Hill+Knowlton Strategies

The UK solar industry has had an interesting time of late. From the rise of large scale installations and the important role for solar in the Renewables Roadmap, to the confusion over government tariffs and the lack of any new emphasis on solar in the budget, there’s been a lot going on. If this has left followers of the market overwhelmed, spare a thought for China, where their booming solar industry is poised on the brink of uncertainty after two accusations of anti-competitive behaviour.

Photo credit: Photonut on rgbstock.com

In the beginning, there was expensive solar…
The issue began with the Chinese solar industry’s ability to manufacture solar panels and components at a much cheaper price than any other market. And as the most attractive market for renewable energy in the world, this had quite an impact on prices globally. Chinese manufacturers were able to flood the market with solar components, all offered at a price that made it hard for US and European markets to compete. So why was China able to do this? Recently, the Chinese Government has placed great emphasis on cutting their carbon emissions and increasing the share of energy generated from renewable resources. As a result, solar panel production in China is heavily subsidised by the Government, making Chinese solar panels the cheaper option for installers in the US and Europe. This allows China to increase their share of the global solar manufacturing market at the expense of manufacturers elsewhere.

Obviously, this was not an ideal situation for the global solar PV manufacturing market, and in May last year, the US became the first country to introduce anti-dumping tariffs on all solar imports from China. Dumping, in this context, is a form of predatory pricing which involves selling products in an international market at a price too low for producers in the export markets to compete with. US Senator, Charles Schumer, confirmed that these measures where tough, but also necessary if the interests of the American solar manufacturing market were to be protected. China’s Commerce Ministry spokesman, Shen Danyang, counteracted this assertion by declaring their intention to fight this “unfair” ruling.

The result of this is the setting of a precedent for other global markets to follow suit, with Europe being the most recent of these. Last September, EU Prosun, an industry action group, launched a campaign against Chinese imports into Europe, asking the European Commission to investigate any alleged anti-competitive behaviour. Despite a strong counter-argument that any tariffs would damage the global solar market by pushing up installation prices, the European Commission announced their intention to continue with their investigation into the Chinese market. 

So what does this mean for the UK? 
Following the EC’s announcement, the European Union imposed the mandatory registration of all solar components imported into the EU from China. Between March 2013 and the predicted resolution date of 6 June, any Chinese solar imports have to be registered. This will allow the EU to retroactively impose anti-dumping tariffs should the Commission rule against the Chinese manufacturers. The impact of this move is already being felt in the UK market, where solar providers are facing cancelled orders from installers. With a high level of uncertainty over whether tariffs will be imposed retroactively, importers are unwilling to take on the risk, instead passing this on to installers in the form of price increases. In a report commissioned by AFASE, a body representing European solar manufacturers against the trade duties, Swiss analysts Prognos announced that the move could ultimately cut the UK solar industry by 80%, as well as costing the UK economy £3.46 billion and 38,600 jobs. The Solar Trade Association has voiced their opposition to any trade duties, asserting that any tariffs would damage confidence in what is already seen as an unstable market. Furthermore, the Chinese Government has announced its plans to retaliate if any duties are imposed.

In short, the imposition of trade duties on Chinese solar imports will have a far-reaching impact on the European and UK market. Manufacturers will gain a level playing field and an increased ability to compete, but at the cost of a severely reduced solar industry. The end customer will bear the brunt of price increases, and, in a fragile industry, the fate of many wholesale solar importers and installation companies hangs in the balance. So the question remains, is the cost of this investigation, and the price of market intervention, simply too high?

Glen Hodgson, a Director with Hill + Knowlton Strategies based in Brussels and Stockholm, writes about new legislation which will affect the market for biofuels in Europe and therefore create opportunities as well as threats for operators, producers and users.

What is the issue?

The European Commission proposed in October 2012 new legislation on the indirect land use change (ILUC) effect of biofuels intended to minimise the climate impact of their production. In this context, the proposed rules may lead to new classifications and subsidy streams for sources of biofuels. If adopted in its current form by the European Parliament and the EU Council, this will limit the amount of food crop-based biofuels and bioliquids that can be counted towards the EU’s 10% target for renewable energy in the transport sector by 2020 to a 5% level. This is clearly of concern for the whole industry.

 The European Commission also proposes double- and quadruple-counting the contribution of some low-ILUC biofuels towards the EU’s 20% emissions reduction target for 2020, one of the aspects of the proposal which had proved controversial within the Commission prior to its publication. In general, land-using second-generation biofuels are intended to be double-counted, while non-land-using second-generation biofuels are to be quadruple-counted due to their low-ILUC factor.

Timing and next steps

The proposal has been adopted, but work in the European Parliament and Council of Ministers has not yet begun. There is therefore a great deal of scope in shaping opinions at the national and Brussels levels to protect business interests. This also opens the possibility of setting up a biofuels debate platform which would support and complement future lobbying towards the European Parliament and the EU Council around the ILUC legislative proposal. This could establish a dedicated online channel through which to directly engage targeted decision-makers, influencers and media as a transparent means to advance policy objectives and educate on key concerns. Furthermore, such a dynamic platform would also rapidly address misinformation and showcase relevant videos, while supporting targeted offline engagement and outreach activities. Clearly, the time is right and there is a need to re-energize the debate and make it more visible ahead of this year’s first-reading negotiations in the Parliament and Council.

Welcome to Hill+Knowlton Strategies’ regular update on key European regulatory developments that will directly impact businesses in the energy sector.

This edition of the H+K Strategies Brussels Energy Newsletter looks that the energy priorities of the new Danish Presidency of the EU Council of Minsters and the energy roadmap 2050.

Read on for the latest developments, impacts and opportunities surround these issues in Europe.  

Danish Presidency of the EU Council – Energy Priorities

Latest Developments

On 1st January, Denmark assumed the rotating presidency of the EU Council of Ministers, taking over from Poland for a period of six months. As holder of the Council Presidency, Denmark is responsible for setting the agenda for intergovernmental discussions and leading the negotiations with the other EU institutions. At the same time, however, its priorities are closely linked to the European Commission work programme for 2012.

While the ongoing Euro-area debt crisis will continue to preoccupy meetings of heads of state and government, at ministerial level the Danish government intends to advance its agenda of a responsible, dynamic, green and safe Europe. Indeed, energy issues form a substantial part of the Green Europe focus area, with many policy proposals which were introduced in 2011 still on the table and at crucial stages in their negotiation.

First, the proposed new energy efficiency directive, intended to set a common framework to promote energy efficiency across the EU, is a major priority, with the Danish Presidency aiming for an agreement before the end of June. This ambition may be thwarted by delays in the European Parliament adopting its position due to the vast number of conflicting positions being put forward by MEPs, while the national delegations in the Council have proposed limiting the scope of the public building renovation requirement to buildings owned by central governments.

The proposed infrastructure package is the Presidency’s second priority, where it will work for the development of an effective and intelligent transmission network, so as to enable the integration of large-scale renewable energy into the EU’s energy supply. The proposed new legislation will enable a streamlined mechanism for identifying cross-border “projects of European interest”, within a set of strategic corridors and priorities, which will benefit from a shorter permitting period and streamlined administrative procedures. Third, negotiations on the proposed regulation on the safety of offshore oil & gas activities will be a further focus of the Presidency. As an oil and gas producing nation, Denmark has a clear interest in this proposal, particularly as it seeks to extend the regulatory approach of the North Sea nations to all European waters. While it is fairly unlikely that an agreement be reached before the summer, the Presidency will work to ensure that discussions get off to a good start and seek to make its mark building on the expertise which comes from decades of exploration and production in Danish waters.

All this is set against the backdrop of the debate on deepening the EU’s CO2 emissions reduction targets. Discussions over a possible move to a 30% target for 2020 (up from 20%, compared to 1990 levels) were put on ice under Poland’s presidency, due to that country’s objections to such a move given its high share of energy-intensive industries and reliance on coal. While Denmark has traditionally been supportive of stricter emissions targets, the new Presidency has mollified its stance in order to garner Polish support for a draft resolution on the Commission’s recent roadmap to a low-carbon economy in 2050. The text now before national delegations refers to the fact that if the EU achieves its 20% energy efficiency objective in 2020, then 25% emissions cut may be possible, without referring to this as a target. The Danish presidency has similarly been careful to ensure that references to deeper cuts between 2020 and 2050 are portrayed as possible milestones, rather than explicit targets. This debate will also feed into attempts to find agreement on endorsing the 2050 Energy Roadmap (see article below).

Impact & Opportunities

The six-month Presidency term is an important opportunity for Denmark to present itself as an influential EU Member State capable of assuming leadership in a new institutional set-up (since December 2009, the European Council has a permanent president chairing the meetings of the 27 heads of state and government, which clearly weakened the role of the EU Council Presidency). This is especially important given that Denmark is a small country which remains outside the Eurozone, and is one of the few EU states to currently have a left-of-centre government in the current climate of economic austerity. While the sovereign debt crisis in the Eurozone is dominating EU strategic decision-making, Denmark will be keen to push forward on the above energy objectives, not least because the investments required to deliver energy effi¬ciency improvements and infrastructure connections are seen as a means to create jobs and growth.

Energy Roadmap 2050

Latest Developments

On 15 December 2011, the European Commission adopted the “Energy Roadmap 2050” Communication which explores the challenges posed by delivering the EU’s objective of 80- 95% decarbonisation by 2050, while ensuring at the same time competitiveness and security of supply. The sectoral roadmap is one of several that follow the Commission’s all-sector “Low carbon economy roadmap”, released in March 2011, which compares a scenario of global action with a unilateral scenario.

The analysis set out in the long-awaited Energy roadmap explores five scenarios created by different combinations of the four main decarbonisation routes – renewables, energy efficiency, nuclear and carbon capture and storage technologies (CCS) and contrasts these with a ‘business-as-usual’ approach.

In outline, the projections include a scenario in which the EU improves its energy efficiency, enabling renewables to provide 64% of electricity consumption by 2050, and a ‘high renewables uptake’ scenario where they would provide 97% of electricity consumption, with nuclear power and coal almost eliminated from final energy use. A third scenario would see no energy source preferred, with each competing on a market basis. Decarbonisation would instead be driven by carbon pricing.

The two other scenarios explore a “low-nuclear” scenario where coal power plants using carbon capture and storage (CCS) technology make up the difference along with renewables and a scenario with the highest share of nuclear energy at 18%, which would still be a decrease from today’s 20%. Inclusion of a sixth scenario, which combined energy efficiency and increased use of renewables, was being urged by the Commission’s Climate Action department. This was, however, opposed by Energy Commissioner Günther Oettinger, on the grounds that such a scenario can only be considered after Member State support for the proposed new energy efficiency directive becomes clear.

All in all, the roadmap finds that, although the decarbonisation routes would demand large upfront capital expenditure until 2030, by 2050 investment costs would be roughly the same owing to increasing fuel costs. Continuing current policies would bring total energy system cost to 14.6% of European gross domestic product (GDP) in 2050, roughly the same as the other scenarios. This compares to the 10.5% of GDP spent in 2005.

However, according to Mr Oettinger, the final configuration is likely to be a mix of the projections, following a debate with a wide range of stakeholders. As a result, he expects to “achieve clarity with investors” on what future strategies are worth pursuing by 2013 or 2014 at latest. He expressed his wish for the adoption of a new EU binding renewables target for 2030 by 2014 to give low carbon investors long-term certainty. The roadmap currently suggests a renewables share of about 30%.

The roadmap is more careful in its wording and, arguably, less ambitious in its scope than previous leaked drafts. The final version stops short of recommending targets, a key source of controversy, while it recognizes that EU Member States and investors need milestones.

While some Commission officials expressed criticism over the Roadmap’s lack of ambition, Green groups praised the roadmap’s demonstration that a high uptake of renewables would come at little extra cost compared to a business-as-usual scenario. But they maintain that the Commission has purposefully underestimated renewables potential.

The Danish Presidency of the EU Council is to prioritise the reaching of an agreement between Member States on endorsing the Roadmap, although discussions are likely to be impeded by disagreements between Member States over interim targets to 2050.

Impact & Opportunities

The debate over further targets and milestones for the years to 2050 will be a key element of continued discussions around the Roadmap. An earlier draft said that “further renewables targets for 2030 could be an option since Europe is currently on the right track to achieve the targets for 2020”. In the same paragraph, which has since been scrapped, interim targets on CCS and energy infrastructure were envisaged as a possibility. But the roadmap says that the modelling for these scenarios is dependent on a global climate deal, which could be many years away. The Commission consultation on a post-2020 renewable energy strategy, running from 6 December 2011 until 7 February, has been an opportunity for stakeholders to voice their views on whether there is a role for further renewable targets and the findings will feed into the discussions. The upcoming Communications on CCS (by the summer) and energy technologies (in Q1 2013) should also be closely monitored.

 Industry in general has been strongly pushing the need for regulatory certainty and clarity over whether there will be further targets, in order to be able to make necessary investments, a point which is readily accepted by Commissioner Oettinger. The coming months will therefore offer the opportunity to make such arguments to policy-makers, and to offer suggestions as to what the policy framework should look like post-2020.

Last month, we held an event in conjunction with Scottish Enterprise, looking at the extent to which the UK offshore industry is engaged in various issues on the agenda in Brussels, such as moves by the European Commission  to tighten safety regulations for offshore drilling.

For those that weren’t able to make it up to Aberdeen we are organising a follow-up workshop, presented again by Luc Werring from our Brussels office, in London on Wednesday June 22nd.

If you would like more information on the event, or to attend, please get in touch through the ‘E-mail us’ button in the top-right of the page.

I am very much looking forward to meeting some of you and hearing your thoughts and concerns on various regulatory and reputational issues.

The sun shone on Monday during my visit to Aberdeen to meet with representatives of the offshore energy industry in the Granite City, but the general mood of the industry appeared more glum under the gathering rainclouds of increased regulation and the changes to the offshore production levy.

The current consultation by the European Commission into offshore drilling may well be a pre-cursor to additional regulations for an industry still integrating learnings from the fallout of last year’s Gulf of Mexico spill. The key question will be the extent to which any new regulations place additional burdens (and costs) on an industry that has for many years set the bar for world offshore HSE standards.

There was an encouraging appetite for making contributions to the consultation among those that I met with, but evidence too that many were planning to make only collective submissions, which often has the effect of watering them down. What is clear is that DG ENER at the Commission are keen to review offshore drilling regulations and that such a consultation regularly results in regulatory changes. Now is the opportunity to engage in the process to avoid any nasty surprises.

Speaking of which it is clear that the energy industry operating on the UK Continental Shelf is still reeling from the changes to the offshore production levy introduced in April’s Budget. It seems that there are fresh headlines every day as different organisations up the ante and review investment decisions as a result of the changes. Certainly Energy Secretary Chris Huhne’s meeting with the Energy and Climate Change Committee yesterday has done little to settle industry concerns at the apparent intrasigence of the Government on this issue, especially when it comes to gas production and marginal fields. Although according to some the result of the AV referendum could bring about some changes.

This is an issue that we expect to run and run in the coming months, but I hope the storm clouds lift for long enough that we can enjoy some of the beautiful sunshine that is forecast.

Our team in Brussels will next week play host to the Director General of the European Commission’s Energy DG, Philip Lowe. The event is organised in conjunction with the British Chamber of Commerce and will take place on 5th April. It comes at an interesting time for European policy makers and energy business leaders.

People wishing to register can do so here, or contact our team in Brussels.

On a related note, saw some great infographics by European energy statistics. The navigation can be a bit frustrating and there’s no sharing tabs for the beautiful stats, but it’s a great way to present the data in an easy to understand format.