Junior Isles, Managing Editor
It was quite clear from this year’s Power-Gen Europe that the tide of change is high. Although there was nothing much to learn in terms of which way the tide was going, it was interesting to hear some expert views on how to ride the tide.
Being in Helsinki, it was fitting that the keynote essentially kicked off with a presentation from Mr Tapio Kuula, corporate executive vice president of Fortum Corporation, the Finnish energy company. As expected he gave his view on the Scandinavian experience of deregulation and competition. He showed the levels of trading that had taken place since Nordpool began operation and how electricity prices had fallen in Finland as a result. While there was nothing really earth-shattering here, what was interesting was to hear how Fortum as an energy provider has reacted to pricing pressure.
“It has been a tough market for generators since prices are now very low. Prices have put pressure on whether to build new capacity. We can no longer see Finland as an isolated area – we need to look at all of Scandinavia/northern Europe and indeed the whole of Europe.”
This is the kind of mindset which is at last being adopted by most European energy companies, and one which is essential if Europe is to ensure its future competitiveness on the world stage.
As Karl Kellner, Head of the European Commission Unit for Electricity and Nuclear Energy stressed in his address: “Full opening of energy markets is a key factor in Europe’s competitiveness in the global market.” As a region Europe may never be able to compete with, for example, the Far East in terms of manufacturing some lower tech products. However, the price of electricity will be fundamental to the success of many industries as businesses become ever more global.
We have seen that as a market, the European electricity sector is still fragmented, which has kept electricity prices high in many countries. There is still much work to be done in terms of harmonising border tariffs. On this front, we heard first hand what the European Commission was doing.
To enable a quick start to cross-border trade in central and southern Europe, a temporary mechanism for compensation payments between transmission system operators (TSOs) in the UCPTE area will come into force on October 1, this year. It will be based on a compensation fund of about a200 million for a transitory period of one year. This will not apply to Nordel cross-border trade. The objective is to have the final system in place by October 2001. Once this happens we will be well on the way to having a fully integrated market with consumers being able to buy electricity from all across Europe at the cheapest price.
Les Silverman of global consultants McKinsey & Company gave his view on what he thought the effects of liberalization might be. His presentation had the added interest of someone coming from the US who was able to offer comparisons between Europe and its trans-Atlantic trading partner. He noted that while downward pressure on prices was good for consumers, it had mixed results for industry players.
The US, which although in many respects is behind Europe in terms of market liberalization, has seen merger activity almost on a weekly basis. Silverman, however, questioned the effectiveness of some of their strategies pointing out that many were struggling and underperforming in the larger market. He went on to show some interesting slides – one of the key points being that performance generally fell as the size in terms of book equity value increased. There were in fact only a few players that had created significant shareholder value as a result of a merger or takeover.
The main message that Silverman was putting across is that in the changing market, bigger is not necessarily better but that smarter was better. Companies would have to take advantage of things such as e-commerce and “build intangible assets”. The intangibles he talked about were a company’s knowledge, skills, market relationships etc.
I was recently left to ponder my own ‘intangible assets’, having missed a boat which was holding a press conference. I guess, no matter how prepared, there will always be those who miss the boat when the tide of opportunity goes out.