SPEAKERS
Alfredo Elías Ayub Director General Comisión Federal de Electricidad	Lars G. Josefsson President and CEO Vattenfall AB
Bruno Lescoeur Senior Executive Vice President & Member of the Board Electricité de France	Alexander Landia Chairman of Board of Directors OAO SUEK - Russia

The afternoon Power Plenary, led by Matt Brown, CERA Director, European Power, featured discussion on new strategies in power. The four distinguished panelists offered perspectives on nuclear, coal, climate change, and regulatory versus market approaches.

In opening the session Mr. Brown remarked that the electric business is regional at present, and that local knowledge is critical for success. But increasingly, global issues such as climate change, capital cost escalation, cost of capital, workforce shortages, and fuel availability are converging and putting pressure on prices. The panelists offered perspectives on the effects of these factors on regional companies and how these companies are responding.

Lars G. Josefsson, President and Chief Executive Officer, Vattenfall AB, cited the five main challenges facing the industry—secure access to energy, regulation and functioning markets, customer satisfaction, technology and construction cycles, human resources, and climate change—and considers the first and last to be the most critical. The upside is that “everybody needs your product”; the flipside is that “political masters like to show command and control over supply.” He labeled the “market versus regulation” debate as a misconception, as every market is regulated in one way or another, from monopoly to various forms of competition. Add policy, technology, and capital and “you have the market boundaries,” but he said this equation is not well understood. In this capital-intensive industry, players look for stability; but he “can’t say that we have stability today; there’s lots of uncertainty going forward.” In fact, consumer prices are unnecessarily high because of lack of political stability. Security of supply will require both coal and renewables, he said. He recommended investment in low-marginal-cost production. The “license to operate” includes a constructive dialogue with consumers, regulators, and policymakers, to communicate what is possible and to avoid perceived conflict of interest. “Clean coal is a prerequisite for a sustainable world,” he said, but we need to know the technical road map and time frame for carbon capture and sequestration and other approaches. Pollution abatement means a “total redesign of the world economy” and represents an enormous business opportunity, which will not be possible without a price on carbon emissions. Decarbonizing operations, he said, is a winning strategy. The solution is a combination of market forces and intelligent policies. “These are the best of times to be in this industry,” he concluded, “but this is not business as usual.”

Bruno Lescoeur, Senior Executive Vice President and Member of the Board, EDF, offered another European perspective, in which nuclear figures prominently. Since its IPO in 2005, EDF, a power generator, supplier, and distributor, has transformed from a vertically integrated state-owned monopoly to a €60 million company. Most of its revenues come from its European business, but the company is seeking a global presence, especially in Asia and the United States. In France 96 percent of EDF’s power generation is CO₂ free, and primarily nuclear. This aligns with EU energy policy targets to reduce greenhouse gases by 20 percent by 2020, improve energy efficiency by the same percentage, and raise the share of renewables to 20 percent in that time frame. Mr. Lescoeur described the context of the European electricity market, including the amount of new capacity and investment needed by 2030 to meet growing demand. EDF’s strategy is to promote the efficient use of CO₂-free power, build on its competitive advantage in generation, and invest in generation and networks. The company is working on nuclear initiatives in a number of countries and lists the prerequisites for development as safety as the top priority; public acceptance (including a clear waste management strategy); and competitiveness through industrial organization and regulatory frameworks. Mr. Lescoeur concluded by remarking that the future of nuclear looks bright provided that the industry becomes even more competitive, cooperative, and innovative; and attracts and retains talented and motivated people.

During the tenure of Alfredo Elias Ayub, Director General, Comision Federal de Electricidad (CFE), since 1999 the company has built 32 power stations and has nine under construction. Mr. Elias discussed four themes: global trends, including rapid demand growth, fuel supply lags, high and volatile fuel prices, and growing social pressure to reduce emissions; the environmental challenge; long-term fuel supply security; and the financing of expansion. Utilities are feeling increasing local and regulatory pressure regarding emissions reduction, which is high on the political agenda worldwide. For CFE the environmental challenge involves improvement of fuel efficiency, relaunching of hydropower projects, wind projects, and hybrid solar-gas projects, although Mr. Elias conceded that fossil fuels will continue to play a leading role. Challenges to long-term security in fuel supply include growing demand fueled by rising living standards and by growth in China and India, the rising capital costs of new projects, and geopolitical uncertainties in exporting countries. Solutions include diversification, construction of liquefied natural gas (LNG) infrastructure, and long-term LNG supply contracts. Expansion is complicated by volatile markets, shortages in capital goods, and shrinking profit margins. CFE aims to meet its goals through total investments of US$49.4 billion from 2007 to 2016 and through public-private partnerships, including in independent power production. When asked about market forces versus regulation, Mr. Elias commented, “Monopoly isn’t good for anyone.”

Alexander Landia, Chairman of the Board of Directors at the Siberian Coal and Energy Company (SUEK), offered comments from a coal and power generation perspective. SUEK owns the third largest coal reserves in the world and is the seventh largest producer, supplying 90 million tons per year; the company also has 12.5 gigawatts of installed power capacity. The key factor of SUEK’s strategy is primary energy distribution; since early 1990 prices for gas were kept low through subsidies, but the government is liberalizing gas prices. When this takes effect in 2012, it will change the economics of power generation, making coal more competitive and supporting the buildup of coal generation. SUEK welcomes engagement with international companies and the exchange of technology and expertise. Mr. Landia cited the opportunities ahead for power generation, including value creation through participation in the rapid growth of the Russian economy, the modernization of plants and equipment, and the introduction of management best practices. The primary challenge is unprecedented transformation: the expected level of commitment versus market uncertainty, lack of experience in plant construction, and scale and coordination with primary fuel suppliers. “The scale of the task ahead is substantial,” he said. Power stations are 25 to 50 years old, and massive decommissioning is expected in the near term. But opportunities exist for the development of new technologies, including carbon capture and sequestration (CSS), and Mr. Landia expects a transfer of know-how from international partners. “Scale is the success factor,” he said, as it ensures financial muscle.

Questions from the audience covered CCS versus nuclear for carbon reduction and the concept of “equity uranium,” among other issues.