UK: IBERDROLA Chairman Calls for Single European Energy Regulator

IBERDROLA chairman Ignacio Galan called for the creation of a single regulator for the European energy sector as part of speeding up moves towards a common energy policy and a European energy market.

Speaking at the opening of the FT Global Energy Leaders Summit 2012 in London, Galan said that to achieve a common market for energy, decisions will need to be taken to increase interconnection between countries as well as harmonize tax regimes, eliminate subsidies and phase out official energy tariffs. The conference entitled Doom or Boom? Energy Security in Uncertain Times is the industry’s preeminent event in Europe.

He recalled that the European Union’s goal is for no member state to be an “energy island” after 2015 and that tariff liberalisation should involve total transparency, reflecting all costs, so that customers can rationalise consumption.

Also, he stated that taxation and tariffs should be homogenous throughout the Union since, in some countries, they are forcing a change in the energy mix and creating barriers that prevent companies from competing in the European context.

The chairman of IBERDROLA said this common energy policy should send the right signals to companies to enable them to take appropriate investment decisions, both in volume and technology. These should aim at achieving an energy mix that guarantees supply with low emissions, and utilising technologies mature enough to ensure reasonable cost.

He stressed the importance of stable regulatory frameworks for the electricity sector, which has a key role to play in regenerating growth and already accounts for 5% of European GDP, handles annual investments of €50 billion whilst providing direct jobs for 750,000 – and several million if indirect jobs are taken into account – according to Eurostat.

However, the reality is that current uncertainty in the Eurozone, resulting from a lack of clear energy policy and slow transposition of European directives, added to the uncertainty of member states’ regulatory frameworks, is raising financial costs, thus impacting the financial capabilities of a capital intensive electricity industry and moving investors into the U.S., UK and into some emerging countries with more stable regulations.

Galan noted that an investor that put 1 euro into a Eurozone utility at the end of 2007 would have today lost 58% of his investment, while he would have only lost 7% of it had he invested that euro in UK or US utilities.

Low economic rationale

The IBERDROLA chairman mentioned the case of Spain as an example of decisions in some European countries which have supported immature renewable technologies – photovoltaic and solar thermal – with subsidies that display scarce economic rationale.

These policies are strangling traditional companies by cutting their market share and revenues, and even forcing them to finance these new competitors. As a result, plants that produce energy more cheaply and have no CO2 emissions are forced to close due to political or fiscal reasons.

During his speech, Galan highlighted the way energy policy is conducted in the United Kingdom, where the company operates as ScottishPower since 2007. Energy networks and retail activities both enjoy stable and predictable regulatory frameworks – up to 2015 and 2021, respectively – which guarantee investment return. Also, a new framework for renewable energy has been approved for the 2013 – 2017 period.

He called for the energy market reform to be finalised as soon as possible, establishing reasonable investment conditions for energy generation plants currently being developed, particularly nuclear and combined gas cycles. In this respect, he reminded those in attendance that a fourth of Great Britain’s energy generation capacity will have to be replaced by 2020.

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Press release, September 19, 2012; Image: Iberdrola