UPDATE 1-European utilities urge policy reform to avert black-outs

Fri Oct 11, 2013 2:17pm BST

Quotes

   

* CEOs say half electricity bills stem from "political" charges

* Want end to green subsidies, support for gas generation

* Call for stronger carbon market

* 'Magritte Group' formed in May to demand reform

By Geert De Clercq and Barbara Lewis

BRUSSELS, Oct 11 (Reuters) - Bosses from 10 utilities representing half of Europe's power-generating capacity urged the European Union on Friday to adopt reforms to prevent black-outs and help the indebted sector adapt to future demand.

The CEOs, who call themselves the Magritte Group after an initial meeting in an art gallery, said EU energy and environment policy was failing in its objectives and had raised the risk of the lights going out.

Rising electricity bills that are damaging Europe's international competitiveness were the fault of political charges and misguided subsidies for solar and wind, rather than the fault of the energy companies, they said.

"We cannot have a renewables society without security of supply," said Peter Terium, chief executive of Germany's RWE .

"The S.O.S. signal that we are sending today is about the need to have a power market design that catches up with this reality."

Without action, the CEOs said the sector would remain unworthy of investment and reliable power would be a thing of the past.

"The risk of black-outs has never been higher," GDF Suez CEO Gerard Mestrallet said.

Europe's electricity bills, burdened by subsidies for renewables, are around double those in the United States, where shale gas has lowered costs, the CEOs noted.

"We have to make sure the energy price is not the vehicle for translating other non-related political costs," E.ON Chief Executive Johannes Teyssen said.

HOW MANY TARGETS?

EU policy stretches out to 2020 with a set of policy goals to encourage sustainable, secure and affordable energy supply. They include a target to increase the use of renewables to 20 percent, cut carbon emissions by 20 percent and increase energy savings to 20 percent of projected levels.

Policymakers are expected to announce proposals for 2030 goals around year-end. They are expected to propose two goals, one for greenhouse emissions and one for renewables, while the CEOs want a single climate goal.

The Commission, the EU executive, is also revising guidelines on support schemes, which could limit government subsidies for green power.

Environmentalists say targets for renewables, energy savings and the climate are all essential and have been proved to work.

Yet the utilities argue generous feed-in tariffs have distorted the market, while they have been forced to mothball gas-fired power plants because they cannot compete.

According to the Magritte Group, utilities have closed 51 gigawatts of modern gas-fired generation assets - the equivalent of the combined capacity of Belgium, the Czech Republic and Portugal - and the risk is more will be shut.

To help maintain the gas-fired capacity as vital back-up to intermittent renewable power, the CEOs want a Europe-wide mechanism to pay utilities for keeping capacity on stand-by.

At the same time, to help make gas more competitive against more polluting coal, the CEOs want a quick fix to the EU Emissions Trading Scheme, where carbon prices have plunged to record low prices this year under a burden of surplus credits.

With carbon still below 5 euros per tonne, it is more expensive to burn gas than coal.

The CEOs are competitors, but they decided to set aside their differences in May at a meeting in the Brussels museum of Belgian surrealist artist Rene Magritte.

The Magritte Group includes GDF Suez, E.ON and RWE, Spain's Iberdrola and Gas Natural, Italy's Enel and Eni, Sweden's Vattenfall, Czech utility CEZ and GasTerra from the Netherlands.

Their lobbying of the European Commission and national governments has had an impact, with Germany, France and Spain saying they are rethinking green support schemes while the Commission is reviewing EU-wide guidelines.

The guidelines could include a capacity mechanism, although some in the Commission are known to have reservations about what they consider a subsidy for fossil fuel.

EU energy policy and its costs will be debated by heads of state and government at a summit early next year. (Additional reporting by Francesco Guarascio and Tom Koerkemeier; editing by David Cowell and Jason Neely)

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