EDF Energy Market - Case Study Example

Running Head: Business in Europe Assignment 3 Student’s Name: Instructor’s Name: Course Code and Name: University: Date Assignment is due: Business in Europe Assignment 3 Executive Summary This paper helps established that the EU has been very specific and resolute in policy formulation and enactment of energy generation and use. Energy has a central role in driving economic growth in Europe and maintaining economic, social and political stability. The EU thus enacted the 2006 Energy Action Plan as a commitment to regulating the energy industry. The EU committed to a 20% reduction in energy expenditure and a 10% reduction of fossil oil use coupled by increased exploitation of renewable energy sources, making EU policies the single most energy efficient regulation in the world. There are three main areas that the EU policy framework has been resolute on. First, energy generation should be sourced from renewable and or sustainable power sources so that EU energy can be stable and reliable in future. Secondly, the EU has strictly required member states to enact reduce emissions from fossil oils so as to protect the environment from further deterioration. The paper details how environmental protection, conservation and improvement is a core part of regulating energy production, mainly because of the effects that emissions have on the environment. Thirdly, the EU has been emphatic on reduced electricity consumption in domestic and business circles, until the 20% reduction is attained by 2012. The paper goes on to show how EDF has grown through mergers and acquisitions to become the largest power utility company in the UK today commanding a 7.9% market share of all UK utilities and 40% of the power utilities market. This growth has been attributed to a continued adoption of the three policy directions by the EU. EDF has committed itself to investing in renewable energy sources, improving energy use efficiency and in reducing emissions to the environment. The energy market in Europe is going towards efficient use, sustainable generation and environmental conservation. The essay thus recommends that a continued adoption of EU policies will help EDF to maintain and grow its market share. It is further recommended that EDF should pursue its core energy from renewable sources such that it will not be affected by the inflated fossil oils prices. The paper also recommends that EDF should continue reducing its wastage of generated energy, advocating for and offering a role model towards efficient energy use in line with EU policy guidelines. Background Information EDF Energy is a United Kingdom’s utility company with its major operations being generation and distribution of electricity, sale of gas and electricity to residential homes and businesses (EDF, 2010). The vertically integrated company employs more than 20,000 people to handle the over 8 million clientele accounts. This constitutes more than a fifth of UK’s electricity generation (Coffey, 2004). The company is wholly incorporated by the French state-owned utility, EDF SA. EDF Energy was formed in 2002 after a series of mergers and acquisition pitting together the South Eastern Electricity Board (SEEB), London Electricity Board, SWEB Energy and a further 2 coal power stations and a CCGT power station (Combined Cycle Gas Turbine) (EDF, 2010). EDF Energy further acquired British energy and UK nuclear generator in 2009 by purchasing the government stake, thus making EDF Energy UK's largest generator and distribution network operator. In 2004, EDF had formed a Development Branch to bring together separate infrastructure interests that were formerly under SeeBoard and LE Group so as to centralize the development activities of EDF. The new branch was charged with the responsibility of constructing and developing any new infrastructures especially through the Public-Private Partnership and Private Finance Initiative schemes (EDF, 2010). EDF Energy operates as an independent subsidiary of Électricité de France, to operate London, South East England and Eastern England energy networks. In the UK, EDF Energy operates under the trading name of EDF Group (EDF, 2010). Today, EDF is organized under the 4 units formed in 2003 namely, Existing Nuclear (Operating 8 of UK’s nuclear power stations that generates a combined capacity of 9,000 megawatts), Nuclear new Build (tasked to initiate new generation of nuclear plants along the EDF’s global program of electricity), Energy Sourcing and Customer Supply unit (running the wind farms and power stations, buying and selling power sustainably to maintain generation for present and future customer needs) and finally Networks Branch (entrusted with developing, constructing and operating private and public power networks). The new nuclear installations in the UK initiated by EDF Energy have been strategically pioneered by an EU policy accordant program aimed at producing affordable, safe, reliable and low-carbon electricity production (Cassedy, 2006). The aspirations of EDF are today targeted towards generation and distribution of sustainable energy in a reliable and efficient manner (EDF, 2010). More importantly, EDF Energy is currently committed to generation and distribution of environmentally friendly energy that impacts minimally on the environment and which is in accordance with global emission levels. EDF is committed to a strategic growth initiative that will see continued construction of generation projects and installation development in the UK with the target of being the UK’s market leading energy generator and supplier (EDF, 2010). Towards this front EDF is supposedly spending over £2 Million in the construction of Marine Current Turbines so as to generate electricity from tidal power, something the Ecologist Magazine denounces (Cassedy, 2006). What is confirmed rather is that EDF has several renewable energy installations underway in Windfarms. In 2007, the company EDF installed a new renewable energy generating capacity totaling up to 1.8 MW, a 0.08% of EDF’s total generation capacity of 4,865 MW (EDF, 2010). Analysis a) European Union Policies on the Twin Issues of Energy Security and Environment There are three very significant areas regarding energy generation and use that the European Union has been very emphatic on, energy generation from renewable sources, environment protection from emissions and efficient energy use (Chari & Kritzinger, 2006). The European Union has correctly deciphered the important role of energy in powering development and sustaining economic stability. Towards this end, the entire of Europe has seen governments; private and the public sectors adopt clear guidelines on the area of energy generation and use (ECE, 2010). Indeed, as regards policy formulation, the EU has embarked on a plan of ensuring that the energy generated is sustainable and environmentally friendly and that that energy is utilized efficiently and sustainable (Marcello, 2005). If the energy generation is reliable and stable, and respectful of environmental pollution concerns (in reduction of emissions) and if the energy thus produced is utilized efficiently (reduction of wastage and distribution inefficiency), then the EU can comfortably be energy sufficient now and in the future, fueling an ever-growing economic vibrancy (Coffey, 2004). It is in this effort that the EU has directed that the region should reduce its energy consumption with over 20% in the next ten years (by 2020) (Gower, 2002). This reduction should be achieved by reducing Europe’s dependency on imported gas and oil. The EU resolved that 10% of all transport fuels should be sourced from electricity, biofuels and hydrogen (Coffey, 2004). This reduction could slash Europe’s energy bill with an estimated € 100 billion annually (Buenstorf, 2004). The plan works simultaneously in achieving the twin plan discussed above, since that reduction of oil and gas use would then help prevent the emission of over 780 million tonnes of carbon that could otherwise be emitted into the atmosphere (Chari & Kritzinger, 2006). This has been judged by experts as an ambitious plan since the carbon emission cuts represents twice the amount carbon the EU nations agreed to when they ratified the Kyoto Protocol (Chari & Kritzinger, 2006). The process of change as conceived by the EU must necessarily be an all inclusive venture between governments, Energy utility companies, businesses and the public (Coffey, 2004). It is said to give been an already delayed resolve judging from the concerns expressed by member states on their energy insecurity for the last twenty five years (Devarajan & Fisher, 1981). Rising prices for imported gas, oil and electricity had given the EU governments a scare and the EU represented these fears with urgent energy savings policy directions (Chari & Kritzinger, 2006). The debate had been opened in June 2005, when the Green paper on Energy Efficiency was drafted by no resolute policies were formulated then (Marcello, 2005; Egenhofer, 2006). As the fossil oil prices surged perpetually, political inclinations made oil more unreliable, the Kyoto Protocol on climate change pressurized the EU to resolve on its energy use (Chari & Kritzinger, 2006). Nonetheless, when Andris Piebalgs, EU’s energy Commissioner presented the 2006 Energy Action Plan (known as the Lisbon Strategy) and emphasized on the urgency to implementation it, there was a widespread support for the move. This plan stated its core objective as to provide the EU citizens with energy-efficient appliances, buildings, processes, vehicles and energy systems for a better environment and greater reliability. The specific actions areas enumerated added up to 75, grouped into ten priority areas that had to be implemented within a six-year period (Chari & Kritzinger, 2006). The most emphatic area among these was the power generation sector, intended to make power generation, distribution and use more efficient (Chari & Kritzinger, 2006). Interestingly, the EU targeted to achieve this ambitious twin plan by enforcement of already existing legislation and by promoting innovative solutions. All EU member states immediately endorsed its ambitious and yet realistic proposals during the March 2006 summit which was restated in December 2008, by all the states (Chari & Kritzinger, 2006). b) EDF Energy Adaptation of the EU Polices on Environment and Energy Production Given that EDF energy has its entire market within the EU region, it has been imperative that it adopts the policy directions of the region on these two issues (EDF, 2010). Commendably, EDF has grown steadily through a process of streamlining and integrating their operations towards becoming more responsive to the fast-changing EU marketplace. Eva Eisenschimmel, EDF’s Chief Officer for People, Organisation and Brand Performance is quoted in their website saying, “As an energy company, we realize that we have a particular responsibility to take care of the environment.  That’s why we have put sustainability at the very heart of the way we do business" (EDF, 2010). To begin with, EDF has committed to generating power from alternative sustainable sources that are more environmentally friendly. The EDF management announced on June 2008 that they had formed the EDF Energy Renewables (EDF, 2010). This is a joint venture between EDF and EDF Energies Nouvelles charged with the new aim creating UK’s major renewable energies market. EDF’s climate and social commitments have been lauded to be the biggest social and environmental packages launched by any of the UK’s energy companies (EDF, 2010). EDF is also a major player in the national environmental conservation infrastructure projects that includes management of the private electricity networks presently serving the Channel Tunnel Rail Link and the four London airports (EDF, 2010). In these commitments, EDF’s resolve to obey to EU’s guidelines on energy production from renewable sources is clearly evident. More so, EDF has played a pivotal role in enabling environmental specialists within and without the company to develop a harmonious, consistent, integrated and progressive environmental management system. Today, the company has already identified key environmental risks in the energy sector as pointed out by EU’s 75 action areas and developed systematic work programs incorporated company-wide as environmental KPI’s that are aimed at continuous environmental consciousness and improvement (EDF, 2010). Notably, EDF has ensured that each of their business units has a certified environmental management system necessarily meeting the standards and requirements by the EU. EDF Energy incorporated British Energy to become the EDF Group, the official energy utilities and sustainability partner of London 2012 Olympic and Paralympic Games (EDF, 2010). The environmental consciousness has been entrenched companywide as their organisation culture. Finally, EDF Energy has reduced emissions with over 54% since the EU resolutions were published (EDF, 2010). Their power stations have reduced sulphur dioxide (SO2) emissions in 2008 with over 79%, dust emissions with over 54% and Nitrogen oxide (NOX) emissions with 23% as compared to 2005 levels (EDF, 2010). Table Indicating EDF Year NOx (kt/TWh) SO2 (kt/TWh) Dust Emissions (kt/TWh) 2005 1.839 2.196 0.056 2006 1.878 1.185 0.037 2007 1.906 0.478 0.029 2008 1.423 0.456 0.026 Table Adapted from EDF (2010) The third area in which EDF has adopted EU’s policy framework and guidelines is in improving energy use efficiency. Towards this end, EDF has initiated campaigns to advocate for efficient energy use by the residential and business customers who form the bulk of their clientele. EDF spent €.5 million in 2007 installing new distribution channels and energy moderation infrastructure within Britain in a bid to reduce energy loss in transmission lines and switchboard terminals (EDF, 2010). They have also installed modern technology in the management of distribution networks for any energy generated to ensure that the distribution is reliable, consistent and efficient. By initiating company-wide conservation measures, EDF has set the example of efficient energy use itself. EDF posted a 33% energy use reduction since 2007 (EDF, 2010). The EDF Energy use management board has estimated that the measures already initiated will help save 11% of the energy produced annually by 2012 (EDF, 2010). c) Further Growth Prospects in the European Union Context The European utility market is powered by electricity, gas, water/waste management and oil markets. These markets grew with a 16% CAGR between 2003 and 2006 and with 20.7% since 2006 to 2007, to stand at US $ 999 billion (Egenhofer, 2006). The power utilities alone constitute a 47% of the total European utility market, followed by gas at 35% and water at 18% (ECE, 2010). This growth has been attributed by industry experts and leading players due to initiatives that the companies and other stakeholders are taking towards overcoming traditionally domineering challenges (Egenhofer, 2006). They have for instance sought to secure energy supply and market growth by reducing their dependence on imported fossil oils (Cassedy, 2006). It has also been attributed to increased infrastructure, distribution, transmission and use efficiency by stakeholders following a rising awareness on the energy precarious threats (ECE, 2010). Increased policy directions within the EU have also played a part in increasing industry growth just as the adoption of inexpensive renewable energy technologies has (Egenhofer, 2006). EDF is today ranked as the largest player in the EU utilities market with its revenue share of 7.9% by 2007. From this share, EDF was able to generate revenues worth US $79.1 million in 2007, registering 18.1% increase as compared to 2006 revenues. There are three most likely growth avenues that the company can pursue in future, in accordance with EU policies and marketplace directions (Perman, 2003). To begin with, if EDF pursued an investment in low-carbon power generation, it will be able to sell off its allocated carbon credits in the growing lucrative carbon credit markets (Buenstorf, 2004). This should ideally be done with long-term policy frameworks and a commitment to investing in the low-carbon technologies (Buenstorf, 2004). Conclusion and Recommendations Currently, the EU has been very specific and resolute in policy formulation and enactment of energy generation and use (Chari & Kritzinger, 2006). The important facets of this phenomenon is in energy’s central role in driving economic growth of the region and maintaining economic, social and political stability (Chari & Kritzinger, 2006). After a lot of deliberations, the EU finally enacted the 2006 Energy Action Plan which committed the region to a 20% reduction in energy expenditure and a 10% reduction of fossil oil use coupled by increased exploitation of renewable energy sources (Chari & Kritzinger, 2006). In later amendments to the action plan, the EU has crafted the single most energy efficient regulation in the world (Chari & Kritzinger, 2006). There are three main areas that the EU policy framework has determined as the way forward for the region (Coffey, 2004). First, energy generation should be sourced from renewable and or sustainable power sources so that EU energy can be stable and reliable in future (Deshmukh & Pliska, 1980). Secondly, the EU has strictly required member states to enact reduces emissions from fossil oils so as to protect the environment from further deterioration (Coffey, 2004). Environmental protection, conservation and improvement is a core part of regulating energy production, mainly because of the effects that emissions have on the environment (Deshmukh & Pliska, 1980). Thirdly, the EU has been emphatic on reduced electricity consumption in domestic and business circles, until the 20% reduction is attained by 2012 (Coffey, 2004). EDF has grown through mergers and acquisitions to become the largest power utility company in the UK today commanding a 7.9% market share of all UK utilities and 40% of the power utilities market (Gower, 2002). Its growth may be attributed to a continued adoption of these three policy directions by the EU (Coffey, 2004). EDF has committed itself to investing in renewable energy sources, improving energy use efficiency and in reducing emissions to the environment. The energy market in Europe is going towards efficient use, sustainable generation and environmental conservation (Gower, 2002). The essay thus recommends that a continued adoption of EU policies will help EDF to maintain and grow its market share (Cassedy, 2006). To increase the profitability, reliability and growth of its operations in Europe today, EDF should pursue to source its core energy from renewable sources such that it will not be affected by the inflated fossil oils prices (Buenstorf, 2004: (Richardson, 1996). Pursuing such renewable sources of energy like tidal waves, solar and wind would give the company an edge in the next few years besides making its energy supply more reliable and less costly in production (Buenstorf, 2004). Besides renewable sources, EDF should strive to increase its nuclear electricity generation capabilities, install gas-fired generation with low emissions, install clean coal powered generators armed with carbon capture and storage mechanisms and finally combined heat and power generations for more efficient and greater amounts of energy (Buenstorf, 2004). Finally, EDF should continue reducing its wastage of generated energy, advocating for and offering a role model towards efficient energy use in line with EU policy guidelines (Cassedy, 2006). This will place it in an eminent market position when Europe finally goes green and energy economical (Buenstorf, 2004). References Buenstorf, E. (2004). The economics of energy and the production process: an evolutionary approach. London: Edward Elgar Publishers. Cassedy, E. (2006). Prospects For Sustainable Energy - A Critical Assessment. Cambridge: Cambridge University Press. Chari, R. & Kritzinger, S. (2006). Understanding E.U. Policy Making. London: Pluto Press. Coffey, P. (2004). The Future Of Europe: Revisited. London: Edward Elgar Publishers. Deshmukh, S. & Pliska, S. (1980). Optimal consumption and exploration of nonrenewable resources under uncertainty. Econometrica. Vol. 48 (1). pp. 177–200. Devarajan, S. & Fisher, A. (1981). 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