The Energy Regulation and Markets Review: Editor's Preface
In our tenth year of writing and publishing The Energy Regulation and Markets Review, the most pressing global concerns have again revolved around the covid-19 pandemic, which has slowed infrastructure development globally. Accordingly, many of our contributing authors have emphasised concerns associated with the effects of the crisis on energy demand and consumption, and delays in the development of infrastructure. Beyond this crisis, we have seen many other significant geopolitical changes that have added uncertainties to global energy policies. For example, oil prices have hit record lows (hitting negative values in April of 2020), which has slowed exploration and production efforts, and has threatened economic stability for countries that depend upon oil revenues. The United Kingdom is transitioning out of the European Union (a process known as Brexit), creating uncertainties regarding the future of the UK's energy policies and its coordination and cooperation with the European Union, including with respect to commitments to reduce greenhouse gases (GHGs). Following the end of the Trump administration's 'America First' trade policies, the Biden administration is seeking to reassure US allies and historical trading partners and re-commit to the 2015 Paris Agreement. 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, contrasting with the Trump administration's support for fossil fuels, the Biden administration has committed to being a leader in the fight against climate change. While coal and other aged fossil fuel plants continue to retire at an unprecedented rate (due primarily to the economics of those facilities), the Texas winter storm in February 2021 raised some questions about whether renewable resources alone will be sufficient for long-term reliability. Many states have pushed for the procurement of thousands of megawatts of renewable resources, including from 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 state-subsidised renewable energy projects to clear in the regional capacity markets through a minimum offer price rule to mitigate buyer market power.
Despite Brexit, the United Kingdom's renewable energy targets have already exceeded 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. 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. Belgium has continued its significant offshore wind procurement efforts, and is seeking to reduce subsidies in future procurements. While Germany has had difficulty meeting its previous emissions reductions goals, it has now set a target of 2038 for the phase-out of coal power plants, and remains focused on the continued development of renewable generation, energy efficiency and conservation, as well as energy storage technologies. In Portugal, carbon emissions dropped by 7 per cent, perhaps in part due to the covid-19 pandemic. Poland has been struggling to meet the European Union renewable energy targets but has plans to develop offshore wind generation.
Japan has 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 liquefied natural gas, and reductions in renewable energy prices have caused a slowdown in new solar and wind development. Japan has long utilised a feed-in tariff mechanism to encourage renewable development, and in 2022 will implement a feed-in premium to further encourage renewable investment. 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. Taiwan is seeking 20GW of solar PV installed capacity by 2025, and is looking to develop 5.5GW of offshore wind capacity.
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 points 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 approved 349 new renewable projects over the last decade.
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 Abu Dhabi is seeking to reduce electricity consumption by 22 per cent by 2030. 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 covid-19 pandemic has slowed infrastructure development for many countries, particularly those in which a reliable energy supply remains the primary concern, regardless of fuel source. As less than half of Myanmar is connected to the grid, there are continued efforts to electrify remote parts of the country (55 per cent by 2021 and 100 per cent by 2030). Lebanon has been relying upon floating generation barges to increase electricity supply, but now faces the risk of having some of these barges leave Lebanese shores due to the government's failure to make payments to the barge owners.
III Nuclear power generation
Nine years after the Fukushima disaster, Japan has stopped operations at all but seven of its 36 nuclear power stations, and 11 nuclear power stations are in the process of being reviewed for restart under Japan's stringent new safety standards. Germany continues efforts to phase out all nuclear generation by 2022, and Belgium's nuclear plants have often been offline for maintenance for technical issues in the past few years. 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). South Africa's nuclear ambitions appear to be on hold at least until 2030.
However, the phasing out of nuclear energy is not universal. The United Arab Emirates' new 5,600MW Barakh nuclear power station is almost complete and one of its units is already operational. When all units are online, Barakh will supply 25 per cent of the emirates' electrical needs. Poland still intends to explore the development of nuclear power in the future, with a target date for the first unit in 2033. 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, 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. France has taken significant steps towards further liberalisation of its energy sector. Japan has fully liberalised its electricity and gas sectors and is encouraging market entry. Australia has opened access to transmission through regulatory reforms to encourage entry into the generation market and is undertaking significant energy market reforms to send more accurate price signals to market participants. Brazil continues its efforts to implement net metering regulations. China has reduced subsidies for renewable energy, price transmission and distribution rates based upon a cost-plus regulatory methodology, and has implemented a market-priced mechanism for pricing coal-based generation. The United Kingdom has implemented a competitive tender process for the development of offshore transmission. In the United States, while states have continued to subsidise nuclear and renewable generation, the Federal Energy Regulatory Commission has permitted certain regional markets to implement minimum offer price rules to combat buyer-side mitigation in an effort to maintain competitive capacity 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 tenth edition of The Energy Regulation and Markets Review.
David L Schwartz
Latham & Watkins LLP