[NGW Magazine] Jupiter's Holiday Reading

This article is featured in NGW Magazine Volume 2, Issue 15

As a French energy expert, I’m often asked what the new president Emmanuel Macron is planning to do. As I have no inside information, here instead are some suggestions.

With this newly elected president, France strides out of the 1980s and into the 2010s. At 39 years of age, Emmanuel Macron is finally allowing France to make up for the lost 40 years and to enter the 21st century – even if this is 17 years late.

After almost three months in power, Macron revised the top position, turning the dial from “normal” – as his unsuccessful predecessor Francois Hollande was known – to “Jupiter”. Thanks to his efforts, France is back on the international scene, with strong ties with Germany and Canada and respect shown by Russia and the US.

So as a president that wants to “#makeourplanetgreatagain”, what should he do in energy if he is to be as celebrated as he has been so far in the the international arena?

Continue to be lucky

We are now fast-tracking a low-cost energy transition. Consumers that had in the past to pay a premium for the energy transition, should now enjoy the benefit of fuel competition thanks to renewable costs going down. So, we can make our planet great again without going poor. This is a huge benefit for an elected policy maker…

Fully unbundle and sell Engie

As a pro-European president he should admit that his predecessors never fully implemented the spirit of the European Union's Third Energy Package in France and impose now full unbundling on Engie by selling all regulated gas businesses.

As the recent Norwegian Gassled ruling shows, the state/regulator retains full power over private companies to reduce gas transportation tariffs. Further, in an energy transition world, it is very risky for French taxpayers to keep hold of a partly state-controlled company whose shares are likelier to fall, as they have over the last nine years, than to rebound – so Engie's competitive energy business should also be completely privatised. With the recent decision of the Conseil d'Etat stating that the government is no longer allowed to set residential gas tariffs, a former banker should know that competition alone will allow the French to benefit from low gas prices.

France used to have two fully state-owned oil companies that, once privatised, merged later into what is now a major privately owned international oil company: Total. Once completely privatised, Engie will have to show its ability to survive/thrive in this changing energy world where low-cost is the key metric. Also unbundling and selling Engie today will provide much needed cash, helping France to meet its European 3% maximum deficit target. Finally, as Engie has recently changed its name by removing any link to “France” this privatisation shouldn’t be opposed by the French, who have no clue what Engie stands for!

Take back control of EDF

During his campaign, Emmanuel Macron repeatedly stated his will to overhaul senior public administration, in order to ensure that it did not hamper the implementation of reforms: he said in late April: "In the first months, I will change or confirm all the positions of management in the civil service."

It is interesting to remember that the EDF CEO in March 2016 gave the final investment decision for building Hinkley Point C nuclear power plant in the UK when his CFO resigned stating that this was going to be a disaster… The then CFO, like Emmanuel Macron, is a former banker and as such can understand an Excel spreadsheet!

A year later (July 2017), EDF announced yet another capex increase and delay to its UK to-be-built nuclear plant, showing that the then CFO was perhaps right... Project completion costs are now estimated at £19.6bn ($25.5bn), an increase of £1.5bn with the risk of deferral of delivery estimated at 15 months… On top of that, with the Brexit referendum, what looked a strong and stable currency – sterling – could generate huge foreign exchange risks for a company like EDF whose accounts are in euros.

Following the French energy minister's confirmation of the 50% cap on nuclear by 2025, with the closure of up to 17 reactors of the total of 58, it is now time to recognise that Fukushima killed the nuclear industry and therefore to bring to an end this UK adventure before, as the former CFO said, it puts the whole of EDF at risk. Less capital expenditure spent in the UK should allow EDF to focus on improving old French nuclear plants standards and then decommissioning them.

Reshape EU ETS

During his campaign, Emmanuel Macron wanted to have a common CO2 floor for all European countries. A higher CO2 price, will help Europe to fast track its energy transition.

Even if this looks like an impossible human task, Jupiter, the god of gods could still push Brussels to react to Brexit by reducing the EU allowances cap by 20% overnight. This is the real power in politics: providing a workable solution by thinking outside the box!

Be efficient and act in favour of Europe: if something is done at the national, the EU and/or the international levels, select the most appropriate level and exit all others.

For example, all over Europe, regulators have failed to properly defend consumers' rights before big utilities. Recognising that the French energy regulator has failed – like all others – Macron should fast-track an EU-wide solution where a European regulator with more powers should be more cost-effective and better for all EU consumers.

Post-Brexit, France cannot be at the centre of EU energy markets – this is more a role for the Dutch – but France can take the lead in pushing for a European energy regulatory system that fully takes climate into account. Swapping the French regulator for an EU one could be the first smart move to regain credibility in Brussels after years of failing properly implementing EU energy directives.

Leave the IEA

Oil is now commonly viewed as a fossil fuel that negatively impacts the climate. The energy minister has already decided not to provide any upstream concessions in France; a law is to be voted in parliament later this year. So if the US president, Donald Trump, is leaving the Paris Agreement – an instrument to combat climate change – France should leave the International Energy Agency. It was useful in the last century but is today less important for our energy transition.

On top of that, EU directives are duplicating IEA strategic oil storage requirements. So, let’s be totally European and leave the IEA to Donald Trump, and his concerns about coal, oil and gas. This will again reduce France's overall costs and make the French administration leaner. There will no longer be any need for the government to liaise with the IEA. The European Commission will still be there to oversee the IEA work.

Also as a former banker, Macron should know that forecasting the supply-demand balance and the price of commodities is very difficult and this task should be left to independent analysts competing for private money via the Markets in Financial Instruments Directive 2 regulation to be implemented in Europe from 2018.

Innovation is king: re-orient public research

France has a first-class energy research and development sector. Many French companies were born thanks to this public enterprise: Areva in nuclear, TechnipFMC in oilfield services, for example.

For nuclear, the question of fusion and the Iter international programme – the world's largest fusion experiment – should be looked into and some decision taken and shared with the people: either we completely discard nuclear for power generation and we do not need to research; or we believe that if a clean and safe nuclear fusion emerges we would consider if we should pursue this research programme. Research on combustion engines should be stopped as we know that neither the volume car manufacturer Volvo nor the French state do not believe these have a future beyond the next decade or so.

Research should therefore be focused on environmental issues. For example, the case of gas is unclear and depends highly on the ability of the industry to curb methane leakages. Public research should be able to provide an independent assessment of these leakages to allow policy makers to decide if gas is merely to be a transitional fuel; or if it should be a destination fuel.

France has already some privately owned battery companies: Saft, now owned by Total; Schneider; and Blue Solutions, owned by Bollore. This is where public and private research should be instrumental, creating major companies for the 21st century. This could even lead to the creation of an EU-27 “energy airbus”: a green company providing cheap, green, all-year-long decentralised energy.

As Jupiter managed the pantheon of Roman gods of the sun (Apollo), fire (Vulcan) and the less well-known god of winds, Macron has the power to shift the nuclear-power-based French energy system back to the forefront of decarbonisation and security of supply with the best European energy mix for the 21st century. Let’s hope that Jupiter can achieve those Herculean tasks – not just for the benefit of the planet but also for French taxpayers and consumers!

Thierry Bros 

Thierry Bros