Postponement of the nuclear phase out

On 13 October 2009 the Belgian federal government decided to postpone the nuclear phase out of the three eldest nuclear plants with 10 years. This would mean that in the soon to be adopted new regulatory framework all Belgian nuclear plants will close between 2022 and 2025.

As a favour in return, GDF Suez and Electrabel would have agreed to pay 170 M EUR per annum from 2010 until 2014. The other nuclear market participants (EDF Belgium, SPE and eventually E.ON) will have to pay the remaining 45 to 75 M EUR per annum (until 2014). GDF Suez will also invest in R&D on CCS and nuclear waste, in renewable energy and in energy efficiency.

At the same time, a 'Follow Up Committee' will be installed. This Committee will be composed out of representatives of the nuclear producers, the government and the social partners, and of representatives of the National Bank of Belgium. The main tasks of this Committee will be to yearly evaluate the production costs of nuclear energy and to evaluate the electricity market prices. It will also have to verify that the household prices of all suppliers will in no way be higher than the average of the prices in the neighbouring countries.

The decisions still must be transposed into formal legislation. Nevertheless, some ideas can raise concerns about the development of a liberalised energy market in Belgium and about the position of other market players (will they contemplate building new power plants? will they be able to raise their market share?). From a legal point of view, it remains to be seen whether this decision to postpone the nuclear phase out will stand the test of EU law and of Belgian constitutional law.

In any case, interesting regulatory and legal times lay ahead.

A free English translation of the relevant excerpt from the governmental declaration will be send to you at first request. Please e-mail me.

Postponement of the nuclear phase out

Energy Undertakings Cannot Hold More Than 24,99% of the Fluxys' shares

On the basis of an act, voted by Belgian parliament last week and amending the Gas Act, at the latest on 31 December 2009 all supply undertakings, electricity producers, electricity suppliers, intermediaries, and affiliated companies of the aforementioned companies cannot hold solely or jointly more than 24,99% of the shares of the natural gas transmission system operator (Fluxys).

Moreover, the bye-laws and statutes of the transmission system operator cannot grant special rights to the aforementioned undertakings.

Energy Undertakings Cannot Hold More Than 24,99% of the Fluxys' shares

New legislation in the Flemish Region

Last Thursday the Flemish Parliament adopted four new energy related Decrees.

- A decree modifying the existing Energy Performance of Buildings Decree of 22 December 2006 (EPB Decree);
- A decree modify the system of renewable energy certificates (green electricity certificates);
- A decree coordinating all the existing decrees on energy (the “Energy Decree”), comprising a new chapter on the application of the EU Emission Trading System/ETS on aviation; and
- A decree on the deep subsoil, aiming at regulating the exploration and extraction of hydrocarbons (including Coal Bed Methane, CBM) and possible new initiatives on Carbon Capture and Storage, CCS.

New legislation in the Flemish Region

Powers of the energy regulator strengthened

Last week, the Council of Ministers adopted a draft act awarding the CREG, the federal energy regulator, judicial powers for supervising the functioning of the energy markets in Belgium through the appointment of judicial police officers within its organisation.

Powers of the energy regulator strengthened

The new Belgian Energy Minister is no big fan of a liberalised market

Paul Magnette, the Belgian (federal) Minister of Climate and Energy appears very reluctant toward the liberalisation of the energy market.

In an interview with De Morgen (a Flemish quality newspaper) he declared on a question about the willingness of Electrabel to sign an “ecological pact”:

"I do not know whether this is necessary. For me, free competition is no sacred principle. Even although Europe is fighting so hard for it. I am un homme de gauche. In some sectors, competition was wholesome, like in the telecommunications sector, but in the energy sector it did not lead to any advantage for the small customer. I also do not know very well how to organise competition with a natural monopoly. We cannot build new pipelines next to existing ones, can’t we? Europe has made a distinction between producers, grid operators and suppliers, but this has not given any positive effect. The quality has not increased, the invoices only became more complicated.
“If we want competition to work, there is above all things a need for a strong governmental regulator. Especially in sectors with a quasi-monopoly. We also must impose social and environmental aims in these sectors. That is more important than the competition in itself.."

The new Belgian Energy Minister is no big fan of a liberalised market

Energy in the governmental declaration of the "interim"-government Verhofstadt III

The CD&V-N-VA, PS, Open VLD, MR and cdH agreed upon the following passus on energy and climate in the governmental declaration:

"6. Climate and energy will also be on top of the interim government's agenda. Next to measures with regard to spending power and in view of affordable prices and a guaranteed supply, we shall take additional measures to increase the stake of the consumers in the energy market. Belgium ranges itself with the goals of the second Kyoto-allociation plan and with the new goals for renewable energy. It will negotiate thereto with the European Commission on an ambitious and realistic contribution of our country. In the same spirit, the federal government will support the regions, the industry and the European community in finding solutions for the problems related to the allocation of CO2-quota for the 2008-2012 period. Furthermore it will activate and enlarge instruments to reduce the emission of CO2 in the residential sector and to decrease the bills of the families."

Energy in the governmental declaration of the "interim"-government Verhofstadt III

New federal climate minister

Belgium finally has an "interim" government, with an expiry date on 23 March 2008.

The new minister for energy (officially: Minister for Climate and Sustainable Energy) is Paul Magnette. For a short CV, see the page on Wikipedia.

New federal climate minister

Unbundling and the standpoint of Belgium

Contrary to some rumors in the press, it appears from a discussion in the Belgian Senate on 6 December 2007 that Belgium is still opting for an ownership unbundling of the system operators. Only if the Member States would soften the principle of ownership unbundling, Belgium would not oppose this idea, provided that an efficient market functioning is guaranteed.

Unbundling and the standpoint of Belgium

Maximum prices for the Belgian energy market

Yesterday the federal Chamber of Representatives refuses to adopt a proposal introduced by the social-democrats and the green parties aiming at giving the executive the powers, upon advice of the regulator, the CREG, to impose maximum prices on the wholesale market. The majority of liberal-democrats and Christian-democrats argued that such proposal would not distort competition in the market. Both parties agreed that Belgium needs more investments in new energy production.

Maximum prices for the Belgian energy market

Partial governmental agreement on energy and sustainable development

The would-be federal political majority has not yet finalised the coalition agreement for the formation of a new federal government. However, a partial agreement on Energy and Sustainable Development was reached at the end of October.

"The federal government endorses the climate change goals set by the European Union (20% less emission of greenhouse gases, 20% more energy efficiency, 20% more renewable energy production). A national climate change commission will elaborate a multi annual climate plan. The Belgian government will use its international influence to have all industrialised countries participating in a reduction of greenhouse gases with 30%.

The government makes sure that the dominant player will observe nothing less than the obligations entered into vis-à-vis the previous government.

The government will closely follow the evolution of the energy prices and will create the conditions to allow an adequate competition. To that end, several additional electricity producers must be present on the Belgian market each having the possibility to acquire a considerable market share. The government will contribute to that as follows:
– To incite the dominant player to swap assets with competitors abroad; and/or
– To put at the disposal or to sell to other players, under the supervision of the CREG and against reasonable market conditions, a considerable share of the capacity (in MW) of the depreciated power stations; and/or
– To offer to other players (trough actioning or exchange) a considerable production share (in MWh) of the dominant player, under the supervision of the CREG, against a price composed of the production costs including the maintenance and replacement investments and a fair profit margin; and/or
– To create the preconditions allowing and encouraging other players to develop additional production capacity in Belgium (inter alia sites and access to natural gas and electricity grids);
– To put in all efforts to realise as soon as possible interconnectivity at the borders in order to obtain true competitive natural gas and electricity markets on a European level.

Moreover, the government encourages companies wanting to construct alone or in consortium a production unit for electricity.

The competition on the wholesale market for electricity must improve considerably. The electricity exchange BELPEX must be offered more marketable volume increasing the available liquidity for the suppliers. By analogy with the electricity market, the wholesale market for natural gas must become competitive. This will be realised by creating a gas exchange (GASPEX), on the basis of what currently exists and with safeguards for sufficient transparency, that will dispose of sufficient marketable volumes.

The government will give the federal regulator CREG the necessary independence to act against and to supervise ex ante an actual competition on the production and supply market and to monitor the price evolutions closely. It will evaluate the functioning and the tasks of the CREG. The government will grant a clear and plain strategical mandate to develop a long term vision.

The federal government will give the CREG a mission to monitor the tariffs. Moreover, the CREG will be able to propose to the government every measure contributing to the improvement of the functioning of the regulated activities and the applicable tariffs.

The government resolutely opts for the independence of the system operators and for an independent operation of the transport systems by reducing gradually the share of producers/suppliers under 25% and with a substantial presence of the public sector. Energy companies can obtain shares but cannot, individually or collectively, have or use a blocking minority for example through a shareholders agreement or special share related (voting) rights, nor can they appoint independent directors.

The network system operators must have disposal of sufficient financial elbow room for carrying out replacements and new investments and to carry out the necessary maintenance to the grids, inter alia to allow Belgium to continue its development as junction of the European transit and transport grid. The system operators must fully independently allow equal access to the grids to all market players.

The government will invite the regions to tune the different systems of renewable energy certificates guaranteeing at the exchangeability, inter alia to promote the lowest price for the Belgian consumers. The government will improve the fiscal measures in favour of sustainable energy, inter alia by organising a system of take-along or of tax credits for investments that encourage energy efficiency and/or sustainable energy sources (...).

The government will take care that equal access conditions exist for competitors to import, store and transport natural gas. In order to guarantee the natural gas supply, the government will see over a tariff policy by the CREG (...) allowing the transport system operators to invest in natural gas storage capacity and in interconnections. The government continues the conversion of the Zeebrugge Hub enforcing its position as international spill for the natural gas supply. In general, the government take care that the policy of the CREG allows the system operators to guarantee an optimal quality of the networks without this leading to an excessive price increase of the distribution grid tariffs.

The government will discuss with the regions the consequences of a progressive replacement of L-gas by H-gas.

The government maintains the nuclear phase out of the existing nuclear facilities as set out in the Act of 31 January 2003. In order to comply with the goals of reducing greenhouse gases and to guarantee the affordability and security of supply, it will extend the operational term of some nuclear reactors for a limited time and in safe circumstances. In dialogue with all stakeholders, the government wants to obtain a national transversal multi annual alternative for fossil energy and nuclear energy, also translating the CO2 reduction goals. In the meantime, it will have carried out all necessary investments in the electricity power stations guaranteeing a safe exploitation and it will have modernised the existing very polluting power stations in order to reduce the pollution per MWh. The revenues of the taxes on the exceptional profits of the production of the depreciated nuclear and coal power plants will partially be used in a new fund “depreciated energy production” for the production and development of alternative energy sources and energy efficiency, the roll out of decentralised grids, the decrease of the federal contribution, the technique of carbon sequestration, the support of the MYHHRA-project, a social energy policy.

In the framework of the discussions about the prolongation of some nuclear installations, the government will have thought for the problem of the final price for the consumers."

Partial governmental agreement on energy and sustainable development

Network aspects of the new proposals to liberalise the energy markets

On 19 September 2007, the European Commission published the long awaited “Third Legislative Package” for the electricity and natural gas markets. This package is in line with the conclusions of the Energy Sector Inquiry, with the Commission’s document “Energy for a New Future” and with the conclusions of the European Council's Spring Summit.

After ten years of liberalisation of the energy markets, the European Commission is of the opinion that the process of developing real competitive markets is far from complete. In practice, too many of the EU's citizens and businesses lack a real choice of supplier. Market fragmentation along national borders, a high degree of vertical integration and high market concentration are at the root of the lack of a truly internal market.

Key elements in the liberalisation of the energy markets is the separation between energy production and the supply of energy to end consumers, on the one hand, and the network activities, on the other hand. Network operators are not allowed to produce or sell energy. Vice versa, producers and suppliers of energy cannot perform network activities.

Before liberalisation, network operators, suppliers and producers were part of the same unbundled companies. In the first two stages of liberalisation, functional and legal unbundling had to allow access for new entrants to the market. However, it appears that the network operators that still are part of integrated companies can be less keen in investing in the conveyor belt in order to avoid congestion and to give access to new entrants. The market share of historical operators remains high.

Where the network operator is a legal entity within an integrated company, three types of problems arise: (i) the operator may treat its affiliated companies better than competing third parties. (ii) non-discriminatory access to information cannot be guaranteed as there is no effective means of preventing operators releasing market sensitive information to the generation or supply branch of the integrated company and (iii) investment incentives within an integrated company are distorted. Consequently, the Commission proposes an effective separation of supply and production activities from network operations.

For the Commission, the main option is ownership unbundling: the same person or persons cannot exercise control over a supply undertaking and, at the same time, hold any interest in or exercise any right over a network operator or system. An alternative option is the "Independent System Operator". This option enables vertically integrated companies to retain the ownership of their network assets, but requires that the network itself is managed by an undertaking or entity entirely separate from the vertically integrated company, performing all the functions of a network operator.

A temporary derogation to ownership unbundling will remain possible for new projects (eg the construction of another LNG-terminal in Zeebrugge).

Responding to the alleged threats to the security of supply, the Commission also proposes to insert a “Gazprom” clause in the new legislation. No supply or production company active anywhere in the EU can own or operate a network in any Member State of the EU. This requirement applies equally to EU and non-EU companies. This reciprocity obligation obliges companies from third countries to demonstrably and unequivocally comply with the same unbundling requirements as EU companies.

In the Belgian context, the new legislative proposals would oblige the Suez-group either to divest its interests in Fluxys, the network operator for natural gas, and in Elia, the network operator for electricity, or to leave the management of the networks to an independent operator.

It remains to be seen whether the proposals of the European Commission will be acceptable for the Member States. Already before the publication of the Third Package, France and Germany made it clear that ownership unbundling and even an “Independent System Operator” would be a step too far. Although Belgium is part of the supporters of the Commission's proposals, in the last version of the draft coalition agreement for the formation of a new federal government, the parties did choose for the independence of the network operators, but did not adopt a clear ownership unbundling. The draft stated that independence had to be achieved “through a predominant public ownership and a public operation of the systems and by reducing the share of the producers/suppliers below 25%. Energy sector companies can acquire shares, but cannot have or use a blocking minority, for example by means of a shareholders agreement or special voting rights, nor can they appoint independent directors.”

Network aspects of the new proposals to liberalise the energy markets

New draft governmental agreement

Today, the Belgian media publish the new draft on their respective websites. Below is a (free and quick and almost literal) translation of the part on the TSO's:

The Government resolutely chooses for the independence of the TSO’s through a predominant public ownership and a public operation of the systems and by reducing the share of the producers/suppliers below 25%. Energy sector companies can acquire shares, but cannot have or use a blocking minority, for example by means of a shareholders agreement or special voting rights, nor can they appoint independent directors.

The TSO’s must have sufficient financial means to carry out replacements and new investments and the necessary maintenance to the system, inter alia in order to allow Belgium to continue its development as junction of the European transmission system.

The government watches over the promotion of interconnections at the borders.

The government will provide non-discriminatory access conditions to competitors for the import, storage and transport of natural gas. In order to safeguard our natural gas supply, the government will see to it that the policy of the CREG relating to the monitoring of the costs of the TSO’s allow the latter to invest in natural gas storage capacity and interconnection capacity. The government will continue the transformation of the Zeebrugge hub in order to strengthen the position as international pivotal point for the supply of natural gas. In general, the government will see to it that the policies of the CREG allow SO’s to guarantee an optimal quality of the systems.

New draft governmental agreement

The new federal government and the nuclear phase-out

According to press articles, the negotiators for the formation of a new federal government agreed upon maintaining the phase-out for Doel I (392-393 MW) and II, but decided to postpone the phase-out for the remaining nuclear reactors in Belgium (Tihange I, II and III, and Doel III and IV). The negotiators want to levy taxes on the remaining nuclear reactors and use the proceeds for investments in renewable energy.

The new federal government and the nuclear phase-out

Investigation by the CREG on the retail price increases announced by Electrabel

After the announcement by Electrabel of a price increase of electricity and natural gas on the retail market in Belgium, the federal minister of energy, Marc Verwilghen, requested an investigation by the CREG, the federal energy regulator, and the Competition Council.

Today, the CREG issued a press release with the telling title: “The CREG finalises its investigation on the price increases announced by Electrabel, notwithstanding the limited cooperation of Distrigas”.

The CREG concludes that the reasons invoked by Electrabel to justify the retail price increases of natural gas “are sometimes but not always equally pertinent”:
- The higher fuel prices were already charged to the end consumers;
- The new natural gas contract between Electrabel and Distrigas entered into force on 1 January 2007. Consequently, eventual negative price effects arising out of this contract would have been noticed at that date and will not have effect only as from 1 September 2007;
- Only the part of the price increase related to a fixed term in the new natural gas contract was not yet charged to the end consumers.
- The CREG has noticed that at the moment of the opening of the Walloon and Brussels energy market (1 January 2007) Electrabel has set its prices very low, which could imply predatory pricing. Although there are indications for such predatory pricing, the CREG is unable to prove this due to of the limited cooperation by Distrigas. Lacking the necessary cooperation, the CREG was also unable to conclude that Electrabel tried to provoke a price squeeze. The CREG asks the Competition Council to investigate this further.

The reasons invoked by Electrabel to justify the retail price increases for electricity for professional customers are again “sometimes but not always equally pertinent”:
- The prices Electrabel wants to increase differ on the basis of parameters taking into account the fuel and employment costs. These parameters are less volatile than parameters based upon more volatile price changes on the exchange. Electrabel invokes the increased wholesale prices. According to the CREG it is “strange” that Electrabel uses parameters in its contracts with industrial customers different from the increased wholesale (exchange) prices.
- The price increase seems to be inspired by the concern of Electrabel to safeguard its profit margin.

The CREG gives some recommendations:
- Price regulations can be temporarily adopted;
- Structural measures to improve competition must be adopted;
- CREG’s competences must be strengthened (including the possibility to conduct market monitoring);
- Part of Electrabel’s production capacity must be put at the disposal of other market players;
- The independence of the system operators must be strengthened;
- Investments in production, transmission/transport, distribution and transit must be carried out.

Investigation by the CREG on the retail price increases announced by Electrabel

Proposals for the new federal government

Yesterday Yves Leterme presented his memorandum for negotiations with a view of the formation of the next Belgian federal government.

In his memorandum, two pages are dedicated to the energy market.

At first sight, Leterme did a good job in hiding his understanding of the liberalised energy markets.

A short overview of his proposals:

- SPE must be "structurally strenthened";
- Next to SPE and Electrabel, only one third producer must enter the market;
- Both SPE and the third producer must be able to buy together a 30% stake of the nuclear capacity at a cost plus price;
- Producers and suppliers cannot hold more than 25% of the shares of the TSO;
- The import and transport of natural gas must be based on non-discriminatory conditions for all parties;
- The federal state will invest in storage capacity and interconnection capacity;
- Zeebrugge must remain an important hub;
- The nuclear phase-out is softened;
- The CREG must be strengthened, but also more monitored.

On my Dutch weblog I give a full overview of and some first comments on the memorandum.

Proposals for the new federal government

Final report of Commission Energy 2030

The Commission 2030 set up to make a study and a report which should lead to the elaboration of the Belgian energy policy by the year 2030 has published its final report.

I tried to summarise the "Key Messages in a Nutshell":

The objective of a sound energy policy is to offer energy services for a variety of applications, based on an energy basket that guarantees a firm security of supply, at an acceptable cost for society, and in an environmentally friendly way.

The Belgian energy policy will have to consist of a balanced mixture of contributing elements. Four groups of “energy sources” [(energy savings, carbon-based resources, nuclear and renewables)] have to be considered, each having their specific merits and limitations[.] (…) Omitting one of them will likely lead to a sub-optimal solution.

On security of supply, four aspects are to be focused on as priorities: Diversity of supply of primary sources and technologies (…); a stable investment climate (…); TSOs and DSOs must be 'allowed' to invest in extensions, adaptations, and preventive maintenance (…); a comprehensive study to find the appropriate energy mix (…) must be carried out.

The liberalization process for electricity and gas in Belgium must be continued in line with the European common energy market concept. Industry has to be enabled to fully participate in the European wholesale energy market, by co-investing in generation assets, by long-term contracts, by establishing a liquid wholesale market, supported by sufficient transnational transmission capacity. Sufficient retail market access should develop over time to reach a good mix of suppliers in Belgium. Regulated capped prices at the retail level are advised against.

Strict supervision by a competent and independent Regulator is necessary while accounting for the development of a European regulatory institution. (…)

Belgium should devote much more research & development means to energy. (…)

Upon lifting the nuclear phase-out law, an agreement with the owners of the Belgian nuclear power plants is to be sought for, to establish a "correct" nuclear-extension concession fee, the revenues of which could be used for stimulating investments in energy savings & demand-side management, for development in renewable energy, for development & research in emerging energy technologies and carriers.

Final report of Commission Energy 2030

New Flemish Energy Minister

Tomorrow, 28 June, Hilde Crevits will be sworn in as the new Flemish Energy Minister. Crevits was Alderman inter alia for utilities and energy in the City of Torhout. She was also recently appointed as member of the board of directors of Distrigas as a representative of Publigas.

New Flemish Energy Minister

Pax Electrica Ter?

During the "big debate" in view of the federal elections next Sunday 10 June 2007, prime minister Verhofstadt said that he is convinced, based upon his discussions with the French president Sarkozy and the French prime minister Fillon, that the merger between Suez and Gaz de France will not take place.

Nevertheless, Verhofstadt is of the opinion that even in the event the merger would not succeede, the Belgian government should enter into discussions with Suez in order to agree upon a new Pax Electrica, aimed at the release of 30% of Electrabel's production capacity in Belgium to two other players. Strangely enough, it still appears that one of the two potential candidates is already known: the Belgian company SPE.

Pax Electrica Ter?