September 29, 2013 2:52 pm

Eon chief warns US energy advantage makes Europe uncompetitive

men working on the logo of German power giant E.ON©AFP

The head of Germany’s largest utility has warned it will be years before Europe can hope to counter the US’s growing advantage in energy costs and predicts that the disparity will meanwhile lead heavy industry to abandon the continent.

Johannes Teyssen, chief executive of Eon, said there were no obvious options for Europe to narrow the US advantage – whether by drilling for shale gas, importing more liquefied natural gas or importing inexpensive US supplies.

“There is a competitive advantage for America that we cannot prevent, at least for some time,” Mr Teyssen told the Financial Times. He said it was “a dream” for politicians to suggest otherwise. “It will take years and long years of innovation before we can start to shrink it,” he added.

Mr Teyssen’s comments will add to growing concerns in Europe that high energy prices are encouraging manufacturers such as chemicals companies to shift investments across the Atlantic, where the shale bonanza has reduced natural gas costs to between a quarter and a third of those in the EU.

The issue was discussed at a summit of EU heads of government in Brussels in May and is expected to be a priority for a new German government.

“The price difference is unnerving some companies and deciding their investments,” Mr Teyssen said, adding that the US advantage was “getting so big we cannot allow it to continue”.

Even if Europe put aside its environmental concerns and decided to pursue natural gas fracking, it would take at least five years to develop such an industry, he predicted. Instead, he said, the continent was more likely to benefit if China and Australia pushed ahead with the technology because it would free up gas from Qatar and other world suppliers.

“The indirect fracking effect is probably the one that helps Europe the fastest – not direct fracking,” Mr Teyssen said.

With few other options at hand, Mr Teyssen argued that European politicians concerned about industrial competitiveness should focus on repairing an EU energy policy that was becoming increasingly dysfunctional. “There have been a lot of good intentions . . . but things are now just getting out of control,” he said. “European power is getting dirtier. The CO2 content is increasing in spite of the renewables. It is unaffordable, and it’s losing its security. So the alarm signs are tremendous.”

A priority for utilities is to rein in generous subsidies for renewable energy that have underwritten a boom in solar and wind power across the continent. Mr Teyssen blamed such support schemes – along with laws in Germany and other member states that prioritise renewables – for distorting the market. One consequence is that Eon has been forced to mothball gas-fired plants that are efficient but no longer profitable.

“We are feeding a giant with baby nutrition, missing the point that this giant can and needs to walk on its own feet now,” Mr Teyssen said of renewables.

Eon and other European utilities have been lobbying Brussels to ease state aid rules so that governments can shift subsidies to gas-fired plants that have been displaced by renewables but are still necessary to ensure supplies on days without sunshine or wind.

We are feeding a giant with baby nutrition, missing the point that this giant can and needs to walk on its own feet now

- Johannes Teyssen, chief executive of Eon, about renewables

Günther Oettinger, the EU energy commissioner, is sympathetic to the industry’s complaint. Yet Mr Oettinger has generally argued that the best solution is to press ahead with a campaign to create a true, single EU market for gas and electricity. Such a market, long the centrepiece of Brussels’ energy policy, would lead to lower prices while also making supplies cleaner and more reliable, according to EU officials.

But Mr Teyssen argued that Europe’s energy market was, if anything, becoming more national – and even regional – and that claims to the contrary were the equivalent of “pigs in orbit”. He noted that in Germany, for example, the northern state of Schleswig-Holstein had drawn up plans to generate four times more wind power than it could use even as neighbouring states opposed any plans for transmission lines that might carry the electricity elsewhere.

“I hear so many European politicians talk about the finalisation of the internal market of energy while, in reality, today the train moves with high speed towards nationalisations and fragmentation,” Mr Teyssen said. “It is lacking credibility.”

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