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 The November referendum in Berlin failed, but in September, citizens
of Hamburg, Germany's second-biggest city, voted to return their
power grid, also run by Vattenfall, to public ownership.
The votes were organized by citizens' groups who want municipalities
to buy back electricity distribution networks from private
utilities, because they say local authorities can provide a cheaper
and better service.
The German movement is part of a Europe-wide reversal of the trends
towards liberalization and privatization that have driven energy
policy in the past decade.
While ostensibly backing free energy markets, many European
governments squeeze utilities by intervening in power generation
while also capping energy prices. This creeping renationalization
cuts utilities' profits by billions of euros.
The idea behind the EU-driven energy liberalization was to force the
old monopolies to compete so that prices could fall and services
improve.
Countries privatized utilities and split them into private power
producers and independent, but government-regulated network
operators. Energy retailing was also freed up for vendors to compete
for household accounts.
But as Europe created a free market for power generation, it also
brought back regulation by encouraging wind and solar power
generation with generous state subsidies.
As renewable energies boomed, their priority access to the grid and
cost-free operation crowded out the utilities' traditional plants,
to the point that gas-fired generation has become virtually
uneconomical in Europe.
With their investment choices for producing power limited by
government policies, utilities also saw their retail prices
regulated. Spain and France limit energy prices for consumers, while
Germany provides big discounts for industry.
But keeping prices low for consumers and industry, while also
favoring green power generation and maintaining security of supply
is just not possible.
"RENATIONALIZING OUR REVENUES"
Critics say that these mutually exclusive targets have made much of
Europe's energy regulation so inconsistent that private firms can no
longer operate profitably. Investment in non-subsidized generation
has virtually dried up.
"At some point the regulatory risk gets so bad that it might be
better to give the political risk back to the policy makers by
renationalizing the sector," said Georg Zachmann of Brussels think
tank Bruegel.
A country close to this point is Spain, where generous subsidies to
the renewables sector and caps on energy prices have led to the
build-up of a 30 billion euro power tariff deficit — the difference
between the cost of energy and what utilities are allowed to charge
for it.
Last month, the Spanish government scrapped plans to reduce the
deficit by sharing it between utilities, consumers and the state,
and pushed the debt back onto the balance sheets of utilities such
as Iberdrola, Endesa and Gas Natural, which will have to hold it for
15 years.
For the Spanish utilities, this boils down to a creeping
nationalization of their profits.
"They are renationalizing our revenues, but not our assets. That is
worse," Iberdrola CEO Ignacio Galan said.
Spanish Industry Minister Jose Manuel Soria told Reuters in November
he does not think utilities should be renationalized and more
competition is better for consumers.
But Spain might serve as an example of where other countries are
heading, as more and more EU governments dictate investment choices
through subsidies and regulate tariffs.
Britain — the cradle of European energy liberalization — seems like
an unlikely candidate to lead the way: its Electricity Market
Reform, to come into force this year, will introduce the "Contracts
for Difference" scheme, which offers price guarantees for low-carbon
energies.
The British package will also dictate which power plants receive
public money to provide backup power generation.
In October, Britain agreed to give unprecedented loan guarantees and
a 35-year power price guarantee in a deal with France's EDF to build
a nuclear plant at Hinkley Point.
This will reverse more than a decade of non-intervention in power
generation and turn Britain's low-carbon energy production — essentially offshore wind and nuclear — into a government-regulated
activity.
Britain's opposition leader Ed Miliband promised more regulation in
September by saying he would freeze retail energy prices for 20
months if he were elected in 2015.
"The UK led the way in liberalization and I think it is leading the
way — for better or worse — in changing its market framework towards
having a much greater role for the state," said Compass Lexecon
energy consultant Fabien Roques.
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"EXPROPRIATION"
The most radical renationalization drive in Europe is in Hungary,
where the government wants to turn utilities into non-profit
organizations.
Prime Minister Viktor Orban wants to nationalize six or seven
utilities and if he is re-elected this spring he plans to make them
"community-owned" within a year or two.
Most of Hungary's energy sector is foreign-owned, mainly by
German, French and Italian firms including E.ON, RWE, EDF, GDF Suez
and Eni.
Late last year, state-owned energy group MVM bought E.ON's gas trade
and storage businesses and it is also in talks with RWE about buying
its stake in Budapest gas utility Fogaz Zrt.
Hungary does not confiscate the foreign-owned firms, but pays for
the assets, albeit at prices depressed by a tough regulatory regime
and state-imposed energy price caps.
RWE East chairman Martin Herrmann says Hungary's moves are
unacceptable and has spoken of "expropriation".
"PLANNED ECONOMY"
Germany's movement to put local power networks in municipal
ownership is relatively benign, as it allows utilities to sell their
assets at market prices and redeploy capital elsewhere.
"It is not renationalization but remunicipalization that we are
after. Energy issues should be dealt with on a local level," said
Stefan Taschner, head of BurgerBegehren Klimaschutz which drove the
Berlin campaign.
Taschner thinks all power distribution networks should be in
municipal hands, although he does not object to "a good mix" of
public and private ownership for power generation assets.
After losing the Berlin referendum, the group is now helping
citizens' groups in cities such as Essen and Karlsruhe wrest
distribution networks from private ownership.
"I have been in the industry 25 years and I have seen cities go
three times private and three times public so I would not
overinterpret the moment," E.ON CEO Johannes Teyssen told Reuters,
adding that public owners would face the same cost pressures as
private utilities.
Teyssen is part of the dozen-strong Magritte group of utilities
CEOs, which represent half of Europe's electricity generating
capacity. They say European energy policy is a failure, as retail
power prices are higher than ever, security of supply has weakened
and investment has stalled.
The group wants an end to subsidies for "mature" renewable energies
such as onshore wind and solar.
Two of its proposals — strengthening the European carbon market and
the establishment of EU guidelines for capacity remuneration
mechanisms — actually offer more regulation and would increase the
role of the state in energy policy.
Capacity mechanisms — under which utilities are paid, and sometimes
forced, to keep idle plants on standby — are the most recent
development in EU utilities regulation.
In Germany, where utilities are already told by government in which
assets to invest (renewables) and which not (nuclear), they are now
also told where not to divest.
Utilities must get approval from the regulator to close plants and
can be forced to maintain unprofitable operations to minimize
blackout risk.
Dirk Uwer, partner at German law firm Hengeler Mueller, said
utilities can no longer take plants off grid for economic reasons,
since grid operators and regulators can order them to stay online in
exchange for compensation payments.
"We have arrived at a planned economy," he said.
(Additional reporting by Christoph
Steitz and Vera Eckert in Frankfurt, Tracy Rucinski in Madrid and
Karolin Schaps in London; editing by Giles Elgood)
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