Deregulation of the European Union Energy Market. Present and future.

Transcription

1 Deregulation of the European Union Energy Market. Present and future.

2 Index 1.- Energy Situation in the EU. 2.- Energy deregulation in the EU. 3.- Deregulation in Spain. 4.- Natural Gas, a wager for the future.

3 1.- Energy Situation in the EU EU production In millions of tons equivalent to petroleum

4 1.- Energy Situation in the EU EU demand In millions of tons equivalent to petroleum

5 1.- Energy Situation in the EU EU imports

6 1.- Energy Situation in the EU EU imports

7 1.- Energy Situation in the EU Petroleum In millions of tons equivalent to petroleum

8 1.- Energy Situation in the EU Natural Gas In millions of tons equivalent to petroleum

9 1.- Energy Situation in the EU Networks Great Britain Scandinavia Ireland Iberian Peninsula Germany, France, Benelux, Austria and Switzerland Italy Greece One nucleus and six satellites

10 1.- Energy Situation in the EU Networks Import capacity and congestion

11 1.- Energy Situation in the EU Environment CO2 emissions in the EU

12 1.- Energy Situation in the EU Environment CO2 emissions in the EU Country Commitment 2010 Emissions 2000 Country Commitment 2010 Emissions 2000 Germany -21,0% -19,1% Ireland +13,0% +24,0% Austria -13,0% +2.7% Italy -6,5% +3,9% Belgium -7,5% +6,3% Luxembourg -28,0% -45,1% Denmark -21,0% -1,7% Netherlands -6,0% +2,6% Spain +15,0% +33,7% Portugal +27,0% +30,1% Finland 0,0% -4,1% UK -12,5% -12,6% France 0,0% -1,7% Sweden +4,0% -1,9% Greece +25,0% +21,2% E.U. -8,0% -3,5%

13 1.- Energy Situation in the EU Why energy regulation in the EU? There are notable differences in the energy market with respect to other goods and services: Very capital intensive Strong entry barriers Natural monopoly. Duplication is inefficient The product, storage difficulties Power of the market may distort competition No competitive energy market has been organised spontaneously Process promoted by governments within other wider policies of deregulation or privatisation

14 1.- Energy Situation in the EU Why energy regulation in the EU? Energy costs represent an important part of European production costs In a competitive, world-wide market, it is fundamental to guarantee the efficiency of the energy supply and of energy prices based on competition High petrol costs, as well as the traditional link between gas and petrol prices, make it necessary to establish competition within the gas sector, which constitutes one of the essential elements for the creation of an internal energy market New challenges: climate change

15 1.- Energy Situation in the EU Challenges From 1 January de Ten new countries with different market structures Energy deregulation: Directives 96/92/CE and 98/30 Progressive deregulation in line with UE objectives Open topics: Compliance with Kyoto commitments New infrastructures Nuclear installations

16 2.- Energy Deregulation in the EU Objectives Guarantee: Energy supply Quality of the same Lowest possible cost Means Via: Deregulation Privatisation SE vs. SP Results Improves the competitiveness of the economy, lowering energy prices

17 2.- Energy Deregulation in the EU European Parliament Directive 96/92/CE European Parliament Directive 98/30/CE Proposed Directive on CO 2 Emissions

18 2.- Energy Deregulation in the EU Natural Gas Directive 91/296/CEE. Transmission of Natural Gas through Large Networks Directive 98/30/CE Common Norms for internal gas market Proposed Directive COM (2001) 125 final Modification Directive 98/30/CE Proposed Directive COM (2002) 488 final Security protection of supplies

19 2.- Energy Deregulation in the EU Natural Gas. Directive 91/296/CEE (*) Objective: (i) Facilitate the transmission (**) of natural gas between the large high pressure transmission networks; (ii) increase exchanges of natural gas between large networks; and (iii) guarantee security and quality of the supply. Transmission contracts shall be negotiated by network heads with the participation, if required, of the responsible state bodies. Transmission conditions shall conform to the principles of free movement, without endangering the security of the supply or prejudicing the quality of the service. Member states shall guarantee that the bodies responsible for the networks advise the Commission and the pertinent national authorities of transmission requests and of the signature of transmission contracts and, if applicable, the reasons for which, after a time period of 12 months has elapsed after communication of the request, that the negotiations have not resulted in contracts being executed. The transmission conditions may be submitted to a conciliation body presided by the Commission. (*) Its repeal is recommended in Proposed Directive COM (2001) 125 final. (**) The network of origin or destination must be situated within EU territory and transmission shall involve at least one border within the EU being crossed.

20 2.- Energy Deregulation in the EU Natural Gas. Directive 98/30/CE Objective: Guarantee the free movement of gas and increase supply security and industrial competitiveness. The granting of permits shall be based on objective and not discriminatory criteria. Guarantee the inter-operability of the networks. Develop activities under acceptable, non-discriminatory, economic conditions through secure, trustworthy and efficient installations, taking into account environmental considerations. Distributor: the State may request a commitment to universal service from the distributor. Accounting transparency: State has access rights to all information. Legal and/or judicial separation of activities. Regulated or negotiated access to the network. Denial of access based on appraised cases. Reasons.

21 2.- Energy Deregulation in the EU Natural Gas. PD COM 2001 ( ) Objective: (i) quantitative: progressively offer all consumers the possibility of choosing supplier; (ii) qualitative: improve the market. Opening of markets: non-residential and total Reinforce the need for legal and functional separation of activities, and the figure of the TSO. Reinforce ATR, transparent and non-discriminatory, and creation of a Regulatory Body. Public service objective: guarantee trustworthy universal service and security of supplies, reinforcing the obligation of disclosure by the Member States to the Commission regarding measures adopted (*) (*) This proposal reinforces current provisions that require Member States to disclose their public service objectives only when such objectives constitute an exception to such Directives.

22 2.- Energy Deregulation in the EU Natural Gas. PD COM (2002) 488 final(*) Objective: Fully establish the natural gas market within the EU and guarantee the security of supplies in a competitive environment (current imports 40%, projected 70% en 2020). It is proposed that Member States adopt adequate measures to: guarantee adequate gas supply levels; diversify supply and encourage diversification; anticipate the most grave risk of breakdown or interruption of the network affecting the sole, most important source of supply; and develop the internal market and possibilities of cross-border co-operation. The Commission will monitor new contracts for gas imports from non-eu countries and may oblige the Member States to guarantee that a minimum part of the new supplies are on the basis of long-term contracts, for five years following introduction of the Directive.

23 2.- Energy Deregulation in the EU Natural Gas. PD COM (2002) 488 final(*) In an extraordinary gas supply situation, the Commission may make recommendations (freeing gas reserves, use of gas pipelines, etc.). Before , the Commission will create a European observation system for the supply of hydrocarbons, with the following functions: to monitor the functioning of the internal and international gas markets; to establish a control system for internal and external infrastructures; to monitor the gas supply and the procedures for guaranteeing its security in emergency situations; to control the level of strategic security gas reserves and the procedures for their use; to develop more dependable price indexes that better reflect the realities of the market; and to set up objective and reliable databases.

24 2.- Energy Deregulation in the EU Natural Gas; Balance. Any difference in the extent to which the market is open reduces the scope of the benefits of competition for clients. Inadequate tariff structures and large, inexplicable differences in network access tariffs. Lack of transparency with regard to the availability of capacity in the infrastructure, both internal and cross-border, as well as capacity reserve procedures. Concentration of the production and importation of gas in the hands of a few companies and slow development of gas business centres, causing difficulties for new companies that wish to purchase gas. Unnecessarily strict regulatory regimes that are not market-based and that do not reflect costs, making prices for small companies and domestic customers too high.

25 2.- Energy Deregulation in the EU Gas Natural; Balance. GAS DIRECTIVE PUT IN PRACTICE Extent Market Open Date Opened OST Separation OSD Separation Regulator Transmission Tariffs Structure Network Tariffs Reserve Capacity Balance Conditions Wholesaler Market Concentration AT Legal Legal Ex ante Reviewing -- Moderate Favourable Yes BE /6 Legal Legal Ex ante Distance Normal Flexible Moderate Unknown DK Legal Legal Ex post Postal High Inflexible Unfav. Yes FR Accounting Accounting -- Distance High Inflexible Moderate Yes DE Accounting Accounting ATR neg. Distance High Inflexible Unfav. Moderate IR Accounting Mgt. Ex ante Entry/exit Normal Flexible Moderate Unknown IT Legal Legal Ex ante Entry/exit Normal Flexible Favourable Yes LX Accounting Accounting Ex ante Postal Normal Flexible Unfav. Yes NL Mgt. Accounting Hybrid Distance Normal Flexible Moderate Yes ES Legal Legal Ex ante Postal Normal Flexible Favourable Moderate SE Accounting Accounting Ex post Postal High Flexible -- Yes UK Ownership Ownership Ex ante Entry/exit Normal Flexible Favourable Moderate

26 2.- Energy Deregulation in the EU Natural Gas; Balance. Projected supplier changes Source: Eurostat

27 2.- Energy Deregulation in the EU Natural Gas; Balance. Production and importation market structure

28 2.- Energy Deregulation in the EU Natural Gas; Balance. Measures adopted to ensure supplies

29 3.- Deregulation in Spain Law 34/98 on Hydrocarbons Industry A deregulating law that gives greater freedom of action. Establishes a regulated system: To guarantee supplies To protect the consumer To protect the environment Commercialisation becomes subject to the system, but as a non-regulated activity: To promote deregulation To increase competition Establishes the figure of the regulator.

30 3.- Deregulation in Spain Royal Decree 6/2000 Accelerates deregulation process (There was no regasification capacity) Distribution of gas from Algeria Royal Decree 949/2001 Access to ATR networks for third parties New tariff system Order ECO/301/2002-ECO/1026/2002 Order ECO/302/2002-ECO/1027/2002 Order ECO/303/2002-ECO/1028/2002 Royal Decree 1434/2002 Develop regulatory framework Rules & Regulations of Hydrocarbons Law

31 3.- Deregulation in Spain % Mm 3 20 Mm 3 5 Mm 3 25 Mm 3 10 Mm 3 Oct Apr-99 Jun-00 Hydrocarbons Law Mm 3 1 Mm 3 5 Mm 3 15 Mm 3 Royal Decree April Mm 3 5 Mm 3 3 Mm 3 Royal Decree June 2000 European Directive

32 3.- Deregulation in Spain Elements of Gas System Basic network Primary transmission pipelines Regasification plants Strategic storage and connections International connections Secondary transmission networks Distribution networks

33 3.- Deregulation in Spain - Gas entry: * Pipeline: MAGREB, LARRAU * Regasification plant: BILBAO,CARTAGENA, HUELVA - Transmission network - Storage capacity GAVIOTA, SERRABLO - Distribution network - Gas exit to system INDUSTRIAL, DOMESTIC COMMERCIAL

34 Spanish Gas System Structure

35 3.- Deregulation in Spain AGENTS ACTIVITIES COMMENTS TECHNICAL MANAGER OF SYSTEM TRANSMISSION OPERATORS DISTRIBUTORS Management and functioning of system Continuity, quality and supply security Transmission co-ordination Regasification, transmission and storage Gas purchase for sale to distributors Permit access third parties Distribution and supply Sale to consumers under tariff regime Permit access to third parties ENAGAS, Technical Manager of System Max. part. shareholding 35 % Technical Norms of System Management Regulated activity Authorisation Exclusive Object and accounting separation Regulated activity Authorisation Exclusive Object and accounting separation

36 3.- Deregulation in Spain AGENTS ACTIVITIES COMMENTS COMMERCIALS QUALIFIED CONSUMERS Purchase gas for sale: Qualified consumers Other commercials Access to third party installations (ATR) Purchase gas directly from commercials Access to third party installations (ATR) Free activity Requires authorisation From 1 January 2003 all clients are qualified May return to regulated market (3-year period) CONSUMERS ON TARIFF Purchase gas from distributor at regulated tariff Any consumer can remain on a tariff

37 3.- Deregulation in Spain Gas flow TECHNICAL MANAGER OF SYSTEM Management of Basic/Secondary network. Continuity/Security/Co-Ordination COMMERCIAL QUALIFIED Sales to eligible clients, commercialisation contracts CLIENTS S U P P L I E S Contracts with Producers. Gas storage Management of Reserves. T R O A P N E S R M A I T S O S R I O N Maintain reserves and diversify supply Has right to ATR on transmission and distribution Regasification, transmission and storage Is obliged to ATR. Maintain stocks and diversify supply Supplies distributors at regulated price D I S T R I B U T O R Contracts with end-users Has distribution installations Is obliged to supply Is obliged to ATR Free contracts REGULATED MARKET Regulated contracts NATIONAL ENERGY COMMISSION Regulatory Body

38 3.- Deregulation in Spain Ensure recovery of investments, permitting a reasonable return on assets. Distribution among consumers, taking into account the characteristics of their supply (pressure, consumption, load). Payment of operating costs by encouraging more efficient management and improved productivity. Encourage efficient consumption by consumers. No distortion between the consumer tariff system and the rest.

39 3.- Deregulation in Spain PRODUCERS GTS Payments Taxes COMMERCIAL Tolls Tolls TRANSMISSION OPERATOR CNE Assigned price Payments Taxes Tolls Indexed to Tariff D I S T R I B U T O R Tariff QUALIFIED CLIENTS Free Contracts REGULATED MARKET Regulated contracts

40 3.- Deregulation in Spain Activity costs for supply to distributors 4,77% Costs CNE 0,06% Costs GTS 0,28% CMP 48,15% ATR (Storage, transmission and distribution 44,80% ATR(Storage, transmission and distribution) Activity costs of supplies to distributors Costs CNE Costs GTS CMP Sale and purchase management costs Average cost of regasification * Assigned price 50,09% Tariff 2003 Sale and purchase mgt. costs 0,94% Average cost of regasification * 1,01%

41 Natural Gas, a wager for the future Triple A of Energy Sources: "Accessibility - Availability - Acceptability" In Europe, Acceptability is the most important aspect of all as far as energy sources are concerned, Natural Gas being the ideal source from an environmental (emissions) and energy efficient (combined cycles) perspective.

42 Natural Gas, a wager for the future Analysis of the demand in Europe The favourable growth perspectives for the Spanish market are also sustained by the fact that the consumption of natural gas as a primary source of energy in Spain is still well below that of many other countries. Spain is currently below the European average for the consumption of natural gas as a primary energy source. Natural Gas as a % of Primary Energy - Year 2000 United Kingdom 0,381 Italy Canada 0,302 0,346 United States World Average E.U. Average OECD Average Germany Australia France Japan Spain 0,121 0,138 0,134 0,18 0,258 0,247 0,237 0,23 0,216 Source: SEDIGAS

43 Natural Gas, a wager for the future Spanish market. Growth rate In 2001, sales grew by 8.3%, one of the most spectacular growth rates in Europe. Spain occupied the fourth place among countries belonging to Eurogas. Inter-Annual Growth (%) 20% 15% 10% 5% 0% -5% Comparison of Inter-Annual Growth Rate With European Average Rate of growth in Spain: much higher than rest of Europe Spain (Nº Clients) Spain (bcm) W. Europe (bcm) Spanish Market: Higher increase in clients with consumption below the average Source: SEDIGAS. Company Analysis

44 Natural Gas, a wager for the future Spanish market. Distribution by sector Conventional Demand includes all demand for natural gas, except gas required by Combined Cycles, which only began to operate in July Industrial Sector comprises Industrial Segment and that of Non-Energy Products (Fertilisers). Industrial Segment is the main player in the generation of conventional demand for natural gas in Spain: it generated 72% of the same in Sectarian Consumer Structure for Conventional Demand Year 2001 Industrial 72,2% Total 18,2 bcm Fertilisers 2,9% Conventional Thermal Power Stations 6% Source: SEDIGAS Residential/ Commercial 19%

45 Natural Gas, a wager for the future Spanish market DEMAND FOR NATURAL GAS FORECAST Residential/Commercial (Bcm) 3,6 4,6 6,2 Industrial Demand (Bcm) 16,5 18,3 22,1 CCGT Demand (Bcm) 1,4 7,5 13,3 TOTAL DEMAND (Bcm) 21,5 30,4 41,6 Source: MINECO: Electricity & Gas Planning Report October Natural Gas (%) 42,4% 39,1% 34,9% Liquified Natrural Gas (%) 57,6% 60,9% 65,1% TOTAL (%) 100,0% 100,0% 100,0%

46 Natural Gas, a wager for the future Spanish market bcm CCGT 10 Industrial (*) Resid/Comer 5 0 0,0 15,1 1,4 TOTAL SPANISH GAS DEMAND 18,4 21,5 25,4 28,3 30,4 41,6 4,6 6,5 16,5 16,8 17,5 7,5 18,3 3,3 3,6 4,0 4,3 4,6 22, , 3 6,2 Source: MINECO: Electricity & Gas Planning Report October 2002

47 Natural Gas, a wager for the future The combined cycle High thermal performance Low cost per installed KW (low capital investment) Flexibility regarding fuels: gas and/or gas-oil Low Operation and Maintenance costs (O&M) Operational flexibility: base charge, partial charges, daily start ups Highly reliable High availability Short construction timeframes

48 Natural Gas, a wager for the future The combined cycle LA CORUÑA PONTEV. ENDESA HIDROCANTABRICO IBERDROLA UNION FENOSA AES ENRON EDISON CONOCO REPSOL / BP AMOCO ENTERGY GUADALCACIN ENERGIA INTERGEN ODGEN ENERGY WEST ESB 2 2 ASTURIAS 1 1 LUGO LEON 2 ORENSE ZAMORA SALAMANCA CACERES BADAJOZ HUELVA SEVILLA 2 GUIPUZCOA VIZCAYA CANTABRIA ALAVA BURGOS NAVARRA 1 BURGOS LA RIOJA 1 HUESCA LÉRIDA GERONA PALENCIA BARCELONA VALLADOLID SORIA ZARAGOZA TARRAGONA SEGOVIA GUADALAJARA 1 AVILA TERUEL 2 11 MADRID 3 2 ADMINISTRATIVE STATUS OF THE POWER PLANTS (as at 15 September 2000) TOLEDO CUENCA CASTELLON 3 With Prior Administrative Authorisation 1 1 VALENCIA VALENCIA 3 At Environmental Impact Declaration Stage 2 3 Public Information Disclosed CIUDAD REAL ALBACETE 3 3 At Public Information Stage 3 Environmental Impact Declaration being made ALICANTE 3 Procedure Suspended CORDOBA JAÉN 1 MURCIA 3 Under Study Number of Groups of approx MW each 3 GRANADA ALMERIA BASF (IBD+RWE) MALAGA GAS NATURAL NGS (UF+CEPSA) CADIZ Source: SEDIGAS. Company Analysis.

49 Natural Gas, a wager for the future The combined cycle Volume (bcm) It is projected that the Combined Cycles will cause a strong and rapid increase in demand when they enter into operation over the next few years, helping to increase total demand from 1.8 bcm in 2002 to 13.5 bcm in Strong Growth - Combined Boom Cycles Evolution of Total Demand for Natural Gas Residential Sector Commercial Sector Total Industrial Sector Combined Cycles Source: Ministry of Economy

50 Natural Gas, a wager for the future The combined cycle Yields from technology applicable in Spain

51 Natural Gas, a wager for the future The combined cycle Combined Cycle Yields

52 Natural Gas, a wager for the future The combined cycle CEuro/ kwh Cost of Generation CCGT Optimum vs. Coal Power Station in Supercritical Cycle Optimum. Of the order of 400 MW 4,2 3,9 3,6 3,3 3,0 2,7 2,4 2,1 1,8 1,5 1,2 0,9 0,6 0,3 0,0 2,80 2,26 1,00 3,93 1,130 3,95 3,41 0,540 1,263 0,082 0,647 0,17 1,89 0,082 0,122 0,186 0,240 C.Combined 2,42 0,999 C.Supercritical C. COMBUSTIBLE I. RECURRENT C. INVERSION C.FIXED OM C.VARIABLE OM Hypothesis: Coal: Includes sulphur removal and reduction of NOx (valued at 0.36 ceuro/kwh). Coal between 0.51 ceuro/te PCI and 0.78 ceuro/te PCI

53 Natural Gas, a wager for the future The combined cycle

54 Natural Gas, a wager for the future The combined cycle FORECAST OF GENERATION STRUCTURE IN SPAIN GENERATION IN SPAIN 40,0% 35,0% 35,9% 33,1% 30,0% 27,6% 28,4% % 25,0% 20,0% 15,0% 10,0% 5,0% 15,0% 19,4% 9,7% 9,9% 4,1% 16,9% 0,0% C a r b o n N u c l e a r Natural Gas O i l R e n e w a b l e s , 9 % 2 7, 6 % 9, 7 % 9, 9 % 1 6, 9 % , 0 % 1 9, 4 % 3 3, 1 % 4, 1 % 2 8, 4 % Higher possibilities of growth for generation: Renewable Energies Generation with natural gas, CCGT Source: MINECO: Electricity & Gas Planning Report October 2002

55 Natural Gas, a wager for the future The combined cycle Impact on electric market of the proposal of the Emissions Directorate Change in the order of merit The cost of emissions will constitute a real (at auction or acquired on the secondary market) or opportunity marginal cost. Modification of position relative to plants on the offer curve. Increase in electricity prices Costs associated with rights constitute part of the production cost. Electricity costs will reflect the cost increase. Adjustment of fuel prices The prices of fuels with high emission ratings will be affected by the differentials in in emission costs.

56 Natural Gas, a wager for the future The combined cycle Price Production Offer Marginal Price Demand for Energy Matched Energy kwh

57 Natural Gas, a wager for the future The combined cycle The combustion of natural gas, mainly comprising methane (CH 4 ), produces 25% less CO 2 than when products derived from petroleum are used as fuel and 40% less CO 2 than the combustion of coal, per unit of energy produced. CO 2 is blamed for more than 68% of the influence of human activity with respect to the greenhouse effect and CH 4 is blamed for 20% of such effect (according to information supplied by the UNFCC for 1990).

58 Natural Gas, a wager for the future The combined cycle

59 Natural Gas, a wager for the future The combined cycle (1) Price of gas 1,5 cc/termia (2) Price of gas 1,8 ceuro/termia Leverage 60% Debt, 40% Own Funds