Report spells out investors’ needs for EU energy policy

A new report by Ernst & Young identifies corporate requirements to carry out the large-scale infrastructure programmes needed to diversify Europe’s energy mix and bring forward alternatives to gas.

Developing a new energy infrastructure would require extra long-term confidence as to the future reliability of energy markets in Europe, says Ernst & Young in a new report highlighting the challenges faced by corporate investors in the energy sector. 

The report says investment lifecycles to finance, construct and operate large-scale power station and infrastructure building programmes are speculative. Thus investment choices will be based on perceived risks, costs and policy constraints.

“Security depends fundamentally on a reserve of over-investment,” E&Y writes in the report. But it says companies are often “reluctant to fund investments that are utilised infrequently and on which they therefore receive a poor return”.

National models in the energy sector continue to vary widely across Europe with countries placing different degrees of obligations on utilities to achieve reliability for consumers and deliver social objectives, the report notes.

But with the liberalisation of the European gas and electricity sector this traditional model of energy supply has started to shift with industry paying increasing attention to price signals delivered by the market. 

“It is likely that some countries will want to […] reward investment in new capacity or place Public Service Obligations on generators and suppliers,” says the report. But it says it would be premature to attempt to establish a common position on this because a consensus among EU countries would be unlikely. 

Rather, the report suggests respecting the different national approaches regarding the ability of markets to deliver on social objectives and establishing European benchmarks based on best practices. “There needs to be a separate treatment for competitive generators and for regulated networks,” the report says.

The report comes at a time when the debate about the security of the EU’s future energy supply has centre stage with the publication of the Green Paper in March 2006. 

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