Tuesday, November 25, 2008

Revenge in the electricity market

I like this story, Ukrenergy wants to get access to the EU through Hungary, but a few weeks ago, they limited how much the Hungarian company System Consulting, could import from the Ukraine on the cross-border capacities to 5 mw, down from 345 mw. Ukrenergy wants to import 450 mw into Hungary from the Ukraine, but MAVIR is only allowing 105 mw. I really like the '105 mw' that magic '5' on the number should really send a message.

Ukrenergy Trade Wants More EU Presence
Publication: Hungary Around the Clock
Provider: Access-Hungary Kft.

November 24, 2008 (09:00)
Ukrainian state-owned energy trading company Ukrenergy Trade (the former Energy trade capital), in which Vasyl Bechvarzh now only has a minority stake, held a presentation at the Corinthia Grand Hotel Royal in Budapest at the weekend. As Ukrenergy trade wanted to import 450MW electricity to Hungary this year but Mavir allowed only 105MW, Ukrenergy trade has now turned to the EU court, Bechvarzh said.

You know usually I believe in free trade, but if one company - and country wants to play dirty, then I really don't have a problem in this case if Mavir limits their capacity. Particularly if it ends in '5' mw. Besides it remains to be seen if the EU courts can do anything over this as the border with the Ukraine is not an EU border therefore Hungary and MAVIR have control over it.

Monday, November 24, 2008

Importing electricity free of CO2 standards

"Cheap electricity, want some cheap and dirty electricity." That's the possibility.

Over the past few days the same topic came up with a few people, importing electricity from outside the EU without a 'carbon tax.' The possibility exists that once Europe gets going on the European Emissions Trading System (ETS), that electricity produced further east could serve not only as a place to locate manufacturing (mentioned further below), but as a location to import cheap electricity from.

Importing electricity from Russia, the Ukraine, Belarus and from whoever else can manage to connect their power plants to the UCTE network, will offer the ability to undercut electricity producers in the EU. And more importantly, it will also undercut the very goal of reducing CO2 and other emissions to prevent the globe from really heating up (as compared to only slightly). Of course importing electricity into the union is dependent on the size of the interconnectors besides the use of existing ones, will we be seeing a huge building of newer interconnectors with the peripherial countries of the EU? Possibly, and here is why.

Poland is 96% dependent on coal and has not acted quickly enough to diversify. Now manufacturers and producers are freaking out about the looming implimentation of CO2 emmission quotas. There is a fear that manufacterers could easily pick up and move next door to the Eastern countries. However, wouldn't it be easier to build interconnectors to an external EU neighbor, which every country has the right to do, then ship this electricity into the country for manufacterers? While I would expect there are no big plans currently for this, particularly with Russia (excluding a merchant line from Russia to Sweden), the situation may arise if the price differential is great enough. Market forces of supply and demand may take over and make such projects feasible, even over current diplomatic relations.

Russia already has plans to not only build a nuclear power station in Kalingrad but to boosts its electricity producing capacity domestically to ship to the EU (as it already does to China). So the question that arises is 1) will the EU impliment a carbon tax on imports quickly, 2) accept imports for the short-term but not the long-term, 3) or do nothing in order not to sneak in some cheap electricity to help out those emerging economies that need a little support?

The last option is lame, and undermines the basis of EU actions, the second option may be the muddled policy response the EU puts together, however, just as there's been a history of EU opinion on the phasing out of long-term power purchase agreements, there also need to be excplicit statements that any infrastructure that is built is at risk for having a carbon tax imposed on imports. Thereby making it clear that power plants and transmission lines built must also be commericaly viable under a CO2 quota system. The first response could still happen quickly enough, but I think ambiguity will reign for a while.

Which ever way carbon taxing goes, it is clear that specific regional associations need to be linked by larger groupings which play by similar rules. But that is a topic for another day.

Friday, November 21, 2008

Strategic Reviews - We are not doing enough today

In my relative procrastination to get going and writing my blog this morning, I was flipping through the articles at CNN. When I came upon a review of a report, Trends 2025: A Transformed World. Basically, it lays out the scenario we are in for a rough ride. These are the usual things, that have been pointed out in the past, a rising multipolar world, booming population, pollution, and the effects of climate change. But it also addresses energy. While emphasizing the continued reliance on oil from unstable countries, it also calls for a shift in energy technology and infrastructure. And here is one of the conclusion:

However, all current technologies are inadequate for replacing the traditional energy architecture on the scale needed, and new energy technologies probably will not be commercially viable and widespread by 2025. The pace of technological innovation will be key. Even with a favorable policy and funding environment for biofuels, clean coal, or hydrogen, the transition to new fuels will be slow. Major technologies historically have had an “adoption lag.” In the energy sector, a recent study found that it takes an average of 25 years for a new production technology to become widely adopted.

Think about that, "all current technologies are inadequate for replacing the traditional energy architecture." I think we have many quils to create a viable change in this time period, as pointed out by the EU Energy Strategic Review, but there is now doubt that despite building wind power on a massive scale fundamental change to the energy infrastructure takes a long lead time.

Let's scale down this analysis and think about the EU Strategic Review and the CEE/SEE region and what needs to be done. First, we have the EU being overly optimistic about the pace of its change in its own energy infrastructure. Ok, maybe there is enough 'waste' in the current energy system to get a 20% CO2 reduction by 2020. The reduction of this much can be seen to be accomplished with limited alterations to the EU's energy infrastructure. More nuclear, more wind, more busses and trains etc... even the plans laid out in the Strategic Energy Review rely on the existing infrastructure becoming larger and smarter, while some gaps are filled in with distributed generation. Is this actually enough to get even half way to a carbon free world by 2050?

I'll have to leave it there, but I'll delve into these reports over the weekend and more closely compare what they are saying. I think we may end up with the realist American perspective with the optomistic European visionary goals.

Wednesday, November 19, 2008

EU Strategic Energy Review II

Essential to back up a new energy strategy is the development of a fuller infrastructure which extends to the periphery and beyond the borders of the EU. What this means is that the EU must adjust it's energy policy and those of the Old Member States, must revise the energy strategy that was developed before the 2004 enlargement - and they must accept the concerns and development needs of those New Member States. (link to document)

The EU energy infrastructure was based on the role out of Ten- E Projects. The inadequacy of these throughout Europe have become apparent. One of the main problems is they were developed before what are now NMS joined the union. Not only have these projects been slow to be rolled out, while they are important projects themselves, they do not serve the purpose of today's energy requirements. In particular, they lack an effective vision for integrating the energy infrastructure of Central Eastern Europe and the Balkans into the rest of the EU.

The latest proposal includes a 'Baltic interconnection plan,' which is over due, particularly considering the historical orientation of these countries infrastructure towards Russia. What I like about this statement is "enabling solidarity" by creating this interconnection plan, i.e. you mess with the Baltics, Russia, you mess with the EU.

The second point looks at the development of a Southern Gas corridor - discussed before - this brings gas from the Middle East and the Caspian Basin.

LNG for all those countries dependent on Russia. I like this. What it means is that "we won't be sharing our North Sea/Antarctic gas with you former Russian satellites by building gas pipelines to send it to you. But if you would like, you can buy bottled gas for world market price + shipping and handling." Nothing like spreading that solidarity around - unless it will cost you money. The North -South gas pipeline actually refers to the NETS project for the Southeast of Europe+Hungary.

However, the next paragraph says that they can take the time and money to develop electricity and gas infrastructure with Mediterranean countries. Well, yeah, because that benefits OMS, nothing like have a gas link from Libya to Italy. I go along with the idea of importing the solar energy from Africa to Europe. As a grand project this one is sure to succeed. The only question is once the electricity arrives in Europe and everyone gets their cut, how much is electricity really going to cost. Will it be on par with nuclear energy? Large upfront infrastructure investment but diminishing costs as time goes on (although there is no waste storage). The question is there financing for such a project? [and just a note, there is nothing like buying energy from stable democratic North African countries]

I'll quickly skip over the idea of developing more infrastructure and regulatory capacity in Central and Southern Europe. I would like to return to the point tomorrow. Thus the third edition.

Finally, off shore wind farm infrastructure is mentioned. Great, fine. Just get the money and go for it.

Overall, when it comes to reorientating the infrastructure of the European Union, and particularly those NMS away from Russia and to build the infrastructure for renewable energy and any transition towards a post-carbon world then this is a good first step. But let's wait and see how these steps can be implimented. I think the best example can be drawn from the NETS project. This is a ground up initiative that seeks to lay the foundation before the EU can get too involved to interceed on how it develops. In addition it is a blocking strategy against Russia buying up the gas assets as it has done in all the countries to the north of Hungary. Therefore, it can serve as an example of how to collectively defend against Russian intrusion, work in the direction of the common good of countries and a region, and finally, unify small gas networks into a viable and more efficiently managed network.

Monday, November 17, 2008

EU Strategic Energy Review

The EU came out last week with its latest Strategic Action Plan. On a quick read of the highlights I think this goes in the right direction. And while I still must actually read what is planned, it on the surface appears headed in the right direction, particularly since it points to a goal of a "high-efficiency, low-carbon energy system" by 2050. I think it is best if we take this end point and work backwards in the memo issued.

The key points of the memo list the following broad strategic areas:

- Infrastructure needs and the diversification of energy supplies
- External energy relations
- Oil and gas stocks and crisis response mechanisms
- Energy efficiency
- Making the best use of the EU’s indigenous energy resources.

Let me approach the list in reverse.

Making the best use of the EU’s indigenous energy resources.
I was at a conference a few weeks ago, and there was a large collection of policy makers, academics, usual-sorts-of-people, with a nice mix of Russians and people scared of Russia (including Georgians). After the first day I was convinced that a) the Nabucco was a pipe dream if the EU didn't step up to the plate and push the project like the Russian government has pushed South Stream. b) Everyone, but the Russians, were constantly whining about the Russians and how they can use gas as a weapon. Well, I thought, 'if Russian gas is such a problem then don't buy it.' As simple as that. Whatever the statistic say, I can imagine that the EU countries can come up with an energy solution that does not rely on Russian gas. There are other options.

While the Energy Plan describes a new push for Nabucco, it may be addressing my idea of put-up or shut-up. That is, boosting EU indigenous energy sources with energy efficiency these can play a large role in mitigating gas dependence. But the main thing is to move the former Soviet satellites away from their gas depedency, as they are the most dependent on their former ruler. There are other issues in this category, but I won't go into these at this time.

A new impetus on energy efficiency

This is it! I've never been more convinced about the need to put into place EE projects. This must be elevated at even a higher level than building generation and other big infrastructure projects. Why? Because these big infrastructure projects will certainly command the attention of politicians and those that are already are well placed to influence policy making and the where investment money goes. The hardest part is implimented policies and monitoring the progress on the smaller EE projects that need to be done. This is the largest challenge of the future, and how the EU tackles this and not only makes these requirements for governments to follow, but it is having the right programs that promote EE and ensuring governments tackle this in a constructive and the least wasteful way.

Improved oil and gas stocks and crisis response mechanisms

Not much to say on this topic. Fairly routine and boring, but just hope you are not a Baltic country which relies/relied on oil from Russia.

A greater focus on energy in the EU's international relations

Ah, this is it.

The EU needs to intensify its efforts in developing an effective external energy policy; speaking with one voice, identifying infrastructure of major importance to its energy security and then ensuring its construction, and acting coherently to deepen its partnerships with key energy suppliers, transit countries and consumers.

Acting together, like the EU should on external issues. I just read that Szarkozy was complaining that he was the one that had to take the lead on the Georgia conflict and also the financial crisis. Well, while I'm sure the leadership role works for him, apparently, he has become more convinced about the need for a full time EU President. I say this because it brings up the issue of coherency in the EU and not just a common energy policy, which everyone agrees with the broad and even some detail provisions. But there will need to be a common stance on Russia. This should be a possibility, since by the time that this document is adopted PM Gyurcsany will be out of power, allowing a stronger stance against Russia - at least for Hungary.

Coherency in policy and a strong driver for a specific Caspian Sea pipeline (i.e. Nabucco) can only be accomplished if the EU acts jointly and like Russia. In fact, the EU will have to work harder than Russia to get Russia's friends - the 'Stan countries' to commit to supply Europe with Gas. Of course they would prefer the higher prices paid by the Europeans than Russia but culturally and historically and geographically it is easier to do business with the Russians. So the EU must overcome this surmountable obsticals and put some money up and drive the companies forward through and dipolomatic channels.

I'll save the final point: Promoting infrastructure essential to the EU's energy needs
For the next blog post, as this is a great area to really talk indepth about.

Overall, the new impetus must be coming from both the ground up and from the top-out. That is the Member States must be conviced of the role that energy efficiency can play in their energy mix and boosting security of supply and the EU leadership itself must work coherently internatinoally to bring the energy resources to the whole union. Greater weight needs to be lent to Eastern European issues which still must restructure the historical infrastructural network with Russia.