Transcript Achieving a sound investment climate – the role of regulators

Achieving a sound investment climate – the role of
regulators
Boaz Moselle
Joint-Chair, CEER Gas Working Group
Managing Director – Corporate Strategy
Ofgem
Background
 Infrastructure investment generally happens through:
– Regulation (e.g. for onshore transmission networks); or
– Competitive markets (e.g. for power stations).
 Changing industry environment
– Moving towards the new world
– Increasing reliance on the market
– Inevitable changes to the way investment is secured
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Regulation and Investment
 Appropriate level of infrastructure is key for:
– development of an internal energy market
– Security of supply
 It is also necessary but not sufficient for effective
competition within the EU gas market
– Also need transparent and non-discriminatory access
 Promotion of investment and protection of regulated
investment are core duties of the regulator
– For example, Ofgem has a duty to ensure that licencees can
finance their duties and statutory obligations.
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Moving towards the ‘new world’
 In the past, the European gas industry developed largely on the
basis of national or regional monopolies, with investment often coordinated through planning rather than market-based means
– Much was achieved!
 Now however Europe faces new challenges and has committed to a
new approach
 In the new world:
“full liberalisation…is the dominant prerequisite for the efficient use of
existing infrastructure and the development of new infrastructure. In these
circumstances, a key focus should be on the ability of signals emerging
from trade to highlight the need for new investment”
(CEER , March 2003)
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CEER infrastructure principles
 CEER set out a number of principles for infrastructure
investment:
– Public authorities should encourage sufficient investment to
implement the internal energy market, facilitate competition and
safeguard security of supply
– TSOs must manage networks in a way that ensures efficient use
of infrastructure
– Public Authorities should establish transparent, nondiscriminatory and standardised options for development of
infrastructure and minimise regulatory risk as far as possible
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CEER infrastructure principles
– Public Authorities should enforce a minimum procedure or
publication of TSOs’ infrastructure plans
– TSOs must be effectively unbundled to ensure no conflict of
interest when making investment decisions and sufficient
incentives for non-discriminatory 3rd party access
 So…transparency (by all parties), market signals and
minimisation of regulatory risk (i.e. ensuring stability) are
key to efficient investment..
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Possible approaches
 Applying the CEER principles gives three broad
approaches:
– Regulated reinforcement with regulated tariffs
– Non-regulated reinforcement with regulated tariffs
– Non-regulated reinforcement with non regulated tariffs –
“merchant line” approach
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Example: bringing new gas to GB
UKCS Forecast Decline
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Proposed new projects
Project
Size (mcm/day)
Start date
Isle of Grain LNG
12 (phase 1)
Early 2005
Belgian interconnector
compression
22 (phase 1)
19 (phase 2)
Late 2005
Late 2006
Dutch interconnector
23
2006/7
Ormen-Lange
(Langeled)
70
2006/7
Exxon LNG
36 (phase 1)
2007/8
Petroplus LNG
16.5
Late 2007
Various storage
60 or more
2005–8
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Consultation
 Transparency (by all parties) is key to stable framework
and efficient investment
– ERGEG formally established by Decision of the European
Commission. ERGEG consultation procedure approved.
– Madrid Forum – key forum for consultation
– Industry initiatives – e.g., UK offshore data release
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Conclusions
 Investment in infrastructure is key to the development of
effective competition in EU energy market
 Investment must be efficient and respond to needs of
market participants
 Transparency, reduction of regulatory risk and increasing
use of market based signals are key to achieving this
aim
 Market opening and the promotion of competition should
not and need not undermine a sound investment climate
for the European gas industry
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Promoting choice and value for all
gas and electricity customers
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