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26 October 2015

The French Electricity sector commits with the EP for long-term investments


The reform, and reorganization of European energy policies, is one of the top5 priorities of the European Commission. The focus is right and timely, as the Energy Transition is a great opportunity for European industries to stand out, through the emergence of new sectors, supporting the EU low carbon strategy. However, to achieve this transition and enable both the financing and outbreak of necessary investments and innovations, the European Union needs a long term framework bringing confidence, and visibility to the investors and project promoters.

The long-term investment and reindustrialisation intergroup of the European Parliament, Chaired by the French MEP Dominique RIQUET, held a conference the last 15th of October in order to bring the attention of EU leaders on the crucial role of infrastructure investment. Organized with the active support of UFE, this event aimed at putting together the industry’s challenges and preoccupations regarding the financing of LT investments, and the expectations of private and institutional investors…

The energy sector and the “Investment wall”

In a context of recovery from the financial crisis, the persistent low investment in infrastructures remains a major challenge. In his opening address, MEP and Chair of the Intergroup Dominique RIQUET recalled the substantial investment needs in infrastructures considering their public strategic importance and their subsequent reliance on public subsidies.

The Energy sector is not at rest from this challenge; the global amount of investments needed in the Energy sector is around 1.1 trillion of euros. 500 billion for generation, 400 billion for distribution networks and 200 billion Euros will be dedicated to the Transport sector. Olivier GRABETTE, Deputy General director in charge of the economy, and member of the Board of the French TSO RTE, underlined most particularly the “challenge of adapting the networks in the long term (development of new networks and upgrading of existing networks) while covering expenses and ensuring investments are made (maintain sustainably good financial balance).”

Better regulation for better incentives…

In France we benefit from a stable and predictable regulatory framework, but it has to evolve to adapt itself to the financing challenges faced by TSO’s. This is fundamental to ensure a constant sustainability of the debt: in the case of RTE, most of the financing is borrowed on capital markets, but as a regulated enterprise, the return on investment depends highly on the framework set by National regulators, in this case, Network tariffs.
As underlined by M. O. GRABETTE, “the current regulatory framework tries to address uncertainty, but the ensuring value for the end-consumers for long-term investment during the whole life of the assets remains the major challenge in terms of regulation”. A study of the Florence School of Regulation released in 2013 points out that the current level of network tariffs set by the French regulator would only cover half of the investments that have to be carried out within the TYNDP.

In the energy sector, this uncertainty is even greater as many investments, notably in networks, rely heavily on the decisions of Member states to develop an energy mix or another. For M. GRABETE “EU institutions can help covering risks by subsidizing studies and simulations, so as to being able to identify these risks. “We need to develop new rules, new ways to cooperate and new ways to respond to risks”.

… To unlock essential synergies and innovations

Yet, the issue is even more complex when it comes to new technologies, considered more risky by investors and project promoters. The risk relies indeed not only on the initial financing (with higher interest rates), but also on the uncertainties about the lifetime of investments, the operation expenditures, and therefore on the cost-recovery process.

Fostering the financing of long-term infrastructures with a predictable regulatory framework and the right incentives, is then a key to develop more innovative projects, that would be at the core of the revolution of the electricity system, and ensure a cost-efficient energy transition while pushing the European Union in a leading position, to face the low-carbon industrial and technological challenges of a greener future.

This is a major issue for enterprises, but also for any European citizen as this would guarantee not only the “Green jobs” promised by the European Commission, but also through the promotion of innovative projects, a smarter and more cost-efficient way to consume and produce energy. As rightfully pointed by MEP Dominique RIQUET during its closing speech, “Although we tend to oppose financial stability and public interests, these should go hand-in-hand.”

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The Union of the French Electricity Industry is the trade association of the French electricity sector. We bring together companies from the whole value chain of the electricity industry.

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