The Energy Regulation and Markets Review: Editor's Preface

In our 11th year of writing and publishing The Energy Regulation and Markets Review, the most pressing global concerns are inflation, supply chain concerns, the Ukraine war and continuing effects from the covid-19 pandemic. Accordingly, many of our contributing authors have emphasised concerns associated with the effects of these crises on infrastructure development, commodity purchases and energy demand. We have also seen industry and regional specific changes that have added uncertainties to global energy policies. For example, oil and gas prices have spiked sharply (offering a dramatic contrast to historically low prices just two years before). While pricing changes may be a boon for sellers and their exporting countries, that has created uncertainty for countries that are highly dependent upon oil and gas consumption and imports, particularly imports from Russia, which is now subject to certain embargoes following the initiation of trade sanctions earlier this year arising from Russia's invasion of Ukraine. Additionally, the United Kingdom continues to experience uncertainties resulting from its transition out of the European Union (a process known as Brexit), particularly regarding the future of its energy policies to reduce greenhouse gases and its coordination and cooperation with the European Union. The Biden administration has continued to reassure US allies and historical trading partners that it remains committed to the 2015 Paris Agreement, notwithstanding the Trump administration's previous withdrawal. And the memory of the 2011 Fukushima nuclear incident continues to affect energy policy in many countries. Finally, there are continued efforts to liberalise the energy sector globally.

I Climate change developments

We continue to see significant carbon reduction efforts globally, including increased use of renewable resources and measures to improve energy efficiency and reduce demand.

In the United States, the Biden administration has continued to commit to the fight against climate change, despite the previous administration's support for fossil fuels. While coal and other aged fossil fuel plants continue to retire at an unprecedented rate (primarily because of the economics of those facilities), the Texas winter storm in February 2021 and recent dramatic increases in oil and gas prices have raised questions about whether renewable resources alone will be sufficient for long-term reliability. The US Federal Energy Regulatory Commission issued a report recommending reliability improvements to prevent rolling blackouts resulting from severe storms. Many states have continued to award procurements of thousands of megawatts of new offshore wind development projects on the east coast and, in May 2021, the US Bureau of Ocean Energy Management granted its first approval for the Vineyard Wind offshore project. The Federal Energy Regulatory Commission has continued to struggle with whether and how to impose regulatory restrictions on the ability of states to subsidise renewable energy projects in light of their adverse impacts on competitive market prices.

Despite Brexit, the United Kingdom's renewable energy targets have continued to meet or exceed those of the European Union. France is seeking to double its wind and solar capacity and President Macron has announced a goal to close the remaining coal plants by 2022. France has recently updated its national policy priorities with respect to climate change to include low-carbon hydrogen resources as well as power plants equipped with pumped storage, and provided a new certification process for biogas. Italy had previously targeted a 28 per cent reliance on renewable energy by 2030 but is now working to reach the 32 per cent target adopted by the European Union, and has recently created a new Ministry of Ecological Transition to assist with the fight against climate change. To reduce reliance on Russian oil and gas, Belgium seeks to triple its offshore wind capacity to 5.8GW by 2030. Portugal is retiring coal generation and replacing it with renewable and hydrogen generation resources. Greece is decommissioning some of its old lignite plants and has begun implementation of a 'just transition' plan. Poland has been struggling to meet the EU renewable energy targets but has plans to develop significant offshore wind generation.

China continues to have ambitious renewable energy goals, aiming for an emissions peak by 2030, carbon neutrality by 2060 and a goal of 15 per cent of generation supplied by non-fossil fuel generation. There remains significant debate in Australia regarding the role of gas and coal in the energy landscape, which has led to a patchwork of national and state policies that point to continued uncertainty regarding Australia's commitment to carbon reduction. Malaysia continues its efforts to encourage greater entry into the renewable energy market and has goals to reach 31 per cent renewable generation by 2025 and 40 per cent by 2035, which reflects an increase in renewables of 15 per cent over previous targets.

The United Arab Emirates aims to reduce its carbon footprint by 70 per cent by relying on 50 per cent renewable energy by 2050, and recently launched an ambitious initiative to fund and supply clean electricity to almost 100 million people in Africa by 2035. In Brazil, hydroelectric resources constitute more than half of its installed generation capacity, and efforts continue to increase wind and solar generation as the cost of renewable generation has decreased.

II Infrastructure development

The multiple crises so far this year (inflation, the war in Ukraine, supply chain issues and the continued covid-19 pandemic) have increased prices and slowed infrastructure development for many countries, particularly those in which a reliable energy supply remains the primary concern, regardless of fuel source. Even the United States is no exception, as controversy remains over the Dakota Access Pipeline, development and approvals for which have continued to stall, and the Biden administration revoked the Keystone XL Pipeline's presidential permit in January 2021, regardless of the recent dramatic increases in oil prices. The European Union has recognised the need to secure a diverse energy supply, particularly in view of Russia's invasion of Ukraine and the desire to reduce reliance on Russian oil and gas. Belgium is expected to increase investment not only in renewable generation but also in hydrogen and geothermal energy to combat reliance upon Russian oil and gas. Portugal is also seeking to expand the development of green hydrogen as an alternative fuel source, including development of the Sines project, which is intended to replace in part the capacity lost following the retirement of coal generation. Furthermore, and unsurprisingly, Russia is expected to experience a significant downturn in foreign investment in its energy sector as a result of sanctions imposed by the United States, the European Union, the United Kingdom and many European states. Lebanon has developed a plan to reform its electricity sector to increase installed capacity so that electricity can be provided for up to 20 hours per day. Nigeria has only 12,000MW of installed generation capacity, which is insufficient to meet its needs, and is looking to the gas sector in the country to supply sufficient fuel to support additional generation resource development.

III Nuclear power generation

Ten years after the Fukushima disaster, there is a struggle between efforts to limit reliance upon nuclear energy and the emissions reductions and fuel diversity benefits nuclear power offers. Because of the Ukraine war and the need for fuel diversity, and the importance of nuclear power for fighting climate change, Belgium has extended the economic lifetime of two nuclear power plants until 2035. France had previously sought to eliminate nuclear generation by 2025 but has extended that date. South Korea has continued its efforts to phase out nuclear power (replacing nuclear plants with new renewable facilities over time). However, the United Arab Emirates' new 5,600MW Barakah nuclear power station is almost complete and one of its units is already operational. When all units are online, Barakah will supply 25 per cent of the emirates' electrical needs. Poland still intends to explore the development of up to six new nuclear power units in the future, with a target date for the first unit in 2033. In the United States, although 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, New Jersey and Ohio.

IV Liberalisation 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, albeit without the full participation of the United Kingdom. Belgium, Portugal, Greece and France (among others) have each taken significant steps towards further liberalisation of the energy sector. Australia has opened access to transmission through regulatory reforms to ensure timely transmission investment and encourage market entry, and continues to engage in significant changes in the regulation of the energy market. Brazil has recently implemented net metering regulations and is now implementing distributed generation regulations. China has reduced subsidies for renewable energy and has implemented a market-price mechanism for pricing coal-based generation. The United Kingdom has continued to implement a competitive tender process for the development of offshore transmission. In the United States, while states have continued to subsidise renewable generation (particularly significant new subsidies for offshore wind development in the Northeast), the Federal Energy Regulatory Commission has continued to struggle between deference to states in making procurement decisions and protections against adverse impacts on competition by implementing minimum offer price rules to combat buyer-side mitigation markets.

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 11th edition of The Energy Regulation and Markets Review.

David L Schwartz
Latham & Watkins LLP
Washington, DC
May 2022

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