Sunday, December 9, 2012

7th Energy Forum in Sopot (Poland): The influence of EU energy policy on economic competitiveness

Development of the energy sector in Europe should be multilateral in order to maintain economic competitiveness and reduce dependence on imports. The above conclusion was reached by participants in the debates of two-day Energy Forum in Sopot. Professor Jerzy Buzek, former President of the European Parliament, took the lead of the conference by saying that it was worth to become aware that the EU climate policy superseded its energy policy and think how it happened. Appeals for equal treatment of the energy objectives of the European Union could have been heard nearly during each discussion panel. 

How to finance energy projects?

Guests of the Forum in Sopot warned that government pressures and also consequences of the EU climate package could have a negative impact on the financial condition of the industry. Energy infrastructure of the European Union requires investment in the amount of at least 1.1 billion euros (500 billion euros for new power plants and 600 billion euros for transmission infrastructure) and only a strong industry would be able to answer such challenge – convinced representatives of energy concerns.

Poland, in view of the condition of its production and distribution infrastructure, according to estimation of consulting company Deloitte, will require investment worth more than 170 billion zlotys in the perspective of the nearest 10 years. It has already been known for more than a decade that Poland would have to take up the challenge of producing more power. – The economic crisis poses a problem though by leading to a reduced availability of financing – said Wojciech Hann, an analyst of Deloitte.  “Polish Investment”, a newly established company, is expected to provide support for Polish energy sector. According to estimations, the investment potential of the new company, operated by Bank Gospodarstwa Krajowego, will reach 40 billion zlotys until 2015. -  This amount will not translate into the level of deficit and public debt because the above mentioned fund will be built, inter alia, from capital frozen in state treasury companies – announced during so called second expose Prime Minister Donald Tusk. Explaining the purpose of establishing the company, President of BGK, Dariusz Daniluk, emphasized the necessity of state intervention in case of free market failure, especially in the field of building infrastructure and realization of large projects with a longer time of return on investment.

Dariusz Lubera, President of TAURON Polska Energia, claimed that instability of legal environment was a major obstacle in financing energy projects.  – The European Commission adopted in 2008 the climate package, which outlines objectives until 2020. We haven’t yet begun 2013, as the first year when CO2 fees are due, and the Commission has already prepared a „Road Map” until 2050, which imposes the target already now. It is extremely staggering process from the investor’s point of view – emphasized president Lubera. Referring to the situation in nuclear energy, Kamil Blazek, President of the Supervisory Board of Czech Association of Foreign Investors, stressed that the atmosphere created around nuclear energy after the Fukushima breakdown, coupled with the euro crisis, is not favourable for investment. – It is quite difficult now to find sources of financing, that is why we try to find other methods, for example in the structures "build and hand over" in cooperation with Turkey –explained Blazek.

Energy security – shale gas, LNG terminals, cross-border infrastructure

The most important thing in the European energy sector is to ensure security, which is connected with diversification policy. According to the participants in the debate "Natural, liquid, shale – which gas for Europe?", the EU has a number of ways to ensure security. A great chance would be to increase liquid gas imports from the United States – a fundamental importance will have a report about the influence of gas exports on the US economy, which is scheduled to be submitted to Congress in the beginning of 2013.    Another possibility is to build Nabucco gas pipeline, whose construction is expected to be much less expensive thanks to an agreement signed between Turkey and Azerbaijan. Another chance is presented by development of infrastructure – cross-border connections and LNG terminals as well as gas mining from shale deposits.

Energy security in Central Europe is expected to improve effectively the system of cross-border connections and the North-South gas corridor. The most important investment in this context is construction of gas terminals in Swinoujscie and Croatian island Krk, which in the future would form a basis for a gas connection going through Poland, Hungary, Slovakia, Czech Republic, Hungary and Croatia. -  The project is analyzed currently – the interconnector Hungary-Croatia was already opened in 2011, and Gaz-System signed a contract with Croatian transmission operator Plinacro in September 2012, which gives optimistic forecast for the future – reported a representative of the Polish operator. Gas mining from shale deposits, which increased internal mining potential, is likely to improve significantly energy security. Additional environmental regulations formed on the European level are problematic because they rule out hydraulic fracturing close to drinking water intakes or on mine premises. According to MEP, Bogusław Sonik, a real wave of reluctance towards shale gas has swept through the European Parliament. In the beginning of the year – said Bogusław Sonik – we should become familiar with the  position of the European Commission as regards shale gas,  prepared by commissioners for energy, environment and industry, which gives a chance of complex approach to the issue.  – We stand a chance of making shale gas an auxiliary fuel for Europe – convinced Sonik.

Interesting point of view was presented in Sopot by Francisco Ruiz Gonzalez, a Director of Research Department of Spanish Institute for Strategic Studies. – Spain does not have any deposits and has to import all energy resources. The above situation was defined as a threat to national security. That is why diversification of supply is so crucial for Spain. According to the expert, the energy strategy of his country assumes that only 15 percent of oil imports could be supplied from one country. Meanwhile, as regards gas, 70 percent of this raw material is imported in liquid form (6 gas terminals have been built in recent years), and 30 percent by gas pipeline from Algeria.

Climate policy and economic competitiveness

The climate policy of the European Union has deteriorated competitiveness of European economy as compared with the United States and Asia – such thesis was heard both during debates and unofficial talks. – The EU already in 2008 said goodbye to balance between energy security, availability of energy and climate policy for the benefit of the latter – said the Member of European Parliament, Konrad Szymański. In his view, energy intensive industries adapted to EU regulations, but at the cost of halted investment and suspended innovative projects. According to Dirk Buschle, a legal counsel  in Austrian Energy Community, renewable sources are favoured through preferential tariffs, among other things. The EU policy in the area of energy was criticized by Keith Smith, an expert from the US Centre for Strategic and International Studies. In his view, by resigning from shale gas exploration and nuclear energy, the member states of the Community make themselves dependent on expensive energy from Russia or renewable  sources. – This way leads to extermination of the European chemical industry – convinced the US expert.

According to Professor Andrzej Strupczewski from the National Nuclear Research Centre, Poland will have to pay 76 billion zlotys for renewable sources of energy until 2020, and the subsequent years the surcharge will be ca. 10-11 billion a year. In comparison, the entire debt of the ministry of health is ca. PLN 10 billion.  Comparing energy prices, Strupczewski stated that in France the cost of one MWh generated by nuclear power plant is 42 euro, and the price of the same unit from a wind farm in Germany is 190 euros. 

The foundations of the European climate policy were undermined resolutely by a Member of Parliament, Ludwik Dorn, who paid attention to the costs and related social issues.  – Introduction of the Climate Package in the perspective of ten years will cost Polish economy approximately 10 billion euros and loss of 250 thousand work places. Moreover, the scientific grounds of the climate package are doubtful – emphasized Dorn.

The magic of offshore investment

The speech of Minister Slawomir Nowak about offshore wind energy was most frequently commented in Sopot.   – The Ministry of Transport, Construction and Maritime Economy prepared a special plan concerning preparation of offshore areas for investment. After necessary national consultations, we have shown possible locations  for offshore wind farms to investors. Recently Poland has prepared administrative grounds for future locations of wind farms– emphasized minister Sławomir Nowak.

Minister Nowak added that in order to facilitate investment process in offshore wind energy, the amended law of 2011 allows to divide into four parts the fee for issuing permission to build artificial islands for wind farms. He estimated that the cost of permission represented only one per mil of the value of investment. The fee that has to be paid in order to begin the process of preparation for investment, is only 10 percent of above mentioned per mil.

Minister Nowak attached great attention to social consultations at construction of wind farms. – The citizens of Pomerania express their concerns as regards the influence of offshore wind farms on tourism and fishery – he argued. Sławomir Nowak mentioned also the plans of creating "the energy hub" in Pomerania, whose components would be nuclear energy, gas from shale formations and offshore wind energy. – Pomerania is likely to become an important region producing and exporting energy – convinced the chief of the ministry of construction and maritime economy.

The Forum in Sopot has been prepared by Institute for Eastern Studies in Warsaw, the organizer of the Economic Forum in Krynica-Zdroj. The main partner of the conference was Energa Group. One among the media partners of the conference was Slovakian-based as well as

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