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Welcome to this edition of Fieldfisher's Energy Update.
This month we look at the announcement of a new nuclear power station in Britain at Hinkley Point, examine what could be impending European legislation in relation to emissions during shale operations and provide an update on fracking developments in the UK. There is a piece on effective compliance following recent LIBOR and energy-related fixing investigations. We look at new initiatives announced for solar power in the UK market, Ofgem's modification of licences as a result of the Third Energy Package, the European Court of Justice's recent decision on Dutch unbundling rules and in our legal update section we discuss proposed changes to the European market abuse and insider trading legislation, which will be relevant to all listed energy companies and their investors.
We hope you will find this of interest.
UK Government announces agreement on new nuclear power station at Hinkley
The UK Government and France's EDF Group have reached agreement on the key terms of a proposed investment contract for the Hinkley Point C nuclear power station in Somerset. This will be the first nuclear power station in some 20 years to be built in Britain and it is likely to mean £16 billion of inward investment and the creation of 25,000 jobs during the life of the project. EDF will lead the consortium with China National Nuclear Corporation and China General Nuclear Power Corporation set to be minority shareholders. The plan includes the building of two reactors, a 35 year contract duration and a £92.50 per megawatt hour strike price for electricity produced (or £89.50 if EDF also proceeds with the Sizewell C project in Suffolk). EDF is not expected to make a final investment decision on the project until 2014. The plans will also require state aid clearance from the European Commission.
David Wilkinson, partner in Fieldfisher's Energy and Natural Resources Group commented: "New nuclear power in Britain is a welcome development and will not only help add to and diversify energy supply but will also help reduce the carbon footprint that dependence on fossil fuels has brought. We note that the strike price, if it is to be £92.50 per megawatt hour for this project, is about 50% above the current wholesale market energy price and may cause some debate especially given the energy price rises we have seen in recent weeks."
For the announcement click here
EU warns shale gas firms is likely to be subject to impending legislation
Janez Potocnik, the European Commissioner for Environment announced in his speech in London on 21 October that there is a need for EU legislation relating to shale gas in order to harmonise the requirements across all Member States. The Commissioner said "Our objective is to put in place a framework that would reap the potential economic and energy benefits of shale gas, and ensure that extraction activities using fracking are carried out with proper climate and environmental safeguards".
The legislation could include the methane emission regulation. Studies have shown that methane is released into the atmosphere during shale gas drills. Shale gas companies operating in Europe will therefore soon have to monitor, log and account for methane emissions at drill sites or else face regulation, Jos Delbeke, director of the European Commission's climate department and the EU’s top climate officer has said.
Methane emissions can be many times more damaging than CO2 emissions over a 20-year period and risk causing further global warming. However, the amount of methane that is actually released during shale operations is disputed, with one new industry-funded report suggesting it could be less than previously thought.
As part of any legislative package in this area, the EU executive could decide on a standalone instrument such as a new directive, amendments to existing legislation, or ‘soft guidance’ to industry in the form of voluntary obligations. A formal announcement is being planned for December 2014.
For more information click here
To read the full text of the Commissioner's speech please click here
UK Fracking Update
The recent protests about proposed fracking in Balcombe have raised the profile of this increasingly controversial topic. Companies are exercising extreme caution when it comes to making sure the correct consents are in place due to the ever present threat of judicial review from objectors.
Roger Sargologo and Carlos Pierce of Fieldfisher's Energy and Natural Resources Group examine developments in this area.
Click here for more details
Comply or die (…or at least go to jail)
The European Commission, Serious Fraud Office (SFO) and US Department of Justice (DoJ) have been at the enforcement forefront with various criminal and civil actions ongoing in relation to the global LIBOR and energy price fixing investigations. Effective compliance and warning systems should be at the forefront for any company's strategic, operational and reputational thinking including those in the energy industry. Get your compliance processes in place.
To learn more including how we can help click here
Solar energy landscape in the UK is vital says government
UK's Department of Energy and Climate Change (DECC) Minister Greg Barker said recently that sensitively-sited solar photovoltaic (PV) energy will be central to the growth of renewables in the UK. Britain has already installed about 2 gigawatt (GW) of solar capacity and the DECC wanted this to grow to 20GW by 2020 he said. It is believed solar parks will be more attractive than onshore wind farms because daylight, unlike wind, is, by definition, more predictable, making the cash flows regular.
The DECC's “Roadmap to a Brighter Future” announced recently sets out the vision for the future of solar PV in the UK. The roadmap sets out four guiding principles – cost-effectiveness, genuine carbon reductions, appropriate siting and interaction with the grid. It is believed the DECC will publish a full solar PV strategy in spring 2014.
For a link to the DECC announcement click here
Modification of licences as a result of the Third Energy Package
On 22 October, Ofgem published its notice to modify electricity transmission, distribution, and gas transporters and supply licences as a result of the implementation of the Third Energy Package. The modification will take effect on 17 December, provided Ofgem's decision is not appealed to the Competition Commission.
Ofgem's notice can be found here
European Court of Justice's decides Dutch unbundling rules are justified
On 22 October, the ECJ in its preliminary ruling decided the curbs on ownership of distribution network by Netherlands is justified. In implementing the 2003 Energy Directives, Dutch legislation prohibited a private investor from acquiring or owning shares or interests in the capital of an electricity or gas distribution system operator in the Netherlands (‘the privatisation prohibition’). Also prohibited were ownership or control links between, on the one hand, companies which are members of the same group as an operator of such distribution systems and, on the other, companies which are members of the same group as an undertaking which generates/produces, supplies or trades in electricity or gas in the Netherlands (‘the group prohibition’). Last, the national legislation also prohibits engagement by such an operator and by the group of which it is a member in transactions or activities which may adversely affect the operation of the system concerned. It is worth noting that while the 2003 Directives required legal separation of the distribution networks, the Dutch legislation went further. In the decision, the ECJ notes that "a Member State has the right to opt for full ownership unbundling in its territory".
In implementing the Dutch legislation, Essent, Eneco and Delta as vertically integrated companies had to either split up the companies or sell their ownership stakes in its distribution networks. Essent, Eneco and Delta brought actions before the national courts, arguing that the national legislation was incompatible with the free movement of capital.
The ECJ held that the privatisation and group prohibition were justified and falls within the scope of Article 345 TFEU. Article 345 provides for the principle of the neutrality of the Treaties in relation to the rules in Member States governing the system of property ownership and under which, in particular, Member States may legitimately pursue an objective of establishing or maintaining a body of rules relating to the public ownership of certain undertakings.
A full text of ECJ's preliminary decision can be found here
Legal Update: EU's proposed new Market Abuse Rules are unveiled
Are you a listed energy company or invested in one?
Recently, the European Parliament formally endorsed the European Commission's proposal for a new regulation on insider dealing and market abuse. The new regulation is intended to strengthen the existing framework of the Market Abuse Directive (2003/6/EC).
Fieldfisher's Shash Dayal outlines the major proposals in relation to these rules.
Click here for more details