In our eighth year of writing and publishing The Energy Regulation and Markets Review, we have seen geopolitical changes that have added significant uncertainties to global energy policies. For example, the uncertainties revolving around the United Kingdom’s exit from the European Union (a process known as Brexit) have led to uncertainties regarding the UK’s energy policies, including with respect to its commitments to reduce greenhouse gases (GHG). The US withdrawal from the multiparty international agreement with Iran this past year and the re-imposition of sanctions have had significant adverse energy investment impacts on Iran and other countries in the region. Despite the withdrawal of the United States from the Paris Agreement and expressions of support from the Trump administration for the coal industry, the United States has continued its extensive investment in renewable generation resources. The 2011 Fukushima nuclear incident continues to impact energy policy in many countries. Finally, we continue to see liberalisation of the energy sector globally.

ICLIMATE CHANGE DEVELOPMENTS

With respect to climate change developments, despite the US withdrawal from the Paris Agreement, we continue to see significant carbon reduction efforts globally, including increases in renewable resources, as well as energy efficiency and demand reduction measures.

In the United States, the Trump administration had pushed for a grid resiliency plan that the Department of Energy (DOE) issued in draft form that, if adopted, would have provided a benefit to the US coal industry, but the Federal Energy Regulatory Commission (FERC) voted unanimously to reject such a plan. A record number of coal and other aged fossil fuel plants retired this past year. Additionally, many states in the United States have pushed for the procurement of thousands of megawatts of renewable resources, including new offshore wind competitive procurements in the north-east. Furthermore, private companies have led the charge to contract for the long-term purchase of renewable energy.

Despite the United Kingdom’s continued efforts to follow through on Brexit, this was a record year for renewable generation development and a record low for energy produced by fossil fuel generation. As a result, the United Kingdom experienced a 43 per cent reduction in carbon emissions since 1990. In France, President Macron announced a goal to close the remaining four coal plants by 2022, and France targeted a 40 per cent reduction of GHG by 2030. Italy is seeking to achieve 30 per cent reliance on renewable energy and a 33 per cent reduction of GHG by 2030. Belgium continued its offshore wind procurement efforts, and is seeking to reduce subsidies in future procurements. Denmark is seeking to have all of its energy demand met by renewables by 2050, with 55 per cent reliance upon renewables by 2030. Switzerland is working to increase its reliance upon hydroelectric and other renewable resources, and to reduce energy consumption by 16 per cent by 2020 and 43 per cent by 2035, compared to 2000 figures. Germany admitted that it would not meet its goal of reducing emissions by 40 per cent by 2020, as well as its goal to reduce energy consumption by 20 per cent since 2008, but it remains focused on renewable generation development, energy efficiency and conservation and energy storage technologies.

Japan continued its efforts to develop solar and wind resources, including opening new sea areas for offshore wind. But the shutdown of most of its nuclear generation has resulted in a significant reliance upon natural gas, including LNG. China set ambitious renewable energy goals, capping energy from coal generation to 5 billion tonnes and aiming to have 15 per cent of generation supplied by non-fossil fuel generation by 2020. Korea planned to abolish its old coal generation facilities by 2022, and committed to cut GHG by 37 per cent by 2030.

Australia began to focus heavily upon energy storage (battery and pumped water) and South Africa increased its renewable independent power procurement efforts.

IIINFRASTRUCTURE DEVELOPMENT

For many countries, a reliable energy supply remains the primary concern, regardless of fuel source. As only 35 per cent of Myanmar is connected to the grid, Myanmar continues efforts to electrify remote parts of the country. Iraq continues to have significant infrastructure needs, and Panama and Colombia continue to seek foreign investment. Foreign investment in Iran will be significantly more challenging following the re-imposition of US sanctions.

South Africa is utilising its Integrated Resource Planning process to attract and develop new generation and transmission capacity. Australia is developing one of the largest pumped hydroelectric storage projects globally. Colombia is developing a large hydroelectric project that is expected to produce up to 17 per cent of the country’s energy needs, but that effort is hindered by construction delays.

Denmark has five new applications for oil and gas exploration in the North Sea. In the United States, the DOE has issued a study authorising LNG exports to non-FTA nations, finding that the United States will experience net economic benefits from LNG exports, but efforts to develop oil and gas pipelines have been met with increased challenges from environmental groups.

IIINUCLEAR POWER GENERATION

Eight years after the Fukushima disaster, Japan has stopped operations for 39 out of its 48 nuclear power stations, and 12 nuclear power stations are in the process of being reviewed for restart under Japan’s new stringent safety standards. Germany continues efforts to phase out all nuclear generation, and Belgium’s nuclear plants have been offline for maintenance for technical issues for the past few years. France was seeking to eliminate nuclear generation by 2025, but it extended that date to 2035. Korea continued its efforts to phase out nuclear power, abandoning the construction of six new nuclear plants and cancelling the life extension of 10 older nuclear plants. Switzerland shut down one of its remaining nuclear plants.

But the phase-out of nuclear energy is not universal. The United Arab Emirates’ new Barakh nuclear power station is 90 per cent complete, and South Africa is still considering building nuclear capacity after 2030. In the United States, even though the early retirement of certain nuclear plants has been driven by cost and power market considerations (rather than safety concerns), some states have passed legislation to subsidise nuclear energy to allow owners to continue to operate through zero emissions credit programmes, including Illinois, New York and New Jersey, with similar legislation being considered in Pennsylvania and Ohio. While some parties challenged the constitutionality of these zero emissions programmes, two federal courts of appeals have upheld these programmes, and the US Supreme Court denied requests to review those decisions.

iVLIBERALIsATION OF THE ENERGY SECTOR

We have seen significant energy sector regulatory reforms in many countries. The European Union has sought to continue efforts to centralise the regulation of the EU energy sector. France has taken significant steps toward further liberalisation of its energy sector, as has Switzerland. Japan fully liberalised its electricity sector, will be implementing unbundling next year, and is liberalising its retail natural gas and petroleum industries to encourage market entry. Australia has opened access to transmission through regulatory reforms to encourage entry into the generation market and has implemented significant market pricing response in response to the increase of renewables. Brazil is implementing net metering regulations this year and is implementing limited retail competition for large load. But the United Kingdom took a step backwards by implementing default price caps rather than market-oriented changes. In the United States, state subsidies for nuclear and renewable generation continue to threaten the effectiveness of capacity market regional pricing.

I would like to thank all the authors for their thoughtful consideration of the myriad interesting, yet challenging, issues that they have identified in their chapters in this eighth edition of The Energy Regulation and Markets Review.

David L Schwartz
Latham & Watkins LLP
Washington, DC
May 2019