The European energy market is a ‘fudge’ says Ørsted’s Olivia Breese

The chief executive of Ørsted Europe believes that policymakers don’t know what they want from the market, with higher prices for green electrons as a result.

The lack of clear thinking from policymakers has been one of the main problems with electricity markets in Europe in the past five years, said Olivia Breese at the 26th World Energy Congress in Rotterdam.

“Do they want the lowest possible cost of green energy or the lowest possible cost of energy? Do they want jobs? Do they want to retain industrial demand in Europe? Do they want training for the next generation? Do they want to force sector coupling? Do they want energy security and independence?”

“They don’t quite know what they want. They sort of want all of those things, but they also don’t really want to pay for it in the cost of the electron.”

Breese said that this has resulted in an extremely complicated market.

“For me, the current energy market, such as it is, is a fudge. It’s the government’s using the tools that they have at their disposal to bring forward what they want most at that moment. And that does not result in the cheapest possible green electrons.”

“It is clear how you can get them. It is also clear how you can get an industrial transition, significant local content, and really strong jobs, but you have to pay for them. And you have to incentivize your electricity producers to provide them.”

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Breese said that not one market model – liberal or managed – is better than another, but stability is key to bringing forward any large-scale infrastructure into an investable environment.

She believes Europe has an edge on some other markets, because of the supranational set-up.

“If you [policymakers] can decide precisely what it wants from its electricity sector, then it can design a market or a structure to deliver that.

“I think we are precisely in the middle of the transition from a historic form of market where the price of electricity is set by the marginal cost of gas to whatever a world that runs entirely on green energy actually looks like. Nobody quite knows yet. And that’s why we’re in the kind of messy middle at the moment.”

Electrification investment

While being in the ‘messy middle’, Breese believes that the lack of capital is not a factor adding to investment and infrastructure development inertia. In fact, she is convinced that there is no shortage of money.

“There is plenty of capital wanting to invest in the energy transition. What that isn’t, at the moment is sufficient, well-structured projects or markets that allow that capital to be deployed at the rates of return that that capital is seeking.”

She said this is either because the risks are too high or the business cases are too uncertain, which she believes is part of the nature of the beast: the energy transition is a transition, which means it is a volatile, complex space.

So what is it going to take then to unleash the wave of capital and the project pipeline?

For Breese, it is all about planning and making sure there is a clear pipeline for projects for the capital, of offtake for the projects and of policies for everybody. This would create “an environment of certainty.”

As soon as you have that certainty, Breese believes that the supply chain can make their investments and projects can make long-term commitments to the supply chain, which will bring down costs.

“Most importantly, perhaps, industry can make investments on the certain knowledge that there will be the green power that they need to enable them to electrify their own operations.”

Corporate PPAs play an important role, but they also provide large power consumers the ability to fix their power prices.

“If you look at power prices over the last five years, there are a lot of people who bought a corporate PPA that felt very expensive five years ago, they felt quite clever over the last five years, because it is also a way of hedging.

“The more industry is able to see the electrification revolution and the potential of green electrons as a way of driving out cost, fixing this critical input, as well as decarbonizing their operations. For me, it’s those three things that will allow the scale of electrification that is needed.”

Originally published on enlit.world