Arabia, Qatar) build refineries in order to keep as much as possible of the value chain and not to reimport refined products (Iran, Algeria).

New refineries by region and increases of distillation capacity. Phase 2: design-engineering-construction (Million bbl/d) 2006-2007-2008

Source: The Oil and Oil Services Industry: international context 2008, IFP, November 2008

There is scarcely any project of building new refineries in Europe in the next few years. Like other oil producers, Total focuses on new refineries in the producing countries, with Jubail in Saudi Arabia, or on strengthening its positions in the USA in Port Arthur (the 30% of investments allocated by Total to build new refineries are exclusively dedicated to these two refineries), with a high expected return on investment.

* including net investment in equity affiliates and non-consolidated companies, excluding turnarounds, based on 1 € = 1.50 $ for 2008(e)
Source: “2007 results and outlook” of Total, Investor Relations – February 2008

During the coming next years, we should assist to a transfer of investments in the refining sector going to the emerging countries part of the OECD (Asia, Mideast, to the detriment of the historical consuming countries).

Exchange with foreign countries

Total owns 85% of its refining capacities in Western Europe but only sell there 69% of its products. The decrease in the demand of the countries part of the OECD doesn’t enable to absorb the refining overcapacities. France exports notably its oil excess to the USA. At the same time, diesel importations are necessary, in particular from Russia. Nevertheless, the decline in the gasoline demand in the USA (-3.4% in October 2008) makes more complex the gasoline exportation to the USA where the margins of oil refining are going down, put under pressure between a sufficient production and a falling consumption. The total importation of refined products has been reduced to 1,8 Mt in 2007 (3,3 Mt imported and –1,5 Mt exported), showing the falling demand in France and the difficulty of exporting.

The European market is characterized by common standards which facilitate the transfers of refined products and not much differentiate the products according to the refinery they come from. At the contrary, in the USA, each state has its own standards, making more difficult the exportations from Europe and leading the US refiners to smallest installations made to provide the nearby local market.

The surplus of gasoline is also caused by the need to produce high quantities of diesel. New installations in Qatar and in Eastern Europe producing diesel from gas (Gas To Liquid) could limit this surplus and thus make useless the refineries in France overproducing gasoline to export oversees.

The refineries in Belgium (such as ExxonMobil or Total) as in France have now to face a complex situation:

A difficult local market

• decreasing margins
• Important investments in order to follow the market, to assure a sufficient stock of crude and to respect the legal and environmental constraints.

Limited possibilities of exportations

• An evolution of the constraints in the USA encouraging local and specialized refining installations
• A decreasing consumption of gasoline in the USA
• New refining installations in the USA competing with the importations

A strong competition from new actors in France and outside the country

• Importations of refined products from producing countries to France and the USA

The refining in Western Europe is hindered by decreasing possibilities of exporting and a falling local demand (-2% of refined products in 2007), leading to lower forthcoming margins and volumes.

The strategy of oil producers is not to quit their refining activities but to refocus on the most relevant and profitable installations, centred on well defined areas in Europe or elsewhere. The required investments (eg: clean diesel for Exxon in Antwerp) are made but only on these strategic installations, the others being sold to new actors specialized in the refining. This optimisation of the industrial park does not happen only in Europe, since Total sold in 2007 its participation of 55,6% in the refinery of Luanda in Angola. In parallel investments are made in new refineries in consuming (USA) or producing (Middle East) countries to adapt itself to the new constraints of the market, like Total does in Jubail in Saudi Arabia or in the USA in Port Arthur. All oil producers insist on the interest of their refining tools whose high contributions are expected, particularly for their new installations (41% of the expected returns of the new installations in 2012 for Total).

Perspectives in Western Europe exclude projects of new refineries and the question of closing some installations may come soon, in particular for the installations dedicated to the exportation or not enough adapted for treating crude oil or to the European constraints. Since February, the refinery of Teeside (France) puts up for sale by Petroplus, as well as the sale of the refinery in Dunkerke (France) by Total to Colas, confirms the trends.

Sources:
- Total : Registration Document 2007, Total Corporate Website
- “2007 results and outlook” of Total, Investor Relations – February 2008
- Pétrole en France : les principaux résultats en 2007 (DGEMP / Observatoire de l’énergie)
- L’industrie du raffinage et le devenir des fiouls lourds, Rapport Ministère de l’Écologie et du Développement Durable, janvier 2004
- Total pourrait fermer des unités de raffinerie en France, AFP, 3 novembre 2008
- Questions for Christophe de Margerie, Chief Executive Officer of Total, Total Corporate Website, 2007
- The Oil and Oil Services Industry: international context 2008, IFP, November 2008

On the other hand, European nations have to import more than a third of their daily gas consumption making of Russia an unavoidable partner. This necessary cooperation, between actors not always sharing the same opinion on energy, fosters sometimes tense dialogues.
Based on the description of the situation in Europe and Russia, Sia Conseil will analyze the challenge for European companies to find the right strategy to adopt toward Russia.

Overview of Gas in Europe

In Europe, natural gas consumption is projected to grow, mostly as a result of increasing use for power generation. Governments intend to encourage the use of natural gas instead of other fossil fuels with the objective to reduce carbon dioxide emissions (in climate policy terms, natural gas has the lowest CO2 emissions among the fossil fuels). Also renewables remain more expensive than natural gas. Therefore, gas is expected to become the natural choice for the new generation of power plants.
The following figure gives the total need of gas in Europe in millions ton of oil equivalent. A split is made between the production in Europe and the total import coming from Russia and the other importing countries.

Source : Sia Conseil, Energymarkets, European Commission – Global Research (HVB), Eurogas, Natural Gas Demand Supply – Long term outlook to 2030, Central Europe

As the purple section shows on the lowest part of the figure, the indigene production in Europe will strongly decline in the years to come. The most important natural gas production areas are located in the North Sea and in the Netherlands (Groningen field). European production accounts for 40% of the supplies to EU gas markets and is expected to drop to 20% by 2030. Exploration for new gas fields has been intensive in this area of the world and since 2001, no major reserves have been found. As one can see on the graph above, the import gap is widely spreading. By 2030, imported volumes will increase to 80% against 61% today.
Facing the reality, European gas industry has already contracted gas deliveries from regions outside Europe in order to meet the foreseeable demand in the medium term:

• from gas reserves available in the long run in countries which are favorably accessible from Europe in terms of transmission distances, such as Russia and North and West Africa,
• from more distant regions and from fields that are increasingly difficult to develop, with the consequence of rising production and transport costs (i.e.: countries from the Gulf).

Yet, Russia will remain the major supplier of Europe. Today, 28% of the global EU 25 consumption has a Russian origin. It represents 45% of the imported volumes.

By 2030, 29% of our gas consumption will be issued by the Russian gas fields in Siberia or from Yenisay-Kathanga. Even though European dependency to Russia will increase by 1% only, in terms of volumes it represents a great increase as the global demand rises dramatically. In addition to becoming more dependent from the big neighbor, 51% of the gas imports need to be contracted over the long term to one or another partner.
Based on those ineluctable facts, what are the respective behaviors of Russia and Europe toward the natural gas?

1. Russia’s behavior as ineluctable player in gas market

History proves that trust with Russia is a bit like playing at the Russian roulette. When one loses, he loses big. Minerals, oil and more especially gas seems to be the favorite weapon of Russia. As from 2005, numerous foreign individuals and private companies lost their investment, such as in Yukos that was declared bankrupt and nationalized, or when Western energy firms were forced out: Shell sold stakes in Sakhalin-2 and BP sold stakes in Kovykta field. Thanks to those recovered highly profitable assets and boosted by high prices of raw materials and, Russia is pouring enormous amount cash in investments. The following figure shows the great increase in investments since 2005.

As underlined by the list of investment projects below, Gazprom is investing in international projects clearly willing to expand its supremacy abroad.

More generally, Russia is keenly desirous to become an international leader, not to say the leader within the global energy markets. Not only is the desire strong but also the unwillingness to wait is quite apparent.

Nevertheless, the price of gas is directly indexed on the price of oil and the latter is controlled by the Organization of Petroleum Exporting Countries, among which Russia isn’t a member. So that, the next move for Russia would be to create a new cartel manipulating gas prices independently of the ones of oil. Russia would like to put itself at the head of the new organization in order to gain more power on regulating the supply, which would make it even more difficult for Europe to negotiate.

Even if Russia is keen to play solo, strong relationships with Europe are indispensable to weave long standing commercial relationships with the international community. Nobody can predict if the actual situation – great demand and few reserves in Europe – will remain eternally. Securing long-term exports of gas toward Europe can bring the stability the development of the gas industry needs.

2. European strategies toward the dependency of Russian natural gas

Recently, the energy bills of the European nations rapidly sky rocketed due to the lack of investment in generation, the demand in developing countries, the decline in European reserves of oil & gas and a sharp price increase in commodity. Yet, nations need to control the expenses of their citizens by:

• diversifying the origins of energy resources,
• controlling the demand.

In order to control those nation’s initiatives, Europe spoke with one voice in 2006, declaring theoretically its will to:

• bring stability on the markets and limit the price volatility,
• ensure the security of supply by diversifying the energy mix,
• challenge innovation in energy generation, transmission and distribution and boost the efficiency on the energy markets,
• create solidarity between nations.

“Those challenges require common actions”, underlined European Commission President Barroso.

Unfortunately, factually, strategies diverge ever since the first green paper in November 2000 towards a European strategy for the security of energy supply. Although all European nations are individually striving to secure their energy supplies, some nations like better to tie up with unique partners, others to bet on renewables, the latter to diversify origins of their gas and oil supplies.

Source : Sia Conseil

The present figure proves the difficulties to reach a consensus between the earlier mentioned European willingness declined in four initiatives, but also illustrates the will to negotiate with Russia. However, the whole strategy still needs to be built on harmonized actions avoiding any adverse scenarios. Prerequisites have been addressed in September 2008 during the first “Energy Dialogue between EU and Russia” where agreements on principle have been reached on Russia securing “relevant volumes” for oil and gas up to 2030. But the continent nation has always adopted two fundamentally distinct behaviors: during the worst periods of the cold war, it didn’t stop supplying the western countries, a contrario, recently it puts a lot of pressure on former satellites countries.

What strategies can European Companies adopt?

In this context where most of the coveted resource belongs to one player, political arrangements between nation leaders promote economical agreements supporting specific national initiatives. Alongside, the positioning of a company in the energy value chain will also have influence on the adoption of one or another strategy. Indeed, a company like Fluxys, focusing mostly on infrastructures, will easier go for a strategy willing to invest in techniques of exploration, production, transmission or storage, than a company focusing on delivery for example.

Strategy 1: to strengthen commercial partnership with Russia,

Some companies choose to strengthen their commercial partnership with Russia. Italian Enel and German RWE and E.On have chosen this lead that requires great amount of political affinities between political leaders. Risks are based on this commitment. Changes in diplomacy can put the gas flows in jeopardy. Yet, not being directly connected to Russia, the transit of gas can be stopped in other countries where stormy relationships occur between the Russian leader and former satellites countries. This strategy seems to pay-off. As instance, one can quote the 6.4% participation of E.On in Gazprom or the presence of the former German chancellor as chairman of the Nordstream pipeline.

Strategy 2: to invest in infrastructures

Another strategy for a European company would be to diversify its supply of gas by making substantial investments in all infrastructures of the supply chain. Up to 2030, the European Commission estimates that more than 200 billions of Euros in investments will be needed in the European gas sector.

A progressive geographical diversification of European gas imports is brought about by the increased use of liquefied gas, although this does not apply to all European regions equally. LNG will gain importance above all in Southern Europe as well as in France and Britain, for companies such as GDF-Suez. Besides, when assessing supply options, it has to be kept in mind that competition for supplies of liquefied gas will become far stiffer on international procurement markets. Other regions like North America and South-East Asia with its emerging economies will increasingly compete for gas on the world market since shippers are selling their shipment to the highest bidder at the very last moment.

Investments in transport and transmission systems can also make new volumes available for Europe. 75% of the gas reserves are located in countries were transport by pipelines is possible. Transport techniques need to be optimized and new routes created. However, costs of transport are directly proportional to distance. Investments need to be considered in regard with the potential benefits and the future political situation in the countries in between. Potential ways for investigation are Algeria, Caspian natural gas fields, Iran, the Baltic countries …

Regardless the strategy, constant optimization of capacities is a further factor to secure gas supply and to control the volatility of prices. Indeed, storage capacities allow better management and greater safety in supply disruptions since it can be called to ride out any shortfalls immediately. It seems to be the easiest and popular investment at this time (depleted gas fields can be use at very low cost).

Modernizing existing infrastructures is another way to reinforce any strategy, present techniques of exploration and production can be improved by increasing efficiency in drilling, gas recovery, fluids dynamics in pipes, compressing stations,… Fluxys is a typical example of a company following this trend by investing on all above mentioned axes.

Wedding or Divorce

In order for European companies to adapt their strategy toward Russia, i.e. Gazprom and all its partners, the challenge is to find the optimal mix of strategies, which will be function of parameters specific to each company: political arrangements, economical agreements, positioning on the energy value chain, distance and access to seas and oceans, ages of infrastructures or level of cash flow, can be part of a detailed equation determining the best strategic choice to make.

Nathalie Verhaegen and Jean Trzcinski

(ii) The capitalistic distinction between the suppliers and the transportation grid operators (TGO), called “unbundling”, pushed by the European Commission and that brings the discussion under the unique angle of the policy of competition to avoid discrimination between suppliers.

European energy on demand?

The unbundling, rejected by eight countries among which France and Germany, generated more than a year of debate and negotiation without reaching a compromise.

However an alternative resolution between the two options offered by the European Commission – “goods separation” or “independent management” – seemed to have been found. Rather than to remove ownership or control of TGO to the integrated energy providers, France and Germany suggest a third approach: transform these firms into public companies within which the management and the board of directors would be separated for the TGO to restrict the influence of the parent company.

On June 18th, 2008, the European Parliament agrees on the principle of the separation of ownership for the electricity market. However, for the liberalization of the market of gas, the Members of the European Parliament, in a July 9th, 2008 announcement, opted for the third solution.
This decision should be submitted shortly to the Council.

Mitigation occurred on April 22nd, 2009. Members of the European Parliament signed up to a deal which also allows companies to opt for two alternative models which let them retain ownership of their gas and electricity grids. This is, however, on the condition that they either hand over the operation of their transmission networks to an independent system operator (ISO), or adhere to rules which guarantee that the two sectors can operate independently.

Consequences of a separation of ownership

What would be the future of TGO if tomorrow they run out from the capitalistic power of a supplier of energy? First of all, they would face shareholders changes, the most logical change being the quotation in Stock Market. This change is not of course neutral from a management and financial performance seeking point of view. In fact, with delimited activity scope and with tariffs fixed by the regulator, the financial output of TGO should be comparable to a State obligation.

In the reality, this model remains theoretical. In a first place, this operation encourages optimizing TGO’s productiveness to provide more benefits; in a second place, the financial performance seeking will push TGO to external growth.

The potential future scenarios

Three types of future scenarios appear today:

• Takeover TGO outside of Europe draws inspiration from a financial logic because it states that, by sharing its technical know-how, TGO will be able to straighten the operational efficiency of non-European TGO bought back.
• Merge Gas and Electricity TGO on the same national soil.
• Build European monoenergy TGO.

According to countries, industrial interests and synergies vary very slightly and it does not exist a better scenario at European level.

Is the unbundling dead?

Actually, this separation is pushed by the European Commission and by several State Members in order to avoid discrimination between suppliers. In brief, it consists in breaking a protectionist tendency.

Even if it is clearly established that the development of nuclear technology has a favorable impact on security and supply costs, the unbundling does not allow identifying other potential impacts on final consumers related to security of supply or costs’ synergies. Therefore, it is wrong to assimilate the national perception of industrial interests to simple protectionism.

A major asset to sustainable development

Biomass refers to all vegetable and animal organic material that can be used as an energy source:

• Solid biomass: raw wood (energy wood) and its derivatives (wood wastes, straw,…) ;
• Liquid biomass: from plants (rapeseed oil, sunflower oil,…) ;
• Biogas: coming from natural or industrial methanization.

Biomass is used as a thermal energy source (heating), as an electric source (cogeneration) and for biofuels (ethanol).

It is the first sustainable energy source in some countries (eg.:France) and does not suffer any shortage risk in the long run: about 18 million tons of oil equivalent are produced per year from renewable energies and 2/3 of this production comes from biomass. Biomass carbon footprint is almost neutral: the amount of CO2 released by biomass (combustion,…) matches the released amount during the organic elements’ growth (trees, plants,…)

A favourable French context but a contrasting use

Biomass meets 4% of the energy demand of the developed countries while this rate reaches 40% in the developing countries.

The French case is one of the most paradoxical:

French wood industry is the second national budget deficit, coming after petrol despite of the fact that one third of the territory is covered by woods. France is the fourth world wood importer and is struggling to promote its own wood resources and derivative products.
The logging rate is below the regeneration rate (61 million m3 logging against 81 million m3 biological reforestation per year).

The country seems to be unable to exploit its forests and meet the industrial demand.

The French forest increases by 0,4% per year:

Despite of the economic crisis, the context is still favourable to the development of sustainable energies:

• First, because of the French and European directives which are aiming to :
  • Reach by 2020 20% of sustainable energy in the energetic consumption of the 27 member states of the EU;
  • Increase by 50% the renewable heat generation
  • Reduce the VAT on subscription and supply of heat coming from renewable energy.
• And more particularly for biomass because of the resulting French government measures:
  • Rollout of a second call of tender for the development of biomass power stations. The target is to reach by 2010 a cumulative power of 1000 megawatt with those kind of stations;
  • Rollout in 2009 of a third call for project by the French Energy Regulatory Commission (CRE3) in order to allow the takeover by the government of the electricity produced by cogeneration facilities that will be able to run with biomass;
  • Setting up of a “Heat Fund”, bound to support the building of collective boiler rooms using renewable energies.

The context is favourable to the development of sustainable energies. The biomass resources are available in the developed countries but the use of biomass remains low, especially in France.

Resources management: a brake on development

The use of biomass is undeniably advantageous from different points of vue:

• Energetically, the biomass potential in the European Community would be of 300 Mtoe. It could meet the energy needs of 100 million homes, ie 15% of the energy needs of the European Community countries;
• Economically and socially, it would help reducing the oil importations and help creating new employment opportunities;
• Environmentally speaking, it would reduce greenhouse gas emissions.

However the lack of resources management stands in the way of the development of the industry, especially for the forestry. First, no one has a clear visibility of the effects of a large-scaled exploitation. The impacts on biodiversity and soils are not measured. Furthermore, despite the fact that they are ready to use it, many manufacturers and local authorities are afraid of the damages of overexploitation in some countries like Brazil. There is no regulatory frame allowing to safely exploit the forests.

The lack of regulatory frame on the use of natural resources, especially energy wood, incites the energy companies and the boiler manufacturers to be reluctant to invest in biomass.

The use of biomass seems to be mastered as far as the energy production is concerned, but supply rules need to be clearly defined (setting up of dedicated organization, rules,…). The setting up of directives for a sustainable exploitation of forests is an essential condition in order to boost the industry.

In this context, was founded in 2001, the Gas Exporting Countries Forum (GECF), which is only an informal structure. But countries do not make any mystery on their intention to go further.
On the 21st of October 2008, they announced in Tehran the future creation of a “big gas troika” and few months later, on the 23th of December 2008, they decided (except Norway) during the GEFC at Moscow, to realize this union in a formal organization with its headquarters in Qatar.

The forum, opened by Russian Prime Minister Vladimir Putin, saw the participation of Ministers of Energy from fifteen countries. The agenda was mainly the adaptation of the gas industry developments and the status of this forum. Another main point was the problematic of the changing energy market including oil which is indexed to gas prices.

The economic and financial crisis has a huge impact on the countries which are living with the delivery of oil and gas in particular and they realized the weakness and fragility of their economies. Moreover, the globalization of the gas market and the increased of production and consumption of natural gas and liquefied natural gas in the world lead to the fact that GECF members countries have a growing influence on the supply of gas market.

The primary objective of GECF is undoubtedly to dissociate as soon as possible the price of gas from the price of oil and to find a consensus to stabilize the market on the basis of a “fair” price, acceptable for the producers and consumers. Russia is the first country in favor of the removal of indexation, considering that “the costs of exploration, production and transportation of gas increase” while prices remained unchanged.

So far, the creation of a cartel able to regulate the world gas prices is under discussion. However, as long as prices kept rising, Gas exporters will prefer not to be bounded by formal commitments. The economic crisis has forced them to agree on joint actions.

For its part, Iran insists that the gas cartel works like the OPEC to set quotas for gas extraction which will contribute to higher fuel prices. For now, Russia prefers to consider the gas cartel as a structure involved in joint projects and in the building, among other, of gas networks. The Qatar, on its side, is only being prepared by its gas projects which all concern the supplies of liquefied natural gas (LNG) in Europe. If its intention becomes the limitation of them to increase the prices, its competitors would then take its place. Finally, Algeria, whose position is still quite ambiguous, currently favors good relations with consumer countries, with a “fair” price, allowing the writing off of the invested capital and to keep reasonable benefit

Theoretically, it is complex to create a gas cartel like the OPEC, because the single global gas market doesn’t exist, unlike the oil market. Indeed, given the world gas market structure, the implementation of a coordinated pricing policy seems hard to implement. Also, “the forum cannot control the volume and price of the next ten years” highlight Chekib Khelil, Algerian Minister of Oil and current president of OPEC. Nevertheless, « the emergence of a spot market for LNG cargoes and its growth creates a growing potential to control prices”.
Anyway, the end of cheap gas is announced.

In 2020, Europe will have to import three-quarters of its gas against 54% today. So, this ad has caused an outcry in Brussels where they fear a cartelization in the energy sector, which will be not accepted by the consumer countries.

According to Frederic Lasserre, head of research on raw materials to the Société Générale, producing countries don’t like the fact that distributors increase their rates to consumers. “They want to get back their lost added value”. Russia in particular wants to get an access today to the distribution networks of European countries”. Between gas extraction and distribution, Vladimir Poutine no longer whishes any middleman .Thus, interposed by Gazprom, the Kremlin wants to control all of the gas chain.

Europeans are very worried about this project which, according to the European Commission, could significantly worsen their energy dependence. For Americans, the idea of a “gas OPEC” jeopardizes global energy security and paves the way for price manipulation

Sources :
- Économie: Les pays gaziers sous-développés et rentiers créent le cartel du gaz, Courrier International, 23.12.08
- Naissance d’une “Opep du gaz”, siège social au Qatar, AFP, 24.12.08
- Gazprom veut tripler sa part sur le marché français, La Tribune, 14.12.08
- L’Europe redoute une Opep du Gaz, Le Figaro, 28.11.08

What are the future perspectives for this kind of power generation? What are the expected results and how can the ROI be assessed? Many questions on which Sia Conseil is providing some expertise…

Hydroturbines generate power thanks to the ocean streams in order to produce electricity. The energy is located in the tidal currents caused by the rise and fall of water level or in the thermal streams. Turbines are therefore immerged in high-velocity areas, next to coasts. As for the wind, the blades of the turbines are converting rotational movements into electricity.

This technology combines multiple advantages. First, electricity can be generated continuously. Indeed, generation hours can be forecasted with the tide tables which enable to manage the capacities at any time. Secondly, power capacity can be as high as 4MW (Pentland Firth in UK) with an average around 2 MW. In addition, due to the density of water compared with air, hydro turbines are more compact than wind turbines. Further, beside the construction costs, the technology is carbon free and the energy is inexhaustible. Finally, environmentally, no impacts on the coasts since the turbines are completely immerged.

Some environmentalist and fishermen fear that sediments and natural flora disappear with the arrival of high-velocity turbines. However, few natural ecosystems take place in those unfavorable strong streams. The real issue is in fact the maintenance of an immerged fleet of turbines and its associated costs.

All proofs of concept have not been chosen by chance. Any location provides high-velocity regular streams, ranked among the highest in Europe. Considering the whole potential of the coastal capacity, 80% of the generating capacity is concentrated in France and UK. For France, using the whole potential of Normand and Breton costs could generate as much as 3000 MW or two EPR at the cost of 0,03 – 0,45 €/kWh.

The figure shows the different costs and expected revenues of tidal power compared with wind and nuclear power.

Source : Sia Conseil

Initially, tidal power can be a little more expensive that wind power but ratio power generation/availability let suggest that investments are more profitable.

In addition, tidal power is still in a R&D technology that didn’t reach its optimal efficiency yet. Environmental costs and availability (50%) are still to be confirmed.

Based on those assumptions, curves of ROI can be drawn:

Source : Sia Conseil

Based on the above figure, the profitability of a tidal project occurs in 9 years with higher investment costs than wind power. Yet, after 10 year, buy-back contracts of wind power will be variable (0,028 – 0,082 €/kWh) not for contracts of tidal power. This ensures an equal ROI on a ten year period but a much more interesting ROI over 20 years.
The technology will certainly become significant in the years to come. The objective is to have an industrial horizon by 2020.

French and UK energy companies are already present in that field from 2002; some other countries are also interested to take part. Indeed, banking industry and big player such as Morgan Stanley, regardless the crisis situation. They became the majority shareholder of Atlantis Resources Corporation. This company has been two proofs-of-concept for sub-marines power plant. Sales of such plants could start by 2012.

Yet, the only fact that majors are taking the wave proves the huge potential at mid and long term for generating power with tides.

For leader companies on the energy market, it is essential to gather, by grouping entities, a sufficient financial situation that will allow them to increase the production capacities and change or modernize the transport and distribution infrastructures. Operators will also have to deal with the environmental challenges. Heavy investments have to be foreseen in Research and Development, in the industrialization of the new technologies as the smart metering, the energy efficiency, renewable energies, etc.

• Gas price is particularly dependent on the geopolitical tensions. A diversification in the supply sources allows decreasing the risk linked to those tensions.
• In the same way, electricity, in essence that cannot be stored, is highly sensitive to hazards that could impact the production or the transport by a way or another.

Energy giants try to well control the supply chain through a vertical integration and to diversify their means of production and their client’s portfolio. Both stakes find a response in the consolidation the different actors are taking part.

In addition, dual offers (gas and electricity) turn out to be a competitive advantage to obtain additional market shares or to increase the customer value. The rapprochement between Suez and Gaz de France evolves in that way, because it allows to the new entity to rely on the customer portfolio of Gaz de France and on Suez’s electricity means of production. Moreover, gas is an important raw material for electricity production (20% at worldwide level in 2004 with a growing trend) that justifies the constitution of integrated operators.

Downstream, historical operators have to compensate the market shares losses and would like to take advantage of the growth opportunities deriving by the European energy market liberalization. Again, the fastest way to enter in a new market and to expand its customer portfolio, especially in a foreign country, is the acquisition of another actor (ideally already present on that country).

Thereby, to get a foothold on the Britain market, Iberdrola paid 11 times the operational revenue of Scottish Power, despite the weak scale economies expected by such acquisition. But this acquisition allows to the new group to dispose of a production park worth 36 GW well diversified (gas, hydraulic, nuclear, fuel, coal and first wind generation capacity worldwide). In like manner, in September 2008, EDF had to increase its takeover bid on British Energy to reach a promising nuclear market across the Channel.

Complex energy diplomacy

History shows that consolidation projects in the energy sector succeed with difficulty. Indeed, beyond the leaders’ willingness, three actors come into the picture: the State, the European commission and the shareholders. Each one of them has the legal right and the power to avoid or to make easier an operation, but their interests are sometimes quite different…

In the absence of a common energy policy, worried of the supply security and the impact on the economy and the environment, the different states reveal to adopt a protectionist behavior. They launch the initiative or support the consolidation that leads to national leaders. It was the case for the merger between the Norwegian Statoil and Norsk Hydro, or over the merger between AEM and ASM Brescia that led to A2A, number 2 in the electricity production and distribution in Italy.

Conversely, national interests are sometimes responsible for the licking of some projects. For instance, the rumor, beginning 2006, concerning a takeover bid from Enel on Suez quickly faded after the French government announced the merger between Suez and Gaz de France.

In the same way, E.ON, who wished to enter the Iberian market, came up against the Spanish Government opposition while trying to acquire Endesa. Finally, Enel in partnership with Acciona made the acquisition of the Iberian power supplier. However, the German group negotiated an agreement that allows it to recover 12,2 GW assets in Europe. E.ON thus became the third power supplier in France (SNET), the fourth in Spain (Viesgo, 580.000 clients) and the fourth in Italy.

Faithful to its consolidation policy on the markets, the European Commission closely supervises the consolidation movement and veto operations that decrease the concurrency opportunities. So, in 2005, the merger between Energia de Portugal and Gas de Portugal has been prohibited by the European Commission. Sometimes concurrency control authorities content with assets disposal. It was the case for Suez – Gaz de France, forced to sell Distrigaz to the Italian ENI in order to avoid a nearly monopoly on the Belgian gas market and to give up 10% of its electric parc to E.ON in order to avoid a fine of EUR 250 Millions.

National and European Commission’s interests almost pushed shareholders into the background. Nonetheless, they are always entitled to one’s say in the negotiations, as the refusal for the Gas Natural offer on Endesa, considered too low. They were also shareholders that caused the negotiations’ failure between Essent and Nuon. That merger was though the opportunity to give birth to a Dutch giant at European scale.

The year 2008 has been quite challenging for the mergers and acquisitions. With the credit crisis, the recession and the financial markets volatility, market dynamics have changed in a significant proportion. On the other hand, the global decrease in the financial markets expose companies to aggressive takeover bids from their concurrent at low share prices. The latest one, the acquisition of Essent by RWE for a total of 9,5 Billion Eur. With such acquisition, RWE will become one of the leading energy providers in the Benelux, and sizeable enough to challenge the other European Giants as GDF-Suez, EDF, Enel and E.ON.

The European commitments are related to the implementation of the tradable CO2-quota system, the efforts to reduce CO2 emissions and the storage of carbon. Those topics are part of the roadmap discussed during the Bali conference in December, 2007. The participants drew the framework to start post Kyoto negotiations.

The European system for tradable CO2-quota lays on the principle to create a price reference for carbon emissions on financial market places. For that purpose, CO2 emissions quotas are assigned to the eligible industrials. Those who emit fewer CO2 than expected can then resell their “rights to pollute” on the European market to those who exceed the cap level. The quotas are distributed at national level thanks to a National Allocation Plan (NAP) based on the particularities of every industrial site. The smooth running of this incentive system lays on the definition of strong quotas. The CO2 ton price so fixed can then guarantee a good return on investment to the compliant industrials. Besides, the periodically decrease of the quotas is necessary to fulfill the commitment of the European Union in the protocol of Kyoto .

The first phase of the carbon European market (2005-2007) saw the CO2 course falling at the time of the emission publication for 2006: except in Spain and in the United Kingdom, all the European countries had emitted sharply less than the authorized cap level.

CO2 price in €/T between 2005 and 2007 –Bluenext index

Besides the approximate estimation of the quotas, the lack of long-term visibility (public policy beyond 2012) also prevented the companies from integrating the CO2 challenge into their decisions of investment.

In that context, NAP II affected in a more restrictive way the thresholds for CO2 emissions.

Annual emission quotas of EU countries

In Belgium, the respect for the Kyoto protocol implies to maintain greenhouse gas emissions for 2008-2012 at the same level as those of 1990 . The Belgian government, which had proposed to cap the emissions at 62,1 million tons of CO2 a year from 2005 to2007, has also seen a moderate drop in its emissions to 58, 5 million tons for current period.

With NAP II, a greater number of European industrials are concerned. Yet, quotas for the 2008-2012 period were calculated in a more precise way by joining real measures of emissions of the previous years into the forecasts scenarios. For the moment, the new cap levels allow the CO2 price of the ton to remain over 20 euros.

CO2 price in €/T since 2008 – Bluenext index

The stake in 2008-2012 is not only to allow the respect for the commitments of Kyoto, but also to prepare the creation of a CO2 world market. Indeed, decline of the greenhouse gas emissions cannot be envisaged outside a global system. The European market of CO2 quotas thus has vocation to extend in the other continents. But numerous obstacles remain. In particular, the creation of a CO2 market in the United States is not insured yet. A too-low CO2 price can provoke incompatibilities with the European market .

The conference of Bali which was held from December 3rd till 15th 2007 resulted in the adoption of a “roadmap” which defines the process of negotiation for post-2012. For lack of concrete measures, the participants agreed on the main subjects of negotiation: technology, fight against the deforestation, market mechanisms, and innovative financing leverages.

A major difficulty raised during the conference of Bali was to find a negotiation framework allowing differentiating the objectives according to countries. Developing countries will indeed have many difficulties reducing their greenhouse gas emissions considering their economic growth. It will thus be necessary not only to adapt realistic objectives but also to keep inciting to invest in clean technologies. The cooperation between the developed countries and the developing countries will be a major challenge in many aspects.

Additionally, ecological problems being part of our daily life, usage of innovative solutions for lighting is more than welcome. Furthermore, several means exist to better manage consumption and consequently diminish energy and lower gas emissions. Use of renewable energy sources is also possible.

Finally, public lighting represents a considerable share of the energy consumption of collectivities. For example, the Walloon Government decided in 2007 to switch off motorway lighting between 00.30 am and 5 am, lowering energy consumption by 25% which represents a saving of 1,7 million of Euros for the region, and diminishing annual CO2 emissions by 7200 tons. Reducing public lighting energy cost can thus help cities to save money, which can lead to a better control of local taxes or to investments in other projects.

• The introduction of Power line communication (PLC), being a system for carrying data on a conductor also used for electric power transmission. PLC transforms the lighting infrastructure into an information network, which makes it possible in teleprocessing to follow the operating condition of each candelabrum and to gradually control the reduction of power.
• The utilization of electronic ballasts. Compared to incandescent lamps, starting and operating electrical conditions to power lamps of public lighting are not adapted to the network. Ballasts allow adapting voltage characteristics, to better manage the startup of the lamps and to decrease by 10% the energy consumption by limiting the lamp to its nominal power and by improving the power-factor. Most of companies specialized in energy distribution and public lighting propose this kind of equipment.
• Energy production by photovoltaic cells and wind mills for certain types of lightings.

However, besides those high technologies, one may still progress in terms of sustainable development. Indeed, a simple diagnostic of a lighting infrastructure can sometimes lead to interesting conclusions:

• At equal use and lifespan, high pressure sodium lamps consume two to three times less energy than mercury lamps. However, high pressure mercury lamps are in a large majority in most lighting parks because of their low cost in the short-term. Using more sodium lights would be a very profitable investment in the medium and long term thanks to the energy saving it would generate.
• Reflective optical luminaries double their effectiveness. Without reflective optics, luminaries diffusing with opal ball are very expensive if one reports their price to their effectiveness. In addition to the 35% light absorption by the opal ball, 35% is lost because oriented towards the sky; and only 30% exploitable and non polluting light remains. With reflective optics, luminous pollution is almost removed and luminous effectiveness is doubled.
• Nearly half of existing lamps are decayed (> 20 years). However, replacing these lamps by new ones would be an investment very quickly amortized: old lamps do not ensure the initial quality level and require more maintenance. The renewal of a lighting infrastructure each 3 or 4 years involves a significant decrease of energy consumption and less frequent maintenance, which allow to lower the energy bill in the long run.

Thus, through a better management of the lighting infrastructure, an optimization of the maintenance of the lamps and the introduction of innovating technologies, public lighting can reduce costs and pollution. It is a means of promoting respect of environment while dropping invoices of cities and improving lifestyle.

Sia Conseil

Sources:
- Annual reports of Dalkia and Citelum
- ETDE
- Walloon Government/Walloon Region

Contrary to Petrol, uranium raw material is not much treated on the markets. Moreover, uranium supplying cost’s impact on the final price of electricity is very low comparing to other factors as the equipment’s investments. Strategies from the energy industries tend to increase their industrial integration, to dissociate them from the market and to improve their durable competitiveness comparing to other energy sources.

Historical characteristics

Uranium market progression is comparatively decorrelated with the other energy raw materials. Of course uranium production rose since the oil crisis in 1973. But this period is also essential for nuclear dissuasion for France as well as for the relations between East and West. Indeed at this moment two categories of customers appear; the civil and the military. However, the interest for the uranium will severely slow down within the following years mainly due to the successive accidents that took place in the Three Mile Island in 1978 and in Tchernobyl in 1986. In addition to that, in the late eighties, the cold war ends. After the disassembly of the URSS and the signature of the HEU (Highly Enriched Uranium), huge military stocks are transferred from the military warehouses to civil areas at a very competitive price (less than 10 USD the uranium pound). As a result the high level of stock combined with low value of the raw material did not allow reimbursing the high investments made for the mining prospection, which heavily dropped. The consequence is a market paradox, a structural demand largely over the supply without direct impact on the prices and offering low market prices insensitive to any kind of event on the physique subjacent.

Since 2003, changes happened, within the last 6 years the prices grew up to 600% (a uranium pound is worth 70 USD on the spot market). The main reason is the end of the stock effect: in 2003, stocks are expected to decrease of 70%. Besides we assist all over the world to the nuclear revival. Finally the uranium exploitation is not a long, quiet river and the recurring accidents on the giant mine of Cigar Lake (Canada) clearly impacted the prices’ evolution, but the markets have been very discreet on such concerns

In addition to the fact that the uranium market is not very active, there are three major reasons that support such discretion: the surge in the gas and oil rice that directly impact the electricity spot price; a nuclear cost price twice cheaper than the market price; finally the relative part of the fuel price that rounds 20% of the production cost per KWh in the big entities. In fact, for the production installed plant, maintenance costs, provision for disassembly and depreciation on the initial investment are the biggest part of the expenses. Obviously, the nuclear is particularly benefic for electricians and consumer because the competitiveness but also the stability of the nuclear KWh is indisputable.

It is more than ever necessary to project in the future because uranium is a non-sustainable raw material. There is no consensus on the uranium peak so far. However, with the revival of the different nuclear programs and the commissioning of the third reactor generation (EPR), it clearly appears that industrials, whatever their position on the value chain do not desire to accept market’s decisions. In addition to the mining entities, the different actors, electricians, logisticians but also more than probably the petrol groups wish to position on the extraction segment.

The Areva concession renewal in Nigeria during spring 2008 has not been an easy task, far from it. The covetousness that generates that market seduces very strong financial actors for which the uranium supply will become a vital interest. The supplying security has become a priority for many actors and the race has already started. Like this, rather than contributing to the uranium prices’ increase, this new position of the big energy actors might hasten the disappearance of a structured market because its extraction will finally be fully integrated in the industrial cycle.

Distribution of the worldwide emission by area in 2003:

To be captured, the sources of CO2 must be relatively stationary and their volume must be superior in about 0.1 million of tons a year. These sources have been listed at a worldwide level by GIEC in 2002:

The worldwide emissions were worth 24.6 GT in 2002. The CO2 potentially to be captured represents therefore more than 50 % of the total. Furthermore, the capture and the storage of CO2 could contribute for a third to the required reductions in order to stabilize emissions at their current level.

Potential emission reduction:

The CO2 network is compounded by three main steps:

• The capture: three methods are developed so far: the post-combustion, the oxy-combustion and pre-combustion. Techno-economical parameters are not yet stabilized, but their returns are very similar. It is therefore difficult to prioritize these methods.
• The transport: transport by pipeline or by ship, are possible operational solutions.
• The storage: is the most sensitive step due to the lack of experience in the CO2 tight quality concerns . However, the complexity is not the same as for radioactive waste: CO2 is a less dangerous and storage between 500 and 1000 years is sufficient because by then fossil sources, mainly responsible of our emission, will be exhausted, and the natural cycle of carbon will have allowed the rate of atmospheric CO2 to diminish. Moreover, this shows that the capacity of storage that we have would be enough:

Europe is acting along those lines by developing its transport infrastructures and protecting its supply in natural gas; the recent constructions of gas terminals and pipelines in Europe support the trend. Within 2020, the transporting network’s investments are estimated to reach more than 30 billion Euros in order to facilitate the different flows.

In France, an increase of the Gas Transporting fee, fixed by the government, up to 6% for the transport network managed by Gaz de France and up to 10% for the one owned by Total is expected in January 2009. Such increase in the transport fee will generate necessary financing for the network’s modernization.

Should final consumers and companies expect a new increase in the gas prices? Government has just allowed to the transport enterprises a substantial increase in their transporting gas fee; increase that the providers will certainly reflect on the final invoice. The Commission for Energy Regulation (CER) is supposed to announce within the day an increase up to 6% of the average transport fee for the main transporting network, GRTgaz (a Gaz de France‘s subsidiary) and up to 10% for the other (older) gas transporting network, TIGF controlled by Total. Such increases are expected for January 1st 2009. In addition to that, GRTgaz prices will increase up to 2% per year between 2010 and 2012 while the transport prices of TIGF will remain steady.

Gas (heating) price structure for a final customer

Source: Les Echos, CRE

In Belgium, the tariffs are cost based and defined by the regulator (CREG). An annual return on investment of 9% is guaranteed for Fluxys. No major investments are currently needed in the Belgium infrastructure.

Those “non-material” costs represent round about 7% of the final amount invoiced to the particulars, but that percentage could grown up to 30% for an enterprise.“ The main objective is to grant the opportunity to increase and to diversify its sourcing supply”, explains Florence Dufour, assistant director of the CRE’s infrastructure and gas networks. These prices are coupled to investments that aim to get the network more fluent. Such fluidity will afford a supplier to source itself as well at East as West and to provide its customer in the North or in the South; a scheme that is not obvious so far.

According to Philippe Garnier, in charge of the investments and the customer’s offering at GRTgaz, next to this relieve congestion program there are other elements as operational expenses and investments that also impact and support the prices increase. He also brings up the security and maintenance expenses on the whole network of gas pipelines (more than 32.000 km) or the renewal of compression equipment in the different stations that feed the gas pipelines.

Finally, the annual investment supported by GRTgaz for the next year amounts to 670 million (against 600 million in 2008) and is expected to decrease between 500 and 600 million per year until 2012, since when an upward trend for the annual investment amounts is planned. The network should be linked with the future gas Hub under construction (the extension at Zeebrugge, Dunkerque, Zeebrugge , Antifer, etc.). Some connections with Spain are in projects.

In the actual context of battle for the liquefied natural gas (LNG), those investments are essential underlines Stéphane Meunier, associated director at Sia-Conseil: “There is a sprint on that segment; all the countries try to attract the Suppliers”. Spain and Italy are fasting developing their network in order to meet and satisfy a growing demand. Without investment, France that imports 98% of the gas, might risk to lose its strategic position of European crossroads.

Who can experiment the time-of-use? For which reasons are operators launching TOU offers?

The forecast of consumption at peak hours is a sensible issue for operators: The gap between the forecasting and the real consumption is often important during those periods and every deviation may result in additional costs. This is the context in which the TOU is born:
All users which accept the rules can have adapted rates in exchange of reducing their electricity consumption at peak demand times.

Source: Sia Conseil

Some energy actors (like EDF, Direct Energie, Voltalis [1] or Ergelis [2]) have launched TOU offers to allow users, privates or professionals, to save money and to master their energy consumption.

On October 22, 2007, after few interviews with market actors, RTE has submitted to the CRE (French Commission for the Energy Regulation) for approval the “Modalities of the implementation of the TOU experimentation”. In accordance with the “rules on nominations, on balancing mechanism and imbalance tariffs” [3] established by the CRE, it has been decided that the peak shaving offers will be limited to 100MW, and whatever the numbers of TOU actors. Moreover, the scope of the experimentation won’t be limited to AMR(=automated meter reading) sites but also to sites with complete profiles in 10 or 15 minutes([5].

With such tests on TOU, some operators hope to develop competitive advantage on an innovative topic. For instance, Voltatis intends to pay himself with the unconsumed electricity and reward the private consumers who will join the test with a saving of more than 10% on their bills.

Those new offers are greatly inspired from innovations already present in other countries where cost savings and competitive advantages have been observed. Actually, the advance of some countries on the smart metering subject has permitted to develop such kind of offers.

To be able to propose the most coherent offer as possible and make good use of foreign counterpart’s experiences, some French TOU actors didn’t hesitate to get inspiration from countries which have already implemented such kind of product.

For example, in Ontario, the switch to smart metering has allowed the energy suppliers to manage the peakshaving. Including all the season effects which imply a greatest energy demand (season, hour, day-off,…), the operators were able to set up rates based on hours and seasons and on regulated TOU offers. Those allowed the users to save money on their invoice with a better understanding of the real cost and the electric availability. The Ontario office of energies foresees to decrease the peak consumption of 5%.

In the Netherlands, the opening of the market has caused an abnormal increase prices for consumers. For the different industry players, it is a priority to find a way to solve this problem. At first, the implantation of pre-paid meters is expected to better manage the consumption and the reading of the meters.

According to a draft bill, all users will have a pre-paid meter at home by 2012. From 2006, anticipating the publication of legal texts allowing TOU, the various market players have created working groups on TOU functionalities which can be integrated to those meters. It should be logical to see very soon peakshaving offers to temper the increase of the price of energy in the Netherlands.
All those projects have inspired French and Belgian actors to move toward smart metering and associated offers.

The candidates who intend to propose TOU offers announced that the first offers shouldn’t appear before the autumn 2009. The date for the first activation of a TOU offer will be published on the RTE website during the second semester 2009. The operators which will launch these offers will get a real competitive advantage: they will be able to propose bill savings of more than 10% and will a get better management of the peak consumption. Moreover waiting for the smart metering in every household (in 2012), the operators which have already worked on the TOU will get a leg up on their competitors in terms of rationalization of the energy consumption.

References:
References:
[1] Voltalis is the first electric operator specialized on production and real-time adjustment.
[2] Ergelis has a complete offer to allow their clients to better manage their energy consumption.
[3] To download the report of the CRE : “Les règles transitoires de mise en oeuvre de l’expérimentation ajustement diffus”.
[4] AMR: professional or industrial customers with a significant consumption and receiving record consumption in real-time.
[5] Professional sites: professional or individual clients for who the consumption is estimated with different type of profile and periodically adjusted based on real records.
[6] The implementation of a smart meter allows to keep, to send, to stock and to manage information. You can find other articles on this subject in the blog as : “Demand response & Smart Metering », “Implementation of smart metering: DGOs and Suppliers in the starting blocks », “Is there a future for Smart Metering? » and “Automated Meter Reading announces change in energy distribution »

The coming presidential elections will lead to the coming back of US at the negotiating table of the United Nations and to new discussions in regard of the Kyoto Protocol. One of the main topics will certainly be the creation of a global market place for carbon emissions.

Numbers of initiatives have already started, proving the real involvement in the fight against global warming. However, taking into consideration the advance of other countries, would the US accept to interoperate with other systems such as the CO2 market of Europe?

Responsible for more than 20% of the total GHG, US are the only developed country to refuse to join the group of countries trying to tackle the degradation of the environment. Although the Bush administration put the carbon issue aside, influent politics (Al Gore, A. Schwarzenegger) highlight the emergency.

Dozens of law proposals aiming to found a carbon market have been addressed to the Congress. All suggest establishing a regional market which could be included into the framework of the United Nations and special conditions of the Kyoto Protocol.

Multiple methods of allocation are proposed. That could be done under the form of rights based on past emissions or on progressive auctions. Yet, multiple mechanisms with additional flexibility could ease the system: opportunity to save the tradable emission permits over the years (=banking), to borrow permits (=limited borrowing), to use a cap and a floor (= price capped at $7/ton for Bingaman-Specter).

The scope of sectors impacted by the proposal widely diverges from electricity sector only (Feinstein-Carper) up to a full range of economical actors (over 10 Mteq CO2/year (Lieberman-McCain)).

Couple days before presidential elections, all decisions are on hold: the Liebermann-Warner has been rejected in June by the Congress and no figures have been announced during the G8 in Hokkaido which was environment oriented.

Source: Sia Conseil

Candidates show the intention to build a carbon market with clear objectives: emission levels of 90’s by 2020, global decrease of 80% by 2050.

Senator Barack Obama wants to invest 150 billion over ten years in order to develop renewable energies with the money of the auctions.

Implementing a market place in US seems ineluctable. The real question lays on the compatibility with existing systems in the rest of the world. US have already similar infrastructures (SO2 market and Acid Rain Program) that could be reuse. The Environment Protection Agency could take the lead in accounting and the Chicago Climate could be the trading platform. Despite the huge potential to decrease emissions, US will have many difficulties to reach the first step by 2020. Forecasts estimate that a reduction of only 7% can be accomplished.

Finally, a US ton of carbon at $10 against an European ton at €25 would unbalance the economy and weaken the European stability.Countries need to be globally interconnected at the same level to be able to work together. A global market in 2020 seems therefore unrealistic. The future US market will remain independent. However, even if the compatibility between markets will not occur, Clean Mechanisms for Development will spread over the borders. The global carbon credits generated by those mechanisms could triple over the coming years. In such case, the entry of US in the market for such credits can become a major benefit for the environment.

Even the credit crunch crisis and the 100% jump in oil price didn’t slow the appetite of majors for smaller species: companies outperform and net results beat forecasts. Naturally the predators find their way in entering a phase of consolidation since competition levels was not running at the sufficient pace to develop a comfortable business for new entrants. This is probably due to the loyalty of customer toward its historical provider of energy. Thanks to the fundraising recently offered for the energy ‘Davids’, the landscape of energy companies in Europe has been drastically modified.
Ironically the situation of consolidations was created by the very same institutions (i.e.: Europe) aiming at optimizing companies efficiency, increasing competition and most of all diminishing prices.
Did Europe benefit from all this upheaval? Did the competition? Did the customer?

It’s the jungle out-there!

Source: Sia Conseil

The consolidation in energy markets has been observed since 2000. In the past year, new records in mergers and acquisitions were broken with a surge of 25% in terms of deal value. Although the increase was mostly due to the activity in Russia and Asia- Pacific regions, the € 66 bn Enel-Endesa deal maintains Europe at the top place with almost 40% of global M&A in the Energy and Utilities sector where E.On was the most active company during this period.

The new energy landscape is not yet definitive. Rising profits brings the necessary cash flow to pay back debts, lower amounts of due interests and give more space for maneuver. After the merger of Suez-GDF has finally been signed, many look at the confrontation between Spain & France (Europe as go-between) over the aggressive desire of EDF on Iberdrola. The two players are also sitting at the same bidding table for British Energy. The extinction of many companies seems unavoidable … unless the resurgence of national protectionism come interfering with “the law for the strongest��?. Political and regulatory concerns could make more difficult for huge transaction to be completed. But great deals are still on track.

Source: PWC

The following table shows the most aggressive bidders in Europe for the last four years in terms of money rose for acquisitions (or attempts of).
(*) Acquisition of Scottish Power in 2006
(**) Acquisition of Endesa in 2007

Source:Sia Conseil (Forbes, Companies Annual Results 2007, Datamonitor)

The date of February 19th 1999 was a key milestone in the integration of a deregulated market for Gas and Power in the European Union. The Community Directive 96/92/EC entered into application, based on three major energy policies aiming to:

1. increase competitiveness through better service for energy consumers,
2. improve environmental protection, and
3. guarantee greater security of energy supplies, while ensuring the continued achievement of basic public service requirements,

Europe clearly stated eight objectives for the market liberalization, but today which conclusion can we highlight by analyzing each of them in regard of the present wave of consolidation.

If the European 18% growth between 1999 and 2007 is compared to the 8% increase of installed capacity for electricity generation during the same period and that we assume a direct correlation between GDP and installed power, the European energy policy definitively had some strong positive impacts in terms of energy efficiency.

But has the energy efficiency been improved by competition? Is the consolidation helping to build efficient competition?

Theoretically, competition would generate better efficiency by creating a certain dynamism in investments around synergy actions, plunging the costs down and helping to boost efficiency. However, this high degree of concentration is not creating such a great atmosphere for building effective competition (switching by customers remains very limited). Instead the lack of competition is encouraging the wave of consolidation. It’s a non-virtuous cycle. Incumbents get richer and new entrants more vulnerable, letting both parties less motivated to address efficiency concerns.

Bottom-line, internal policies of cost savings, reengineering, dynamism of private investors, standard progress rather than a healthy competition are the major explanations for the upgrade in efficiency.

Although interconnection rules have been adapted through projects such as market coupling (DE, BE, FR, NL, LX) or market splitting (SE, NO, DK) where prices are defined by the market not based on OTC contracts, volumes remain low and consolidation does not exhort investments for building expensive cross-border capacities that could bring the necessary liquidities on the market. Cross-border companies have more interest to keep exchanged volumes low. Over the past eight years of market opening (and consolidation), price differences between countries has dropped by a neglecting 1.4% for residential sector, it has increase by 27% for the industrial base. Price convergence is inexistent.

Consolidation or not, regulators will still serve the customer’s interest.

A second point of view makes economical sense: scarcity makes prices go up. Building new generating capacities – let’s say environmental ones – do not necessary help to generate more cash.

Finally, even though, the few new entrants (e.g.: Lampiris, Oxxio, Poweo) are more inclined to position themselves on the renewable energy market – the classical electricity generation is such a big investment that decentralized and small units of production (wind, solar) are easier to finance. But, their impacts remain limited to the market shares that are left uncontrolled by consolidated companies.

The ERGEG adds, “the structural relation between TSOs and their affiliated generation provides an incentive for the TSO to buy excessive reserve capacity and/or to pay high prices, thereby favoring their affiliated generation arm.��?

The only difference can consist in prices which are determined by the generation arms anyway. Competition is so limited that those generation capacities are either owned by majors or sometimes by new entrants having small expensively running units. On the contrary, Consolidation, by limiting the number of players on the market, will not give more opportunities to the end customers.

Source:Eurostat

Note: variations are not taking into account volatility of energy commodities which bulled drastically over the years.

Market liberalization in general and 1999 Europe’s objectives will certainly not benefit from this wave of consolidation. The global report is not brilliant so far. And there is no guarantee on how the future is going to look like. Most probably the situation will remain the same: further consolidations and environmental directives or regulation helping to exhort investments and energy efficiency. Less probably, nations will express their concerns in energy security and take protective measures regarding their national assets but it will be done against the spirit of the founding rules for competition in Europe.

Jean Trzcinski

The project was delayed by a public consultation held over recent months by a French independent commission made up of representatives of local organisations, authorities and proponents of LNG projects. The latter included Gaz de Normandie (a JV between independent energy supplier Poweo and Austrian Verbund), EDF and 4Gas, which each made cases for their LNG projects at Le Havre, Dunkirk and Le Verdon, respectively.

Following the debate, the commission outlined non-binding recommendations for each project. Under French law, a new project subject to a public consultation — such as the LNG proposals — then requires involved parties to reaffirm their commitment, taking the commission’s suggestion into account.

Environmental issues raised for all projects

The board of the French port of Dunkirk said it would continue to back EDF’s planned LNG

terminal, adding it was expecting EDF to come up with a firm decision on whether to pursue the project in July this year. The port’s board also said Clipon would be the preferred site for the 10 billion cubic metre/year (Gm3/yr) terminal, which is forecast to start commercial activity in 2012 at a cost of EUR 1 billion. As for Gaz de Normandie, it is expected to come up with a decision for its planned 9 Gm3/yr terminal before 18th July.

Environmental issues were raised for all projects, with some opponents pointing to potential oversupply in France. Of all the projects, 4Gas’s at Le Verdon ran into fiercest opposition from environmentalists in southwest France. Dominique Bussereau, France’s secretary of state for ecology, asked 4Gas to move the project from Le Verdon to La Rochelle, further north on the Atlantic coast. 4Gas also dismissed proposals to turn the project into an offshore facility.

At Dunkirk, environments voiced strong concerns as well, although local decision-makers acknowledged the positive impact the terminal could have in terms of employment. On Monday, 4Gas stressed its project had strong “commercial potential��? and pointed to “European and French policies to reduce energy dependence, to increase the use of clean energy and to promote optimal access to France particularly of LNG in order to sustain economic and social development in France,��? a press release said.

Another public inquiry

Henk Jonkman, chief operating officer at 4Gas, told GLM the company would apply for the necessary permits to build the terminal in the next few weeks, although much depended on another public enquiry to be held in August at the earliest. For all projects, the inquiry is expected to last a minimum of two months.

There is no guarantee 4Gas will be given the green light. One source close to the enquiry said there still were many obstacles to overcome. The fact that two players have confirmed their plans is nonetheless stepping up the competition between the different proponents, the source said.

The process can be lengthy and the general mood is now one of wait-and-see, as no major development is expected before the end of the year. The ball is in the court of the DRIRE, the Regional Division of Industrie, Research and Environment (a sub-section of the French Division for Energy and Raw Materials). DRIRE is expected to submit its conclusions to regional prefects who will have the final word on construction and operating permits. The task of DRIRE and the prefects is to respond to the increasing demand for new import infrastructure in France, a need the projects’ proponents have been keen to stress.

Population wary of new commercial strategies

According to figures from the French industry ministry, net gas imports are expected to increase by 86.6% to around 70 million tonnes of oil equivalent (Mtoe) — or 84 Gm3 — by 2030, compared with around 45 Gm3 at present. The latter figures give little credit to the argument of oversupply used by opponents to the projects.

While many sources have predicted that only two LNG projects will come to fruition, Xavier Decotenie, from consultancy SIA Conseil, was reluctant to place a bet as he was adamant that liquidity on the French market could only be boosted by new LNG projects, especially in the southern zones, which are still described as a dead end for gas. He thought the strategy behind the new projects was not always understood by local populations.

In terms of strategy, EDF and Poweo need gas for their customers and their gas-fired power plants (e.g. Poweo), whereas 4Gas is looking to increase arbitrage opportunities.

Deconetie pointed to the four-year agreement between EDF Trading and Dow Chemical to share regasification capacity at the Freeport terminal in the US and at Zeebrugge, where EDFT has taken on all RasGas’ regasification capacity.

Heren Energy Magazine, June 13th

Energy policy has been top of France’s agenda in the past months, especially via the merger of gas heavyweight Gaz de France with Franco-Belgian Suez. However, sources now think energy issues may become less of a priority during France’s EU presidency, following developments in the past few weeks.

“The European Union has put so much effort in setting up the Constitution in the past ten years, that there is no real leadership for other sectors, including energy policy,��? one analyst said.

Firstly, the Irish rejection of the Treaty of Lisbon is set to change the agenda of the French, who are now expected to focus their efforts on saving the treaty. Before the Irish “no��? this month, French president Nicolas Sarkozy had put defence and energy as well as strong Mediterranean union high on France’s EU programme.

Secondly, the outcome of the Energy Council held earlier this month has the put the thorny issue of ownership unbundling out of the way. Now that the European Council and European Commission have accepted watered down versions of ownership unbundling, the French, who are fiercely opposed to spinning off their gas and power transport grids, have less to fear.

Now member states will have the choice between full unbundling, Independent System Operators (ISO) and Independent Transmission Operators (ITO). Worst case scenarios previously predicted, which consisted of France getting a blocking minority at the Council to obstruct full ownership unbundling are now ruled out. “We are very satisfied by the outcome,��? a source at the French government said. Now the Parliament, which has been backing full ownership unbundling, has to accept it, but sources thought this was less a concern for the parliament.

Marie-Hélène Fandel, a specialist in EU policy, pointed to upcoming elections at the European Commission as well as at Parliament in the first half of 2009 as the main reason for such a hasty conclusion. “The European Commission has opted for the status quo now. Given that its mandate is almost ending and the small amount of time it has now, the European Commission preferred to close the dossier of unbundling, instead of sparking more tension,��? she said.

Another dossier is climate change, which will remain a priority for the French presidency. On Friday, the French Energy and Environment Ministry reiterated that it would stick to its binding targets to cut greenhouse gas emissions by a fifth, consume 20% of all energy from renewable sources by 2020 and widen the emissions trading scheme to more sectors within the EU, as stated in the review made by the European Commission. The difficulty for the French will be to get all 27 member states to back draft directives to implement this. The French need to secure a political agreement in the next six months within the European Union in order to prepare a global climate change deal by the end of 2009 in Copenhagen.

Yet the French are determined to use their political weight to address burning issues such as soaring energy prices. Nicolas Sarkozy has already mentioned that the EU should choose capping value added tax on fuels to help countries deal with surging oil prices. Observers thought this was opportunism from Sarkozy, whose aim has been to win political support in France.

GDF Suez fits in with France’s strategy ahead of full competition Climate change was part of a string of draft reforms outlined by Claude Mandil, former executive director of the International Energy Agency (IEA), in a report submitted in February to French Prime Minister Francois Fillon. The report encouraged measures intended to improve competition in Europe, including the creation of a European regulatory authority; the Agency for the Cooperation of Energy Regulation (ACER).

Yet some argue that the main condition for this to happen is to boost full energy market. On this matter, Mandil sees a medium-term solution based on a single market to be consolidated as part of the “the penta lateral��? region, referring to France, Germany, and Benelux, with the belief that even if the free market can’t be achieved across 27 countries; it might be possible with five countries. This illustrates the strategy of the French government, which would clearly favour the future GDF Suez group, according to Fandel. “In this case, investments made by France in Germany and Belgium have a long-term impact. GDF Suez will have a dominant position; that’s why they hold onto this idea, it makes a lot of sense on the long-term,��? Fandel said.

Matthieu Courtecuisse, from consultancy SIA, thought the merged group would fit perfectly well with France’s strategy as it would act as a buyer in the context of an oligopsony – a market where a small number of firms compete to obtain a commodity (in this case upstream gas) – thanks to its strong positions on the LNG chain.

Mandil recommends becoming more flexible with Gazprom, which led sources to expect France to work hard on a cooperation deal with Russia during its presidency. “One role for France will be to abandon such things as the “anti-Gazprom clause,��? one analyst said. “There’s a lot that can be done in terms of energy efficiency with the Russians, ways to reduce gas flaring, and new carbon capture technologies,��? Courtecuisse said. The stake for the French lies obviously in the Nabucco project, according to another analyst. “We could see GDF Suez taking part in the Nabucco project, and the French will fight hard for a ‘good neighbour’ policy with Russia,��? he said.

This places security of supply at the heart of France’s priorities. Mandil’s report actually starts with the need to further ensure long-term security of supply of electricity and natural gas by enhancing solidarity between member states, especially when it comes to dealing with major gas suppliers like Russia. Mandil stresses the need for governments to speak with one voice towards Russia.

On the other hand, however, companies would still need to deal with Gazprom bilaterally, which could help GDF Suez group a lot, according to one industry observer. These are lofty ambitions for the European community, but nothing new, Fandel admits. “This is how it’s been working in the past ten years. It’s the status quo again,��? she said.

Heren Energy Magazine, June 27th

For suppliers of appliances, home builders and industries gravitating around (HVAC equipment, lighting, services, etc.), emergence of new communication standards to ease convergence towards a fully-automated house meant new products and services to design, to produce and to market.

Consequently, in the 80s, cross-industries partnerships rose to enable technological breakthrough, reach market consensus and promote smart houses in order to turn concepts into meaningful products. The Smart House Limited Partnership (SHPL) was created in 1987. Through its organization and its focus, it targeted new constructions and not existing houses, reducing significantly its potential market. Besides, despite strong support from a broad range of industries, the SHPL never got significant results and finally ended in the mid-90s. A few years before, in 1984, Electric Industry Association (EIA) worked on the emergence of a new standard for home automation – the Consumer Electronic Bus (CEBus). It relied on power lines and in-home electric wiring. As a consequence, it could be used either for new or existing buildings. Nonetheless, the promises of energy management did not meet enough support from the market to make sense business wise and the consortium failed.

Perhaps, the market approach was more technology-driven rather than customer-driven and therefore the developed products never became real market successes. Perhaps, it was too early for the market (both on the supply and demand sides) to fully benefit from opportunities home automation offers; mainly because of cheap raw materials in general and energy in particular. Most probably, reality lies somewhere in between.

However, market’s perception of energy management and home automation changed recently in western countries. Indeed, the combined effects of climate change, Kyoto protocol enforcement (phase 1 started in 2005 and phase 2 started in 2008) and the current oil crisis entail a drastic rise of energy prices (e.g. baseload contracts for the front year were quoted below 65€/MWh in January 2008 but are now quoted over 90€/MWh on Powernext – the French power exchange). And not only do the utilities have to pay more for electricity due to high prices of raw materials but now they also have to pay for the environmental impacts of the electricity production.

Normally, in a constraint-free energy market, that would be the end user to pay for all this but given the specificity of that industry (free competition is highly theoretical) and the sensitiveness of energy issues (Enron scandals, blackouts across the US and Europe), the regulators are eager to reshape the market in order to share responsibilities. Two major models are rising from two very different market structures. The first one is highly regulated; the other is more liberal. The former comes from California and the latter comes from France. Surprising? Not so much considering the histories of each industry.

First, let’s focus on the Californian energy market. Due to high prices in the mid-90’s (California was the most expensive state in the US – back then, a kWh of electricity cost 11¢ for an average of 8.5¢ in the rest of the US), authorities decided to deregulate the market by the end of the decade. The Bill was past in 1996 and electricity market opened in 1998. In 2000, the electricity crisis burst as a result of poor implementation of deregulation, market manipulation (e.g. Enron scandal) and, mainly, structural weaknesses. Governor Davis declared the state of emergency in January 2001 and the California Public Utility Commission (CPUC) decided a partial move back to market regulation in September of the same year. The crisis lasted over a year, entailed bankruptcy of the 2 largest Investors Owned Utilities (IOUs) and cost the state of California about $45 billions. The state of emergency was called off in 2002 and, since then, 39 Publicly Owned Utilities (POUs) and 3 IOUs (San Diego Gas & Electricity – SDG&E; Southern California Edison – SCE; Pacific Gas & Electricity – PG&E) serves a monopolistic end-user distribution market.

Obviously, since the utilities benefit from local monopolies, there is a need for market regulation and, as a consequence, the CPUC and the California Energy Commission (CEC) implemented a market decoupling mechanism – the Electricity Revenue Adjustment Mechanism (ERAM). Based on a collaborative approach with the IOU, the purpose of that mechanism is to separate sales from revenues. At the beginning of year, Californian Commissions and IOU agree on a fair rate of return for service provision and required investments. Then, at the end of the year, if revenues exceed initial agreement, the IOU will give the surplus to the CEC; otherwise, the CEC will pay the IOU so it can get its fair share.

Therefore, there is no incentive for IOU to spur their sales as it will not spur their net profits.
Besides, in order to get shareholder’ support, another mechanism has also been implemented to enhance IOUs profits: the Energy Efficiency Risk/Reward Mechanism (EERRM). We saw in the previous mechanism that, if there is no incentive to increase sales, there is no incentive to increase energy savings either. The EERRM purpose is to correct that flaw from the ERAM by setting IOUs objectives in terms of energy savings (in MWh) and offering them significant bonuses for achievement (and reasonable penalties for failure). The maximum bonus and the maximum penalty are $450 millions per year.

Figure 1 sums up the bonus/penalty calculation method.

The intent of this program is to create a virtuous cycle as total costs are evaluated at $2.6 billions while expected savings reached $5.4 billions for a net profit of $2.8 billions (exceeding total costs, what means a rate of return greater than 100%!). If significant results can be achieved through energy efficiencies requiring only “standard��? technologies (isolation, lighting, heat and power combined cycle, etc.), the IOUs know that in the coming years not only there is room for AMI to foster energy savings through enhanced energy efficiency techniques (households and SOHO technical management) and local energy solutions (solar panels, small hydro, biomass power, geothermal power, etc. – see Figure 2) but there are also commercial opportunities to address if you consider that, through AMI, IOUs will be able to access and interact with several millions of customers’ sites.

Figure 2: Carbon abatement curve

Obviously, it means they will be able to provide a broad range of domotics services, collect meaningful data for market-based companies and broadcast selective commercials to targeted customers. Through enrichment of already huge customer databases, AMI will provide IOUs with a tremendous opportunity to widen their business model.

Nonetheless, this new business is not IOUs’ core business and, in a regulated market, they might prefer focus on what they know best and not take any business risks to address a market that does not really exist in any country.

On the other end, the French market is completely deregulated (expect TSO and DSO which are natural monopolies) and energy service providers compete with each other for the same clients. However, if deregulation started in 2004 for all professional customers, enforcement of deregulation for individual customers was effective in July 2007. Therefore, there is no relevant insight available a year later about the impact of market opening on strategic marketing position. Nonetheless, we can observe that energy service providers – either they are incumbent or new comers – show a lot of interest for home automation. Indeed, for new comers, providing new services is an efficient way to differentiate themselves from the others. It becomes possible to build a corporate image, set up an appropriate marketing approach and develop its customers’ portfolio (a problem incumbents never had to deal with). Besides, and it is also true for incumbents, selling new services to your customers is not only a very cost-effective way to market them but also an interesting way to prevent your clients from going to a competitor and therefore increasing your customers’ lifetime. By doing so, a company increases drastically the Customers’ Lifetime Value (CLV) of its client portfolio. From a business point of view, it is a Key Performance Indicator (KPI) as normally new comers would need about 1.5 million individual customers to break even while, with appropriate actions to enhance the company’s CLV, the break-even point can be lowered from 1 to 1.2 million individual customers. Such practices were already proven efficient in the banking industry or in the telecommunication industry and there are many hints that utilities see a bright future in home automation. In a deregulated market, the perspectives offered in terms of service provision in areas such as energy, water and security are good enough for the French incumbent to create a subsidiary (Edelia) in 2005 in order to commercialize an energy box. The subsidiary recently launched a new phase of expansion as it can be read on their website after more than three years spent to gain hands-on experience in that business. In parallel, a new comer – Poweo – launched its own energy box.

However, in the French market, there is no equivalent to the Californian EERRM and it is, or at least it should be, a real concern. Indeed, if the EERRM sets up objectives in terms of energy savings and uses significant penalties and rewards to make companies comply with its goals, the system designed in France to favor energy savings – the collection of energy savings certificates – does not plan any reward but rather penalties. Consequently, for the French incumbents (EDF and GDF), if the “incentive��? to promote energy savings is mainly to avoid a huge fine delivered by the authorities, not only they have no reason to exceed expectation but they also get no financial support to engage more deeply in energy efficiencies and renewable energy sources. Besides, collecting those certificates implies a much more complex organization for French incumbents than simply monitoring the overall sales of energy like the IOUs do in California. Somehow, it seems that French systems can never be both efficient and practical.

Nonetheless, the energy saving certificates system can be a double-edge sword. On one hand, its complexity is a difficult barrier to overcome but, on the other hand, implanting that system (and it is mandatory) implies reshaping an industry made of several thousands of tiny businesses: the construction industry and surrounding services (e.g. plumbing). Indeed, to be able to gather the required certificates, the incumbents will need to set partnerships with reliable actors. This should help establish good practices and quality standards that are more visible. Consequently, individual customers would be able to segregate good and reliable construction companies from the others; resulting in more customers trust (i.e. more business) and higher industry skills. It is difficult to measure how home automation (and through it, AMI) would benefit from the remodeling of the construction industry but given the sensitiveness of the technologies and the significant amount of money individual customers need to invest to get heat pumps or solar panels installed, there is no doubt the impact should be significant. If we look back to California, we can notice that the mechanism implemented to monitor energy savings is “too��? practical and does not require such effort to reshape the construction industry. Consequently, it will not happen there.

The two discussed models show both interesting features and potential pitfalls. If the Californian model provides utilities with financial stability through captive market shares (what is necessary to investment in a new market), the lack of competition is a limit to move faster towards home automation as it would imply moving from a risk free market to a markets that does not exist yet and that could be competitive, making it quite risky. Through competition, the French model provides “incentives��? (penalties and endangered market shares) to explore new markets and provide new services but does not provide any financial support to help stakeholders open a path towards new markets (even if providing financial support to a company like EDF that has 30 millions customers could be questionable).
Nonetheless, in both cases, potential benefits of home automation seem to exceed by far the implementation cost in the mid-run (five to ten years). In addition, if you take into account the need to replace old meters, the human cost (wages and retirements) of agents in charge of meters reading and the lowering price of AMI – in California, utilities expected smart meters to cost $150 per unit in 2004 for about 15 millions units and, in 2008, ERDF (the main French DSO) expects its smart meter to be as low as €50 per unit for almost 30 millions units –, there are a lot of very good reasons for utilities to start investing in home automation technologies.

But this industry picture would not be complete unless you add customers to it. Indeed, individually, they will also have to invest to acquire technologies and purchase new services. But will they do it? In a situation where energy prices skyrocket, if energy bills are not already a major concern for households, it should be the case pretty soon. And people can do the math, especially when it comes to their money.

Thus, both on the demand side and on the supply side of the energy market, there are strong signals and meaningful indicators supporting the idea that it is the right time to start deploying AMI to mass markets as a first step towards home automation. Obviously, it will bring in new challenges (communication standards compatibility, deployment cost, expected ROI and ROR , etc.) to face and it will require involvement from industry leaders, research institutes, syndicates, investors and regulators to solve them. However, utilities are facing an even greater challenge: provide cheap, reliable and sustainable energy to a growing number of households in a context of market crisis and climate change. And the evidences that home automation will be key for success are overwhelming.

Emmanuel Bouquillion

Louis Catala

AMI: Advanced Metering Infrastructure
HVAC: Heating, Ventilation & Air Conditioning
SOHO: Small Offices / Home Offices
TSO: Transport System Operator
DGO: Distribution System Operator
ROI: Return On Investment
ROR: Rate Of Return

In order to meet such an increasing need of energy, CTL could become the most economic solution.

The liquefaction of oil, process transforming coal from a solid state into a liquid fuel, goes back to the beginning of the 20th century. However, low prices and abundance of crude oil and natural gas reserves marginalized its application. Only some countries, among which Germany during the Second World War and South Africa since the Sixties, have massively liquefied coal.

Theoretically, hydrogenating coal is the only requirement to get oil products. Two processes coming from Germany exist: addition of hydrogen can either be made directly on coal (direct liquefaction) or on the gases issued from gasification (indirect liquefaction). The products obtained thanks to the first method are of very great quality – in particular the diesel from which sulfur and aromatic compounds are eliminated – and energy efficiency is nearly equal to 50%, against more than 60% for the indirect but with a much lower quality.

Today, 96% of the energy consumed in transport comes from oil products. Its substitution by different alternative energies is justified by the reduction of the dependency with respect to oil.

Until 2003, with a price of the barrel of crude oil around $25, the CTL at $45 did not present any economical advantage. Today, coal is becoming the best option in order to guarantee the energy security of a country and to get away from high oil prices.

Being the two biggest oil consumers in the word, the United States and China are particularly vulnerable to the big rises of the crude and invest thus massively in this technology.

• With oil prices at historic highs, Pike County, where coal trucks rumble at all hours and miners blast away at black seams, is moving ahead with a controversial project to turn its vast coal reserves into barrels of liquid fuel. Indeed, the county plans to develop a $4 billion coal-to-liquid plant that would produce 50,000 barrels of liquid coal a day. Pike County joins a growing number of communities across the United States considering such facilities (Alaska, Montana, Indiana, Pennsylvania, Ohio, West Virginia, Louisiana, Kentucky, Whitley, McCracken). Such efforts could help wean the nation from its reliance on foreign oil for transportation. The technology would strengthen national security and be cheaper than petroleum.

• Oil imports have been increased in recent years to fuel China‘s booming economy, spurring the nation to look for technologies that can turn some of its coal reserves, one of the world’s largest, into fuel and other chemicals. In 2008, China’s largest coal company Shenhua Group produces China’s first barrel of liquid fuel from coal, using direct coal liquefaction technology. With a budget of 12.3 billion Yuan and an annual production capacity of 5 million tons of oil, the project will be completed in two stages.

• The sustained high oil prices and increasing oil imports, coupled with the country’s rising demand for transportation fuels, has led to a perception that India‘s oil security is being threatened. India is thus actively pushing its companies to convert coal to liquid fuels (CTL). Initially, Oil India Limited (OIL) did some basic research on direct coal liquefaction, and they have now planned for a $2.5 billion project based on direct liquefaction to produce about 2 million barrels of liquid fuel.

• Australia will promote development of an industry for the conversion of coal into cleaner transport fuels to improve security of supply. Australia’s trade deficit in oil and refined fuels is set to expand within the next decade. Monash Energy, a venture between Anglo American Plc and Royal Dutch Shell Plc, is considering building a plant in Victoria State to turn coal into motor fuel, while Linc Energy Ltd. is set to open a plant in Queensland that will produce 5 barrels a day of ultra-clean diesel from coal.

Over the last 20 years, the price of coal remained stable ($35 to $50 / ton) contrary to the price of oil which passed from $10 to more than $120 by barrel. In a world where everything depends on economy and where energy is essential for it, this aspect is far to be negligible and still promises great days for coal. Worldwide liquid coal production should rise from less than 200.000 barrels a day today to reach 1.800.000 Barrels daily in 2030.

Sources:

Context

Uranium production has been high in the seventies, mostly just after the 1973 oil crisis. Two main reasons can explain this sudden demand:

1. The arms race between Soviet Union and USA

2. The energy security policy of other occidental countries which obliges their national energy companies to constitute strategic stocks

Couple of years later, demand has dropped. Direct consequence of incidents at Three Mile Island in 1978 and Chernobyl in 1986 is a rapid slow-down in civil nuclear program. Running in parallel and following the dismantlement of Russia, the Soviet-America arms agreement made the military stock not useful anymore. Those stocks were converted into civil nuclear.

Electricity generators that have kept using this fuel have benefit of low costs (less than $10/pound). At the time, it was not rentable at all to invest in exploration and production of this mineral. The activities of all existing excavation ceased one after another.

Structurally, since the end of the eighties, uranium consumption has outperformed the production. Today, 78 000 tons of Uranium Oxyde are produced each year (source WNA): 64% coming from mining, 33% from military and civil stocks and 3% from recycling.

Three elements can be given in order to explain the price increase since 2003:

1. Following a recent survey of WNA (see figure 1 below), share of military and civil stocks should decrease of 70% by 2030 and production should instead increase by only 20%.

2. Taking the best case scenario (yellow curve), the WNA forecasts twice as much of nuclear installed capacity by 2030 and supplementary 6MtU to fuel them. The actual natural reserves (4,75 MtU) are estimated to last 70 years at corresponding rate of consumption.

3. To this survey, risk factors are taken into consideration such as flooding and fires in mine that stop the production.

Figure 1 : Price evolution between offer and demand by 2030

Highlighting those structural issues has led to exceptional stock increase since 2003 (Cf. figure 2) – except if we take into consideration the sudden drop of spot transactions in Q1 2008; indeed, such transactions represent almost 10% of the whole portfolio of utilities. Long term contracts (futures) didn’t vary in the meantime. Next to oil and gas, uranium seems to become the next raw material to be expensively valued.

Figure 2: Stock Price evolution (Uranium and Crude Oil (Brent) since 2001)

The €/kWh as the output of a power plant is based on the costs of initial investments, maintenance, fuel and waste treatment.

In the case of a nuclear power plant, initial investments are quite big even though justified on an economical point of view. Indeed, loans are propitious (interests between 5% and 8%) and exploitation rate reaches 80%. The cost of nuclear kWh is way under the one of a classical power plant.

In addition, as the following figures can mention, kWh is almost insensible to the volatility of uranium price:

1. Fuel represents only 20% of the final cost of nuclear kWh.

2. Nuclear fuel is not directly used in forms. It has first to be converted and enriched in order to be exploited. Those supplementary costs are prominent in the final cost.

Figure 3: Cost sharing of nuclear power plant

An increase of 50% in raw material would lead to a minor 5% variation as electricity output. In comparison, the very same increase for gas would have as consequence a 30% variation (cf. figure 4).

Figure 4: Cost evolution in function of fuel

Potential increases for the final client will be very limited if the energy companies do not consent to new investments in nuclear. In most countries, nuclear power plants are getting old. Even France is preparing itself to invest in new generation (EPR). So the price increase has to find other explanations as:

• Price of classical fuel

• Investments in transmission system

• Investments in renewable

This mineral is also an exhaustive natural resource. The tipping point of this value is subject to many debates. The demand will pretty soon outperform the production. But thanks to the new funds generated via the price, exploration is getting more cash to discover new reserves or exploit non-rentable mines.

- EDF

The alarm bell was drawn in 1992, at the time of the first Earth Summit. Since then, governments around the world have realised that innovative actions have to be taken in order to provide energy in a sustainable way to meet the increasing demand. Europe for instance committed itself to reduce its emissions of CO2 in the atmosphere by 780 million tons before 2020, which represents a decrease of its energy consumption of 20%. All sectors should consider this challenge seriously. Information and Communication Technologies’ (ICT) reacted enthusiastically by offering innovative solutions to energy consumption problems and opening the path for designing new technologies consuming few energy. Today, governments and companies are starting to progressively realize that ICT could assist them partially in managing energy policy for the future.

How to combine environmental objectives with ICT?

The first interest of the consumer is obviously the reduction of his energy bill consumption, while the interest of companies is broader: all sectors of industry are willing to reduce their energy costs by improving their productivity and rationalizing their processes but won’t operate those changes if affecting quality services, customer satisfaction or losses in term of revenues.
Today, energy consumption reductions are partially performed thanks to intelligent use of ICT products and services by gathering a whole of resources that manage information which are handled, dematerialized, stored and transmitted thanks to computers, programs and networks.
Among a wide range of Information and Communication Technologies, Internet (ADSL, cable…) and GSM GPRS are two inescapable solutions for decreasing energy consumption.
Benefits like speed of data transmission, secured transfer, ease of use… are justifying the generalisation of such solutions by companies and households. Nobody would rely on it if it was complicated to manipulate or if the certainty of a data transmission was not guaranteed.
However, even if broadband offers the opportunity to develop a range of new Internet-based energy services, Internet is not the only way to address energy efficiency. General Packet Radio Service (GPRS), which is a data transmission system by packet improving the bandwidths provided by the GSM network, ensures advantageous transmission of consumption by linking the meter to the service provider. With a widespread GSM network, GPRS is also adapted where households and companies are not equipped with internet, but remains reliant on the telecommunications operators having sufficient signal strength and having cost effective tariffs.

1. Energy Management System

The greatest potential for managing energy comes from the effective reduction and control of energy consumption. This can be accomplished through Energy Management Systems (EMS).
EMS are used to facilitate the analysis and the optimization of consumption: control of equipments, real time consumption follow-up, recovery of data and detection of anomalies… The major goals of EMS are to measure how energy is consumed in a building and to operate remote installations. Whereas EMS are often efficient for office buildings where ‘intelligent’ services can significantly reduce energy consumption, it is less evident in residential buildings where sources of energy are more vital. However, some EMS applications allowing controls of heating, lighting…are possible in “smart homes��? thanks to automation mainly based on:

• Direct Digital Control (DDC) systems, which are a standard part of any EMS. DDC systems use electronic signals sent via computer to process data for direct system control. Strategies such as demand monitoring and limiting can be implemented with DDC systems. The overall demand to a facility can be controlled by resetting various system zones based on different demand levels.
• Web browser interfaces, which are a part of software based on Internet, offering the possibility to access to information, view resources and change some settings. An user can browse the entire facility from any PC with browser capability connected to the LAN (Local Area Network) giving the possibility to set points, turn units on and off and administer the security levels of other users.

2. Smart Metering

A Smart Meter generally refers to a type of advanced meter that identifies consumption in more detail than a conventional device, and optionally communicates that information via some network back to the local utility for monitoring and billing purposes. Smart Meters belong to two categories:

> Automated Meter Reading (AMR), which consists of an automated statement allowing an information feedback from the device towards the meter reading company
> Automated Meter Management (AMM), which corresponds to an AMR completed by services insured by a bidirectional communication between the device and the meter reading company.

Smart meters have three key characteristics which involve directly ICT:

• Two-way communications (AMM), which gives service providers more information, while at the same time transmitting commands back to the device – for instance to cut off or restrict supply.
• Interaction with consumption and tariff, so that the device displays consumption in terms of money as well as energy. It measures domestic electricity use and displays the cost per hour on a portable screen located at home. One of the techniques used is based on Radio Frequency (RF), which consists on wireless transmission. The receiver of that information computes the approximate power use, energy cost and greenhouse gas generation and displays the results on a portable screen through RF.
• Routing capabilities, that allow devices to act as communications hubs, routing traffic to other devices, enabling communication over longer distances that would be impossible otherwise. The devices could transmit data for example through Power Line Carrier (PLC) to the energy provider. It is a technology using electric power lines to carry information.

According to an Energywatch study of August 2005, smart metering could reduce consumption between 5 and 15% thanks to the change of consumer behaviour.

3. Virtual meetings

Use of video and teleconferencing has persuaded a lot of companies because of travel time, costs and tiredness reduction. But they were also rapidly convinced in energy savings advantages because it simply decreases the need to travel.
Video and audio conferences are a set of interactive telecommunication technologies which allow two or more locations to interact via two-way video and audio transmissions simultaneously. There is virtually no limit on the number of parties that can participate in the videoconference.
Software tools for video and audio conferences use the Internet Protocol (IP). The costs of the communication are so weak that it makes videoconference available to a wider public. More than sound and image, Internet Protocol allows at the same time files transfer, applications sharing, exchange of messages to realize at distance demonstrations on digital board.
The optic fibre thanks to the advantageous huge debits it allows is more and more used. With the success of the internet and the numeric exchanges, its use becomes widespread in households. But it is clearly within companies that the benefits are the strongest: files download, files transfer…
The advantage of video and audio conferences is travel substitution. This notion of distance is really important in everyday work. In fact, thanks to those new technologies, working in good conditions is possible despite the speed of communication and interconnection between people and the dissemination of resources all around the world.

Source: Deutsche Telekom, November 2007

4. Dematerialization

Dematerialization can be seen as a reduction of material. It reduces use of resources. So, instead of something physical, the service depends on the existing digital network. Online billing, web taxation and virtual answering machines are examples of dematerialized tools used to limit CO2 consumption.

• Online billing

 

Thanks to an online service related to electronic commerce, consumers and businesses, through financial institutions, will receive, view and pay their bills electronically on Internet.
The main advantages are the absence of paper used, the transport substitution and the infrastructure reduction to send bills. But also, dematerialization of invoices allows to automate the management and to decrease the cost in it.

Source: Saving the climate @ the speed of light, WWF, ETNO

• Web taxation

 

Authorities and governments have to contribute to reduce CO2 emissions to be the example to follow by companies and households. Web-taxation is a system where citizens are given the opportunity to report on their tax affairs via the web. It is the same system as “online billing��?: households don’t fill in their tax affairs on paper anymore, but are allowed to do it via the web. That means that use of paper and transport become less necessary.

• Virtual answering machines

 

This technology dematerializes the recorder we used to use. Virtual answering machines will record messages of the customer when he’s not available. Messages are not recorded by physical additional equipment, but by the operator. The advantage is to limit production, operation and disposal of single device. Aside those energy advantages, there exists also a practical one: everybody being more and more mobile it doesn’t oblige to come back to a place to listen messages.
According to the WWF report “Saving the climate @ the speed of light��?, if 10 million customers shifted from traditional to virtual answering machines, 330 000 tonnes of CO2 would be saved, 90 million customers could achieve a reduction of 2 640 000 tonnes of CO2 emission.
Governments, enterprises, consumers: What do you have to do to encourage energy efficiency through ICT?
Initiatives from one of those three actors will have a direct impact on the other: to decrease energy use thanks to ICT, government should encourage enterprises to innovate, while enterprises should create solutions adapted to consumers’ needs.

Conclusions and Perspectives

Florence Carlot

During the past 15-20 years, Europe has put pressure on the development of advanced technologies, including high-tech electronics and an array of Information and Communication Technologies. The future development and expansion of these technologies will innovate by a more rational use of energy and create a low-carbon path to the future.
Information and Communication Technologies play a critical role in reducing energy waste and increasing energy efficiency. But that’s not all. A correlation is found among economy, efficiency, productivity, and energy savings. While a company organizes meetings through video conference, it also benefits from cost reduction (no need to travel), time gain and energy saving by travel substitution.
It is clear that pressure to decrease energy consumption will become stronger and stronger. However, consumers, households or companies won’t accept to lose comfort or to spend too much time to reduce their consumption in everyday life. That’s why, in the future, ICT will have to continue to develop equipment easy to understand, to use and for which the consumers see a serious and measurable advantage.

Those events brought out politics and diplomats tensions between generators and consumers in the worldwide volatile environment.

…A situation of growing consumption …

European gas consumption does not stop soaring and even most pessimistics forecast a 39% sky-high jump until 2020 (meaning 1,9%/year or from 540Gm3 à 700Gm3. In the meantime, production as part of consumption in Europe will significantly decrease from 57% to 29%.

…reduce dependance toward Russia …

Inequality of world’s gas reserves introduces part of EU troubles. Indeed, energy policies of producing countries are not clearly stated. On the one hand, they try to sell energy at the lowest costs on their domestic market in order to boost growth, on the other to reduce domestic consumption for allowing more profitable exports.

EU is placed at center of a geopolitics game where it will have to deal with growing importation and complex international relationships of producing countries in a fluctuating market.

…reduce dependance toward Russia …
Today, EU first concern is to secure actual import capacities, mainly coming Russia (extracts 600Gm3 / year and is the first supplier of Europe). Diplomats have to make sure that gas flows won’t be redirected for political reasons toward other destination (i.e.: new booming Asian markets).

New pipeline projects are developed to consider Russian will to by-bass Ukraine (even if a bilateral agreement exists) and Belorussia where almost its gas exports presently transit.

• Nord Stream project, which is head by the former German Chancellor Gerhard Schröder, will find its way through the Baltic Sea to connect directly Germany and Russia. It should be operational in 2011 with a volume of 55Gm3/year.
• South Stream project will cross the Black Sea before reaching Bulgaria and Hungary. 31Gm3/year of gas should start flowing in 2013.

Participation of gas majors in building those pipelines has also as interests to build long term relationships with the Russia Goliath and insure continuity in provisioning. Europe will certainly reduce effects of conflictual situation between Russia and its neighbors (Ukraine, Belorussia, and Baltic Countries). However, such projects won’t help diversifying its gas supplies and totally exit from the state of being the “energy servant��? of Russia.

That’s also probably why projects such Nabucco make sense. This pipe will directly connect Central Asia to Europe by-passing Russia through Turkey, Romania, Hungary and Austria. Others will attempt to link the so-desirable Caspian Sea creating a win-win situation: alimenting Europe without Russian intermediary, selling price at higher prices than on the Russian market which is profitable for local producing countries.

Diplomacy and economy are intimately linked. Political interventions could lead favorably to the implication of EU multinational on such big scale project. Such position can sometimes also negative consequences as the French regarding the recognition of the Armenian Genocide blocked a Gaz de France share in the Nabucco project in Turkey. Former soviet members are also solicited between their fidelity toward Moscow and the will to access new markets in Europe.

…reduce dependance toward Russia …

As a first pipeline connecting Turkey and Greece transports 11,5Gm3 from the Caspian Sea to Europe, UE is far from having secured its whole gas portfolio. However, it appears that this option combined with the LNG transport is probably the best option to diversify gas origins.

…create new partnership with LNG …

Strategically, EU has no choice but to find commercial partnerships in order to lower Russian influence. A vast majority of alternative sources are quite far away, the only solution for transporting gas is by seaways which can partially explain the development of LNG solutions during the past years.

EU forged strong links with Quatar, Lybia, Egypt, Nigeria, UEA and Tobago. As illustrated in the side-mentioned table, LNG importations didn’t stop to grow from 1995 to reach an great share in the energy mix of some countries (almost 30% in France and more than 66% in Spain). EU has consequently succeeded to diversify even though bad economic factors are not playing in favor of investments.

However, although transport by LNG tankers is more flexible and less risky than by pipeline, it stays much more expensive:

• Exploitation and maintenance costs,
• Few docks,
• Low volume (150 000 m3),
• Construction costs of LNG tankers (500M€ sur trois ans).

Often, those investments are supported by oil companies and utilities which choose between American, Asian or European markets in order to maximize profits. In fact, divergences exist between interests of investors (maximize profits) and political considerations in EU (secure gas for population). In this environment, LNG doesn’t appear to be the miracle solution.

…conclusion…

Energy policy has more and more strategic stakes in Europe. Security in gas provisioning will necessitate not only more contracts with Russia, new hubs around the Caspian Sea and investments in LN but also a real and efficient policy shared by all members that will give guidelines to big energy groups in matter of investments.

Product Lifecycle Management (PLM) is a key process toward innovation

For more than 10 years, part or total outsourcing of product lifecycle has been experimented by big industrials. Now, those companies start understanding the necessity to closely control those processes internally, stressing on:

• Time to Market reduction,
• Clever definition for the “Make or Buy��? strategy in relation with the purchasing department in global context,
• Coordinated actions from R&D and engineering units,
• Security in production transfer (mature products migrating to lower production cost countries).

Previous experiences have sometimes led to commercial fiascos and difficult aftermaths, illustrated by major delays in delivery for complex tech products. Such bad press impacts directly the corporate image and the brand notoriety.

Those constatations pushed the idea to avoid multiplication of functions when creating new products or offers by implementing cross-functional platforms along the product lifecycle. Consequently, purchasing, engineering and R&D need to be strongly implicated from the scratch definition of the marketing department. This can be done for instance during “customer events��? that help to understand and mitigate constraints for each function. A good example can be found with environmental or ergonomic constraints that need to be linked in very upstream phases of design when manufacturing products.

Regarding customer support, replacing a sub-system for the product by adding value for the customer (maintaining his product in good shape at low cost) recommends a modular approach for smooth run. Indeed, such model will develop new perspectives in purchasing departments for direct costs and part or total outsourcing of production in developing countries.

PLM, a new business process focusing on product value

Over the five past years, deeper awareness from industrials has been observed on the necessity to professionally manage lifecycle of products from concept to market retrieval. Indeed, feedback experiences show that major commercial failures or delays are more often due to strategic or structural choices than technologic considerations:

• Over-specifications causing costly development,
• Delay in resources planning caused by poor forecast of provisioning date or by unadapted capacity in the production lines,
• Premature transfer of production to low cost country causing a slump in quality,
• Development of product not taking into account general constraints (quality norms, recycling, competitor product).

Finally, PLM helps a company to capitalize its industrial know-how by standardizing each stage of a product cycle and integrating specific constraints related to the sector of activity. Drugs and paramedical products are for instance placed under heavy FDA (Food and Drugs Administration) standards before any launch on the American market. Regulation not only applies to development of new product or to the audit of test protocols but also on the crisis plan in case of emergency product retrieval.

Constraints artificially prolong lifecycle of products and need to be integrated during upstream phases or risking losing market shares.

Therefore, each major stage of a product life can be sequenced in order to structure and coordinate enterprise resources.

Towards unique and shared Product Master Data

Before implementing any PLM solution – key element for more integrated functions within the company, promise solution providers -, a prior task is to mitigate management of product data:

• A rationalization process of Master Data Management (articles, naming, range of manufacturing …),
• Simplification of master data and sharing rules to accelerate understanding of each function by all collaborators when limiting complex interfaces,
• Centralisation of data, especially in multi-site environment, facilitating information access to all collaborators,
• Certifying, securing and archiving clean data for sensitive data,
• Confidentiality management.

Any PLM and a combined Product Data Management project will work without sponsorship of upstream businesses. Indeed, successful project requires a prior alignment of product master data and quite often necessitates a complete reorganization of associated processes.

Secondly, PLM solutions are designed as a backbone for coordination between ERP by exhorting collaborative modes thanks to specific “product development oriented��? data model. Well-realized, tools will give significant benefit leading to a 30% decrease in the total development and manufacturing cycle of new products.

Best practices and traps to avoid for a successful PLM project

After having integrated upstream business functions, the next stage involves a detailed selection of “on the market��? solutions to make sure business specificities are taking into account.

1. Definition of level ambition for business and IT strategies

Due to its transverse nature and for limiting risks of rejection, common business objectives need to be set and share by all from the top and across operational departments exposing expected benefits (reduction in each sequence of product life). In average, a 30% decrease of the time to market equals a 25% decrease in cost development.

At this point, we will essentially recommend:

• Avoiding any functional redundancies with specific connex systems (PLM, CADO…),
• Definition an integrating strategy with existing ERP, without fundamental review of existing processes,
• Forecasting any risk of technical incompatibility limiting interoperability between existing IS and necessiting costly interfaces.

2. Dedicated change management

Identification of the right sponsor is not easy task due to the cross-functional characterics of such project. However, it’s a crucial element to be accepted by all users for not risking the complete solution rejection. In order to press its use, some inspiring events can be elaborated:

• Launch of a new product with delocalized teams (e.g.: Aeronautics, Automotive, Telecom…),
• Standardization following workshops (document and revising management).

Perspectives of PLM

Regarding the level of ambition (partly determined by competition), an implementation can be gradually implemented in three steps:

• Step 1: Integration of existing functions in PLM: standardization and integration of basic functins in a reduced of scope constitutes a pilot phase for validating added-values and expected results.
• Step 2: Improvement of internal collaboration and control of providers: once the foundations of the IS stabilized, results will be correlated by comparing use of functionalities by internal and external partners. A dedicated team for lobbying, training, controlling respect of guidelines will definitively help to maintain quality over long terms.
• Step 3: Real time interfacing of PLM tools and Supply Chain IS in each sequences of product life: after having ordered profitability studies, priorities needs to be set regarding complexity and length of specific cycles because it will necessitate heavy investments in terms of interfaces and change management.

PLM is a “Must to Have” for company willing to evolve in competitive environment. One key for success is to progressively connect internal systems with external partners in order to involve from scratch the right provider in the development of new product (better exchange of data and expertise based on collaborative model). In order to effectively implement those connections, a commitment of providers to build interoperable system and a support of the company in this task are recommendatory. Doing so, product related data are centralized and provides better chances to perform innovative cycles.

CONCLUSION

Business analysts agree to say that PLM investments stepped up in the rank of the “Big Four��? as ERP, SCM, CRM did in previous years and became one of the fundamental axis for organic growth.

As ERP integrated finance, production and distribution during 90’s, PDM (=Product Data Management), DAO (=Data Acces Object) and CAD (=Computer Assisted Design) are today converging through a single system: PLM. Based in the IS strategy and the heart of corporate strategy, PLM makes organic growth speed up, costs savings easier through process optimization and innovation and finally, on the long run, the improvement of capacity to innovate, develop and replace product becoming a competitive advantage in the market.

The decentralized nature of wind power comes into contradiction to historical structure for centralized national grids.

Areas for wind turbines implementation are carefully chosen in regard of wind potential, environmental criteria and population acceptance. Few consider proximity to consumer prospects or network characteristics. Consequently issues might show up:

• Long distance transport of electricity, increasing the line losses.
• New projects require building new connecting lines.
• Wind Farms can not always be connected to the transmission network [1,2] which impacts quality information of energy production.
• In case of heavy winds, amount of energy coming from production areas to consumer spots could overheat the transmission lines. When wind generation in north of Germany is important, an great current is transmitted through the South producing undesired network congestions, diminishing cross-border commercial transactions.

The thereafter illustrated figure, presented by ETSO [3], considers the extra flows of power on the European Grid generated during heavy winds in the North of Europe. The scenario is based on a wind production of 80% of total Danish, Dutch and German capacities.

[3]

This phenomenon make some rules appear to be unadapted for wind generation. The “no-limit wind��? policy in Germany for instance didn’t consider the physical properties of European Grids.

Unstable and unforeseen characteristics of wind production make the Transmission System much more difficult to manage:

• Need of side-production capacity or energy storage in order to compensate low level of wind generation.
• Need to balance frequency and offer/demand equilibrium. Wind power does not take part to those mechanisms.
• Need of compensators to regulate reactive power. As the opposite of classic power plants (thermal, nuclear, hydraulic), wind farms (mainly induction generator wind turbine) do not produce reactive power to balance voltage at points of injection.

For all those reasons, above 20% to 30% of total energy mix, wind generation and its fluctuations become really complex to manage. However, dedicated access and management rules could increase the amount of wind capacity a network is able to support without damaging security. Today, three countries reached critical size in matter of wind production:

• in Denmark, total installed power is around 3,1 GW, or 24,4% of the national energy mix, and represents 14,1% in effective daily production[4];
• in Germany, total installed power is around 20 GW (larger wind generation in the world), or 14,8% of the national energy mix, and represents 5,1% in effective daily.
• in Spain, total installed power is around 11 GW, or 14,1% of the national energy mix, and represents 7,9% in effective daily production.

[5]

Incentives for wind are common in those three countries as the obligation for energy providers to cover a ratio of their sales with wind power. However those measures that benefit mainly producers, doesn’t encourage wise management [6]: in Germany, maintenance costs are supported by the TSO, which pass the charges on the transportation fees paid by the end-users and not the producers.

How to improve penetration of wind power?

In order to secure European Grids, coordination between incentives for and limits of wind production is necessary:

• Need for TSO to be able to switch wind power in case of risks.
• Need to replace buy-back guarantee by market mechanism (CO2 quotas, green certificates…) in well wind-supplied countries.
• In parallel, need for producers to support maintenance costs in order to make wind farms more efficient.

The main objective is to implement wind farms not only on locations that are environmentally-advantageous but also by considering network and financial aspects. Such management would increase penetration of wind power and maximize ecological benefits.

Similarly, ETSO[7] likes to insist on the importance to improve cooperation between TSO, investors and regulators during projects in order to manage impacts on the grids. The best would be to define development of wind power in regard with needs and grids.

At the European level, a harmonization of access rules for producers is necessary in order to better distribute wind farms across countries, regions and not only in place where favorable legal environments give enormous advantages for implementation. Indeed, a wide distribution of turbines would reduce significantly global variation in energy production.

Regarding wind farms, access rules should be stricter in order to avoid new wind turbines switching off in case of low frequencies. Technological innovations [8] based on power electronics will soon help to control production and maintain constant voltage remotely.

Toward Smart Grids?

All together, those measures will enforce stronger development of wind power and renewables in general. Technological progress will also take part in the management of wind power. Heavy incentives regarding, for instance energy storage, help positively R&D in the sector. A real-time knowledge of energy flows on the grid and optimization of energy use are keys in grid improvement and are currently developed. Also auto-adjust device will support automation of voltage, frequency and harmonic filtering in the future.

Sia Conseil

Notes:

[1] The transmission system is managed by the TSO, which owns all the High Voltage Lines and balances constantly offer and demand.
[2] The distribution system is managed by DGOs, which owns medium and low Voltage Lines and are in charge to provide electricity to the end-users.
[3]ETSO : European Transmission System Operators association, founded in 1999, represents 35 TSO from 27 countries in Europe.
[4] Average real power generated by wind turbines is approximately equal to 25% of total installed power.
[5] EWIS
[6] Maintenance cost: necessary costs linked to connections, adjustments and back-up capacity costs.
[7] Website of L2EP laboratory from Lille

Sources:

- European Commission
- European Transmission System Operators association (ETSO)
- Ademe
- Council of European Energy Regulators (CEER)

Europe, based on the Kyoto agreement, established in 2005 the largest multi-national greenhouse gas (GHG) emissions trading scheme . Since then, big industries have been caped by limitations on GHG emissions enclosing carbon emissions. Their commitment to limit their impact on the environment has been encouraged not only by the potential penalties but as well by economic benefits that new investments in old infrastructure could generate (ex: improve efficiency, better isolation, changes in processes…). Recently we observed more and more car (ex.: BMW), oil (ex.: BP), energy (ex.:EDF) companies and many other heavy industries launching advertising campaigns which are advocating on the “greenity��? of their products. Since such companies are both polluting and investing the most, their marketing departments are trying to create fuzz in the perspective of getting better return on investment. Not only reducing carbon level creates cost savings but well-managed process implementation could produce very promising side benefits .

Turn the necessity to a competitive advantage

Climate change will sooner or later modify the way to do business. Experts seem to finally agree on the effects of human activities on the environment. Governments start to react in order to preserve the well-being of future generations. Companies also have responsibilities, incentives and even interests to reduce their impacts.

Not only carbon reduction actions protects them from a future – and drastic – regulation but also contributes to improve processes and/or save operational costs (ex.: better boiler in coal combustion, more energy efficient robots in automotive supply chain, less waste, less transport, …). Many leading companies got it right and start developing their own program (ex.: GE with its “Ecomagination��? strategy, Volvo Belgium with a zero C02 emission production).

Any process can be monitored by indicators to quantify performance and to make sure it meets objectives. CO2 is becoming in a way a new indicator for business improvement since it is highly correlated to efficiency. It’s a unique measure, a data relatively easily to manage – just another set of variables in a traditional data warehouse –. The hit comes from the multiplication of corrective or preventive actions – which can be very specific depending on the activity – and their follow-up. Hopefully, number of existing methodologies could be adapted and ease the CO2 problem setting in a company.

The following scheme aims to structure a typical way to implement an improvement technique within a company:

• Four majors stages,
• Three different levels of involvement.

Starting from the board of a company which decides to launch a strategy based on carbon cutback, the methodology will have four stages:

1. Measure
2. Analyze
3. Implement
4. Control

Depending on the hierarchical involvement different kinds of actions will be taken regarding each step of the methodology by the company, department and employee levels.
A cross functional matrix destined to illustrate the different stages of a carbon reduction, its actions and its immediate benefits on operations plans to give a more tangible point-of-view.

Each stage has its own objectives and expected results which are designed to build and develop the next one.

1. Measure

Depending on the process and activities of your company, some CO2 emissions will be:

• measured by dedicated devices – most of those installed devices are by regulation (i.e.: heavy industries) – or
• simply estimated — many sources could provide information and basically all lifecycle C02 emissions of products and services can be estimated.

Information will be aggregated together in a single database in order to have a well-organized accounting of any sources of carbon and monitor variations. The main objective is to clear the path for the “analyze��? stages by highlighting excessive carbon emissions.

2. Analyze

After compiling data across the company, a second exercise will establish:

• Main sources of carbon and their corresponding activities, procedures, processes, departments
• A list of potential actions and their cost-benefit analysis
• A set up of clear objectives to reach

Principal goals are to choose the most cost-efficient actions with regard to the company’s objectives. The short list of actions will try to get as many people as possible involved in the project: sponsorship is always a key to success.

3. Implement

The most complex stage will be the implementation of chosen actions during the previous stage and the follow-up of each of them. It consists in building:

• A strategy for action, cost follow-up and effectiveness for each department
• A sponsorship from the management
• A person in charge of managing those actions and coordinating resources
• A clear vision of what will be done and inform people of effectiveness of their actions
• A change management methodology: training, assistance
• Smooth actions not disturbing operational activities

This stage is all about giving the means to secure success. A well-prepared implementation ensures to reach objectives more rapidly.

4. Control

Along the implementation, regular audits need to be structured based on the monitoring system – built during the “measure��? stage – allowing the adjusting of the plan of actions when required. At the end of this period – year for instance – a major reporting is established to:

• Compare results with objectives
• Control the effectiveness of operational gains through process improvement or cost savings operations

The results of this stage will allow to show:

• Process improvement to the executives
• Cost savings to the shareholders
• A better image to the public
• If relevant – involvement to the regulators

Will you get your money back?

Although process improvements require initial investments, gains are permanent. Basically everything having a cost for a company also has a CO2 impact, so potential benefits can be big. Carbon reduction combines economic and environmental interests. Within a company, the main sources of CO2 emissions can be shared between 5 main categories: the following figure identifies them. Using the above-exposed methodology, the table presents direct benefits in cost savings by reducing carbon sources.

And even more!

Besides the direct internal cost savings generates by process improvement actions, four other incentives can be identified:

1.Create a green image

What we call “green affinity��? in customers is growing in developed countries. People are almost at the point to pay a bit more for sustainable goods. Surfing on the wave, an effective marketing department with clear and dedicated strategy on the subject could increase customer perspective of environmentally friendly products and services. “It should not be surprising that many leading companies today are responding by aligning their brands with more eco-friendly activities and attributes��?, says Green Marketing. The market is changing and companies need to be prepared.

2.Reduce risks of non compliance

European Union sanctions will always get stricter year after year: caps emissions, nature of gas (NOX, SOX, COX, Particles…), and delocalization of polluting plants… A good way to avoid sanction is to stay ahead regulation standards. In addition, the sooner a company planifies an investment, the better it will be able to manage costs and resources.

3.Get state aid

Most of the countries and the European Union are sponsoring innovative projects for energy savings and generation of renewable energy.

4.Reduce risk of energy costs

Continuous increase of energy prices and taxes, scarcity of primary energy are becoming greater risks for a company. Reducing use of energy and doing so carbon emissions is part of limiting exposure against uncontrollable costs. Taking into account those financial risks from now on could one day become a competitive advantage if competitors don’t face those aspects seriously.

Conclusion

The assumption of strong correlation between expenses and CO2 emission can help to build a business plan which meets environmental and financial expectations. Many have already understood this. In developed countries, half of the major companies have a board representative in charge of energy and environmental issues. Cost savings is acquiring a new marketing tool: environment.
Carbon reduction is not only a necessary evil for the well-being of our planet; it is a real opportunity for a company to improve the business as usual. Everybody has a role to play for the environment and can still contribute to efficient business development and generate money from it. A strategic choice in a company is an opportunity to seize to move things forward. Company and people do not need experts in order to create a carbon neutral structure but dedicated resources and motivated people with expertise in process change.
Indeed, changing business habits, modifying processes, introducing new policies have never been easy tasks. They require: time, competencies, cash flows, improvement of regulation, intake of new culture and ideas. But benefits – besides direct cost savings – will be multiple, the internal and external image will be valued, an ideal standard for competitors will be set and, bottom line, it will serve the environment and quality of life.

Jean Trzcinski

Initially, it was common sense to believe the initiative would come from DGOs (Distribution Grid Operator) – as it has been done for currently operational smart metering projects – to implement the new metering since regulators were putting pressure on them to reduce the distribution costs and to bring more transparency in consumption data. However, today, we are observing alternative approaches coming from independent energy suppliers offering basic smart metering services.

Why DGOs should take the lead?

Although such projects often praise big benefits for households, generators, or environment, the ones who have the most to win are certainly DGOs. Indeed, consumption metering is an integral part of their core activities. Operational cost savings in distribution services are the real leverage. Logically, any strategic scheme for an eventual deployment is considering automation of historically manual operations (i.e.: metering, connections, cut-offs) as direct cost reductions:

• Automation of meter reading (decrease up to 40% of the dedicated workforce saving interventions of around 2x number of meters/year, drop in administrative costs for billing and CRM) is the main saving prospect,

• Another possible expectation is to reduce energy losses amounting up to 6-10% of the total energy distributed by DGOs. Around a third having non-technical origins (frauds, thefts, malfunctions, data error) can be immediately saved.

Why energy suppliers shouldn’t wait for the DGO’s wake-up call

DGOs don’t provide a meter with a complete range of functionalities for new offers (objectives aren’t the same) and in case of lack of communication and transparency regarding their deployment strategy (a complete national roll-out can take from 3 to 7 years). In that case, current energy suppliers in quest of positioning in a competitive market won’t wait, especially in the climax of customer’s readiness to change its energy consumption behavior and its thirst for home automation. In fact, when thinking ahead, it’s the perfect opportunity for small and dynamic new entrants to target a new segment on the energy market. Some have already understood this.

It won’t be a riskless task to any one!

Regarding the technical and financial challenges, the absence of legal guidelines and the multiplication of actors (multiple DGOs, multiple energy suppliers) in some countries, risks are various for the one (DGO or Supplier) that decides to move forward with his “Smart Metering��? business model.

Technological, deployment, property rights and financial perspectives could easily define the scope of a quick risk analysis. Sia Conseil highlights some sensitive issues to keep in mind when considering investing in the project and identifies related risks. Recommendations depend on each specific situation and can’t be drafted for a general context.

As red arrows show, future compatibility standards and meter/data property rights seem to constitute the biggest risks today:

• Compatibility: to foresee the future standardization of a technology challenging others is a real challenge with costly consequences.
• Property: At some point, only one DGO or one supplier owns the meter and the data. Yet, high quality metering data benefit to the whole value chain (generators, TSO, DGO, Suppliers, and Customers). Prices and competition to get access to essential data and to the meter could increase easily leaving customers to pay for consequences.

Unfortunately there exists a close correlation between those issues and the regulators’ policy.

What are the consequences on the actors of the whole value chain considering the two ways of deployment?

In order to get a better sense of financial costs, the following model is based on Sia Conseil’s assumptions and provides a basic idea of where the cash flows are.

Scenario Case:

• 4 million meters to replace in a liberalized country with one major energy supplier and many small actors (Supplier and DGO)

• Either a total implementation by DGOs or total implementation by suppliers.

Legend:                      

• Red tube = investment over 5 years
• Green tube = expected gains after 5 years
• A unit on the axis represents approximately 150 M€

“First come, first served!��?

Another perspective appears to be true. Not only, will the meter owner be able to value information to competitors and actors, he will also get most of the benefits from its risk taking. The first mover can adapt the devices to its own needs and get maximal profits of it.

Technical and administrative costs will be cut, customer relationships will be improved, and barriers to entry for competitors will be lifted. If we take a look at the financial aspect, expected gains on the whole value chain coming from smart metering are positive. The allocation of those takes place where risks are taken.

Lastly, even if a player doesn’t invest in smart meters, it will still cost its company and its back office to adapt hardware and procedures such as billing, database and IT to bigger flows of data.

Two major points could be highlighted:

1. The first mover advantage

Underestimating the reaction time of competitors would certainly be pricey. Of course it’s a risky business and of course it will require a lot of resources and time to implement Automated Meter Management. But competition has never been so keen to experiment new business models, especially in markets where solutions for positioning are limited.
Return on investments will be bigger for the energy supplier that consents to take the risk to invest than the ones staring. “Being first��? will not only secure the customers for some years (and related revenues), but expertise on the metering field will be recognized – and probably financially valued by:

• Customers through the company image of innovative and environmentally friendly services
• The regulator through the participation to define the future policies
• TSO, generators and energy suppliers keen to pay for quarter consumption profile data.

2. The regulator key influence on risks

Regulators should be the “front-runners in regards to smart meter policies��? declared the ERGEG. However, except where smart meters are already implemented (Sweden, Italy, The Netherlands), few succeed to do so.

Without rules and regulations, the situation will rapidly become tricky. Quid of:

• Access tariffs for the meter?
• Tariffs for data access to competitors, for TSO and generators?
• Quality and security of smart metering and its installation?
• Inter-compatibility of technologies?

Today, regulators must start to format norms and standards regarding installation, access and functionalities. Such actions will in addition accelerate the development of smart meters (and its benefits for local population regarding environment and pricing matters) by obligatory roll-out or financial incentives.

Tomorrow, it will be more expensive to solve complex situations where many actors are involved.

Energy suppliers: the race has started!

In conclusion, although indicators of success are still awaited by many to consider a potential large-scale roll-out, neither Enel in Italy, Poweo in France, Oxxio in the Netherlands and others seem to have difficulties or issues to manage their new services: Enel succeeded to secure a standard in metering for all Italy, Oxxio and Poweo are riveting
their eyes on the first switchers attracted by lowering consumption and innovation.

The key was that all of them were backed by the regulator. However, the small energy suppliers didn’t even wait for it and still it pays back pretty well. They were first to deliver a product customers were ready to accept. They only reviewed their own business model and switched their strategy to a customer-dedicated vision, found the right partnerships and carefully studied the risks and opportunities with specialists on the subject.

Jean Trzcinski

Moreover, he announced that his teams are doing their utmost to make operational a French Gas Exchange before January 1st 2009.

Sia Conseil: Considering the recent announcements of partnership between EEX and Eurex, the alliance between Nyse Euronext and the Caisse des Dépôts, how do you foresee the future of Powernext Carbon? 

Jean-François Conil-Lacoste (J-F. C-L.): First, we should remember the context in which Powernext Carbon has been launched. At the time, in early 2005, the establishment of PNAQ 1 (CO2 National C02 emission quotas registers) was urged by governments and private companies. In close collaboration with Caisse des Dépôts, Powernext could quickly respond to the necessity of creating a Carbon Exchange thanks to its reactivity and expertise in trading activities.
Since then, Powernext Carbon has become the leading European C02 emission quotas spot market, with 60% market share.
Nowadays, Powernext must take advantage of this asset in a growing global market thanks to the CERs (Kyoto credits) and tomorrow with other greenhouse gases markets. All major Stock Exchanges for derivatives are concerned: Eurex, Nymex, CME…

In order to face an increase of competitors, it’s is also necessary to develop new products (e.g.: especially futures and other on-term products) and to expand to a global commercial network.
Consequently, a strategy of convergence with our main shareholder, Euronext, – major stock market since its acquisition by NYSE – makes all sense.
This will enhance the know-how acquired by Powernext Carbon in an industrial logic. In those days characterised by further consolidations among energy companies across Europe, Powernext and its shareholders decided to refocus on core activity i.e. energy.

Sia Conseil: With the balancing platform, Powernext Balancing GRTGaz, you are currently working for GRTgaz. What is your ambition regarding the gas activity?

J-F. C-L: In the gas activity, Powernext has the same national ambition as the one initiated with electricity.
With this daily balancing platform, GRTGaz has the opportunity to buy or sell extra volumes to balance its grid. To move forward and create a National Gas Exchange, reducing of balancing zones will constitute a significant breakthrough.
The creation of a North zone on January 2009 merging the west, north and east current zones together will simplify the organisation of the GRTgaz transmission system and will generate liquidities justifying the implementation of a Natural Gas Exchange.
However, Powernext aims to play a major role. Studies and discussions are in progress with different actors and we will do our best to be ready on time!

Sia Conseil: We can say that Powernext took the lead with various initiatives to integrate the European Central Area. So, what is your strategic vision for the European electricity market?

J-F. C-L.: At the European level, the major developments in the electricity spot market will focus on the expansion of coupling areas and the probable merges among Stock Exchange. Powernext was one of the six promoters of the first market coupling in Continental Europe, linking successfully since November 2006 The Netherlands, Belgium and France (Trilateral Market Coupling (TLC)).
Other projects are going on, including the recently finished NorNed project, a 700 MW submarine inter-connector between Norway and The Netherlands. Another market coupling is scheduled for June 2008 between Germany and Denmark.
It’s becoming more difficult to carry out all these projects at the same time and consequently priorities emerge.
For Powernext, the next major milestone is the CWE project (Central Western Europe), extending the TLC to Germany and Luxembourg by January 2009. A formal agreement between the five countries was signed on June 6th 2007. The CWE market represents a total volume of electrical consumption of more than 1300 TWh, which is more than the third of the European consumption.

In this context, mergers or acquisitions between partner Stock Exchange would make sense. Ultimately, an unique Stock Exchange would emerge in this area, working close in close partnership with transmission system operators.
The inter-regionalization, between, let’s say, the Scandinavian or the Iberian zone and the CWE, could be lead by a central “dome��?, a “Coupling Office”, headed by Power Exchanges and TSOs and in charge of ensuring the governance and the inter-regional coordination.
In terms of product developments, we could also expect a greater development of derivatives. However, the current legislative context in France (existence of regulated rates below market price…) is not favourable. In October, 4 TWh on the spot market and 11 TWh on the futures market have been negotiated on Powernext.

Sia Conseil: How do you intend to stay competitive in such competitive sector, especially when consolidations are taking place?

J-F. C-L: Powernext is a profitable and efficient company. Our services are among the most competitive in Europe, thanks to a good control of the structural costs and, of course, thanks to the good management information systems. A win-win rapprochement between EEX, the German Power Exchange, around our respective electricity spots activities can be drawn with confidence.
Powernext is a 50 high profile employee company working. HR turnover is almost inexistent.
Working as a start up and having a real knowledge in project management, allows us to be very reactive. The successful launch of Powernext Carbon in a short period of time proves it. In the future, while participating in the European Energy Market merge, we will strive to anticipate the player’s needs and to provide them innovative and efficient tools. The Power Exchange is mainly a facilitator.

Sia Conseil: How do you feel about tomorrow’s competitive landscape?

J-F. C-L.: Further M&A are inevitable but we are quite well positioned to direct them rather than to undergo them.
From the electricity spot market should emerge a Pan-European stock exchange initiated by a Franco-German merger but resolutely open to other stock exchanges. In terms of derivatives, cooperation and partnership agreements should be developed between the existing derivatives markets.

Moreover, high quality data has become necessary for the operator to evaluate accurately its assets and justify its investments to the regulator and to financial stakeholders.
Two conditions are required to keep an accurate view of the assets at any time:

• Having information stored within referential databases shared by the different business domains ;
• Maintaining these referential databases up-to-date to guarantee information quality and reliability.

Therefore network operators must target a unified assets description, but also an organisation allowing data updates along the network evolution.
A progressive IT Architecture redesign approach, in parallel with the modernization of its business processes, will be necessary to find the most appropriate solution.

A new challenge for network operators

For network operators the deregulation of energy markets brings a new economic framework defined by the regulator.
Network charges represent an important part of the consumer energy bill. As transmission and distribution are natural monopolies, the regulator balances the lack of competition through tariff control.
However the regulator also ensures that lower prices do not come at the expense of security, quality, environment protection, and interconnections development.
In order to reach these goals while maintaining medium-term profitability, network operators need to acquire a better control on their industrial assets.
Transmission and Distribution infrastructures represent heavy investments that are worthwhile on the long run. Hence, development decisions have to be based upon sound technical and economic hypothesis, for network building needs great resources. This in turn justifies optimising equipment, organisation and supply.
A precise knowledge of the network comes in handy while developing investment, supply and maintenance optimization strategies.

The diversity of business needs is hard to reconcile with a unified reference

Many business domains are involved in asset management. Each of them requires a system tailored for its specific needs. Especially, the description and life cycle of an asset are different from the technical and accounting standpoints.
These different needs make it difficult to design a unified referential database. Most Information Systems have been built progressively with business computerization. Legacy standalone softwares meet each business need separately, but require the maintenance of several independent databases. This segmentation generates discrepancies between information, a source of mistakes and delays for all business processes.

The IT architecture redesign approach aims at defining a progressive path towards a global architecture of the Information System in order to reduce referential redundancies.

Requirements for a referential system

Maintain consistency while satisfying the different needs
For the referential system to be adopted by the different users it must manage all the asset characteristics. Each business line needs to access information using its own criteria.

Improve IT reactivity
Integrating new information in the referential system must be easy: new equipments, improved asset description, upstream or downstream expansion of the network. Besides, information flows between applications have to be normalized in order to facilitate the addition of a new function or the upgrade of a software component.

Reduce IT costs
Using a unified referential system lowers the following costs:

• Human resources, by eliminating the need to check and correct data consistency across several databases.
• IT system and operation, by sharing and standardizing interfaces and access systems.

Improve traceability
The referential system must keep track of network evolutions, in order to gather feed-back on material performance. This information is a must-be to set up just-in-time maintenance and replacement policies. It will also improve the assessment of suppliers and subcontractors performances.

Network specificities make IT standardization more difficult

A network has several dimensions
Gas and electric networks complexity is above average. Their management requires two very specific dimensions: topology and geography.

• Topology is the representation of the network structure (connectivity among the network elements). This information is essential to model the network behaviour (load flow, dynamic colouring, and identification of dead network…).
• Geography corresponds to the localization (in 2 or 3 dimensions) of the network elements. This information is necessary to overlay the network image upon static or dynamic maps, for simulation purposes (impact of a new structure), for operation (ground property management, GPS applications, wooded areas visualization to plan tree trimming campaigns), for weather watching (wind map, link between lightning impacts and faults).

The ERP approach limitations
Most assets (such as real estate for example) can be efficiently managed using an ERP software built upon a modular architecture in which every piece of asset is described for each of the different business lines (technical, accounting, legal,…). This solution reconciles the business domain information models to an enterprise wide unique information structure.
However for network operators this solution is not applicable as topological and geographical features are not treated by mainstream ERPs; only dedicated business softwares can manage these specificities. As these do not cover all activities involved in industrial asset management, it is necessary to resort to ERPs and business softwares together. Still, the objective of having a unified reference must not be forgotten.

Two visions of networks: GIS vs. SCADA
Currently, two types of network management softwares are competing to become the network referential system:

• Geographical Information Systems (GIS)
• Supervisory Control And Data Acquisition systems (SCADA).

GIS provide a detailed description of the assets; they use several vectorial layers to manage graphical data, each element having its characteristics stored in a related database. Thanks to the unique reference of each element, consistency is preserved through scales and representations (small scale maps, detailed cartography, schematics).
GIS can also manage at any time and in the same database the representations of the network operating, and of the planned and abandoned network. Due to its profuse data description and its ability to manage different versions of the network, GIS is the recommended base for studies and design, and an ideal referential system for asset description.

SCADAs are used for supervision and remote control of networks. Networks are represented in a simplified way (geoschematic or one-line diagrams). SCADA is the best base for real-time functions (outage management, trouble call management, work order management,…). These activities imperatively need a reliable real-time database and short response time, in particular in times of trouble, when the system reaches its maximum load.
The perfect solution to ensure consistency between GIS and SCADA databases would be to use a unique referential system to support both softwares. Unfortunately, real-time constraints and cartographic data management cannot be reconciled, which prevents the complete merger of databases. Indeed, GIS bases are optimized for large quantity of data and editing sessions spanning long periods of time (long transactions), whereas SCADA bases are designed for high availability and short response time (short transactions).

Ensuring databases synchronization

Although a complete merger is quite difficult, databases can nevertheless be tightly synchronized. This can be achieved by making the referential system updates an integral part of the business workflows, and adopting an information model shared by ERPs and business applications.

Using Workflows
The most pragmatic solution is to coordinate the updates of the different databases in order to reflect the real-time evolution of the network.
In the first phase, network planning and detailed work preparation are realized in the GIS with a “planned��? status. These planned network evolutions are then communicated from the GIS to the SCADA where they appear as a “patch��? waiting to be integrated. As the new network is actually brought into service, the operator activates himself the patch, thereby updating the SCADA database in real-time. As a feed-back, a statement confirming the completion of the operation is sent to the GIS, triggering a switch from “planned��? to “in service��? status for the relevant piece of network. The same process applies when network is put off line.
Real-time information related to the network performance (network configuration, measurements, failure rate) is necessary for future studies. It is also imported from the SCADA to the GIS.
Synchronizing the referential system with the actual network can only be achieved if the Information System reaches the field. The introduction of mobile devices (GPS, PDA, RFID for example) is an opportunity to rethink operational processes, thereby optimizing information flows and reducing costs.

Standardizing asset description
As far as electric transmission and distribution are concerned, norms being written under the guidance of the International Electrotechnical Commission (IEC) promote interoperability between network management software components. At the same time, the Open Application Group (OAG) works towards the integration of these business functions with the other domains (accounting, customer relationship management, logistics, human resources for example).
This software compatibility is achieved using a common description language (CIM: Common Information Model) and standardized exchange formats.
If these norms become widespread, it will be easy to change the perimeter of an operator’s assets, for example in case of a merger or to organize an inter-operator emergency plan.

Conclusion

In the new regulatory context, the optimization of industrial asset management is a major issue for network operators. To meet this challenge by modernizing their processes, they will need an Information System able to produce and share high quality data.
Existing Information System are generally composed of a patchwork of applications reflecting the historical evolution of business solutions. Each application is adapted to the needs of a business domain, but shares little data, if any, with the other software components. This division leads to flow and data redundancy, a source of operational underperformance and extra IT costs.
Current softwares, along with recent interoperability norms, make it possible to design an enterprise wide information structure. It is therefore time for operators to rethink their IS, a necessary step to optimize their business.
An IT Architecture rationalization program will help in the analysis of business processes and of the existing Information System in order to build a convergence scenario towards the targeted solution. The design of the data model as well as the arbitrage between business solutions (GIS, SCADA) and ERPs will take place after taking into account assets specificities and overall IT strategy.

Part of this new way to do business finds its roots in huge scale benefits over distribution and marketing costs, and in limits of differentiation strategies:

• Product copying for technological innovation
• Decrease in profit margins for price positioning
• Drop in return on investment for branding strategies

In those conditions implementing a partnership strategy can constitute an interesting alternative to traditionally integrated activities. In comparison to banking, insurance or telecom industries which have already some experience in the field, energy sector is a novice and progressively think about partnership as an option to improve services quality and business efficiency.

Stakes of partnership management

Part of activities can be led by partners. They then accomplish the role of a third party which bring satisfaction to customers, and offer services to the company following the kind of partnership:

• Joint-Venture: partner and company share responsibility for management and liability in order to develop and launch a product, a service or another “cross-product��?,
• Promoter: partner promotes the company to customers and brings it more prospects,
• Commercialization: the mandated partner is selling products and contracting in the name of the company,
• Consultancy: partners complete the packaged offer by providing their own specialties such as installing, maintenance or repairing.

In low margin or huge investment markets, those kinds of partnerships increase sales forces and insure quality of services when lowering commercialization and customer services costs.

Performance of selected partners and collaborative partnerships are keys to success. It has to be a win-win situation in order to create added value. It’s always a big challenge since when delegating part of the commercial activities the company loses the global control of it. This strategy lays on two fundamentals of the partnership management:

• Implementation of a recruiting process, a development and loyalty program for partners.
• Collaborative Business Process Optimization (marketing, sales, services).

Benefits of partnership management

• Recruiting process: defining partner’s objectives in terms of profitability, performance criteria and the mutual agreements are essential to select the most efficient partners in the long term.
• Capability development – Communication: best practices diffusion contributes to the partner services quality and creates a positive branding for the company.
• Collaboration: commercial procedures must be define among partners relationship process: marketing, sales and services.
• Performance management: Pay and bonuses are based on performance as incentives to improve services quality, to develop best practices, to determinate best solutions to any case: retaining profitable partners, saying goodbye to the less performing ones, strategy for new partners.

A recent post is a typical case for the sector…. Since examples are multiplying

Nuon has signed an agreement with Ceramic Fuel Cells Limited and Remeha to develop a fully integrated micro-combined heat and power unit for the residential market. It’s an example of partnership between an energy provider and an engineering company. Together, they are creating new services using the technologies of one and the access to customer of the other. Both are limiting their costs (research and development for one, branding and commercialization for the other).

After deregulation, Electrabel realizing the importance to satisfy key customers started a partnership with ACT’L. Enerlution is a new service which allows a small company (ACT’L) to develop its services through the customer basket of a big energy provider (Electrabel) which is looking to improve customers’ satisfaction. The project is to provide data information online in the first time and to combine tailored solutions in the second time. It’s a win-win situation at reduced costs.

What is the Net Promoter Score?
A Net Promoter Score is the result of a customer satisfaction survey in which the ultimate goal is to obtain an answer at the following question: “How likely are you to recommend the company or the product X to somebody?��?. Responses to the “ultimate question��?, coded as follows, are measured on a 0 – 10 scale, with 0 meaning the least likely to recommend and 10 meaning the most likely to recommend.

For small size company, NPS measurement is usually conducted by customer experience management companies, professional opinion survey or market research firms rather than the company itself in order to avoid statistical bias and to facilitate standardized results. After the analysis of measurements, some qualitative surveys will be organized to understand and to specify what can be improved to satisfy customer expectations.
NPS has the advantage to be usable by every type of companies and it’s creating a direct link with the marketing upstream of the project.What is the Lean Six Sigma?
Six Sigma
Six Sigma is a methodology developed to systematically improve processes by eliminating defects defined as nonconformity of a product or service in comparison to its specifications. The goal of this methodology is to improve all processes by reducing the variance (defects) around the mean (desired quality) between the Lower Specification Limit (LSL) and the Upper Specification Limit (USL).

This methodology is based on measurement and statistic, which makes it principally adapted for heavy industry. Basically, it’s a 5 steps methodology:

Lean
The Lean is a generic process management philosophy aiming to accelerate the reduction of wastes in every areas and stages of work including customer relations, product design, supplier networks and factory management. Non-essential activities and resources are getting rid off the procedures.
The Lean is a real evolution to Six Sigma because it is a lighter tool more adapted to the services sector.

Lean Six Sigma
Lean Six Sigma is the business model defining a way to do better and to produce more rapidly:

NPS and LSS combination
The combination of NPS and Lean Six Sigma brings new opportunities in change management and improvement of processes combining a product oriented business model with a customer oriented one:
Moreover, where the use of the Lean Six Sigma methodology (alone) brings a significant ROI on productivity and customers’ satisfaction, the methodology combine to the NPS has an impact on a greater number of company’s aspects: productivity, customers’ satisfaction, turnover, market share, organic growth, employees’ satisfaction and culture.

Russia Today, a non-stop English-speaking news channel, interviewed a Sia Conseil’s expert in the matter.

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Video from Russia Today of August 1st 2007

About Russia Today 

Russia Today TV or RTTV is a non-stop news channel launched on december 10th 2005 by the Press Agency Ria-Novosti.
Russia Today is broadcasting in English and is covering Europe, Asia and America, commenting international events from a Russian perspective .
Russia Today is also a website providing information since 1996.
Ria-Novosti is one of the biggest press agency in Russia, officially under the supervizion of the Russian Press and Information Ministry since 1991. 

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Since then, the hazard risks associated with potential nuclear radiation incidents, led several European countries to reconsider their views on nuclear energy. Today, increasing pressure over gas & oil scarcity and Europe willing to meet its objectives to reduce GSG emissions are likely to intensify the debate over nuclear power.

The energy stakes which plead for a revival of the nuclear power in Europe
Reducing energy invoices and increasing independence
Europe is currently facing a constant increase in its power consumption and a soaring dependence of fossil energies. The geopolitical situation, in particular in the Middle East and in Africa put pressure on oil markets and consequently on the global billing. Gas prices which are indexed on oil’s are sky high.

Safeguard supply
Hydrocarbon reserves are estimated to meet global demand for 40 years at current growth. Whereas ¾ of the reserves are located in geopolitically unstable areas, risks of disruption in supply pulls the price up and increases its volatility. In the same way, Europe’s increasing dependence on Russian gas supplies generates economic and political tensions. On the other hand, uranium is abundant in the world and its geographical distribution is balanced. It is produced in great quantity in stable areas that allow power plants’ owners to improve their supply diversification.

Compliance with Kyoto commitments
The EU committed itself to reduce emissions by ratifying the protocol of Kyoto, but the recourse to renewable energies takes a long time to set up and requires important investments. The production of nuclear power seems an interesting alternative, as it emits a small quantity of GHGs.

Barriers to the development of the nuclear power
Problems of nuclear waste
One of the principal arguments advanced by the opponents about the nuclear power relates to the management of waste.

Exploitation risks
The exploitation causes fears, due mainly to accidents that could appear. Chernobyl remains in everybody’s mind and certain of ageing power plants are still using the same technology.

Threat of proliferation
Nuclear opponents remind that the resort of this energy offers necessary technology for the design of atomic bombs, due to the allowance to produce highly enriched uranium.

Status report in Europe
EU countries having quit the nuclear power scenario, revisit former decisions
For the reasons above, several countries engaged a progressive phase-out. But debates have been restarted by current energy constraints…

• The United Kingdom had decided to decrease its share of nuclear power. These close downs were to be compensated for a substantial part by renewable energy sources, more particularly windmill-generated energy. But construction works are delayed, implying a massive recourse to gas, bringing back the fossil fuel disadvantages (CO2 emitter, import dependence)
• Countries like e.g. Germany, Italy and Belgium, took prior nuclear phase out decisions, but today are confronted with rising demand, decreasing capacity reserves and increasing import constraints, through highly congested networks. These phenomena, combined with severe greenhouse gas emission limits to avoid global warming, reorients the debate from fossil to nuclear power as energy source. According to the Belgian law, all nuclear plants have to be shut down between 2015 and 2025. It is uncertain because there is no clear plan to execute this and on the same time to reach the Kyoto commitments

Pioneers of new generation EPR technology
Other countries, like France and Finland, definitively chose to follow the nuclear scenario and are clearly committed to build new power plants with the last EPR technologies. Many are considering the 4th generation technology to make the leap forward.

Economic opportunities for new technology holders
Within the EU, several countries considering a return to nuclear power currently fall short of qualified human and industrial resources to assure the construction and operation of new nuclear power stations. Many countries will need to buy and rely on foreign technology, which continues to progress through multi-investor frontrunner projects. Emerging markets experiencing exponential increase in energy demand will inevitably show interest in the latest nuclear technology, and knock at the door of European nuclear technology owners, presenting an excellent export opportunity.

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