Do Elections Matter In Energy?

on April 25, 2012 at 12:30 PM

Despite the high volume of attention paid to elections, national policies may matter less than raw economics and common goals applied in nationally customized ways as the energy sector becomes increasingly networked across the world.

This year sees an unusual convergence of political transition planning with potential far-reaching impacts on energy policy in both developed and increasingly-powerful emerging economies.

From France’s electoral dramatics as a new challenger passed an incumbent in early rounds, the prospects of a new government in the troubled Eurozone economy of Greece and a referendum planned in Ireland, the distraction for much of the globe is the US presidential election cycle, as well as the expected handover of the top positions in China’s Communist Party to a new generation of leaders. These factors are all hindering investment decision making and sowing sustained uncertainty in energy policy.

The ability of elections to influence underlying project economics is generally minimal compared to the influence macroeconomics has on subsidies or government financing for energy projects, ABB senior executive Barbara Frei told Breaking Energy at the recent World Energy Leaders’ Summit (WELS) in Istanbul, Turkey. Frei is regional manager for the Mediterranean area and CEO of the company’s Italian business.

While investment can slow as elections near, “there are always elections,” she said, and previous experience has shown they rarely change overall business strategy.

New Realities, New Responses

High-stakes national and international politics was given less attention at WELS than the transforming roles of natural gas and the need for energy regulators to keep common goals in mind as they devise nationally-acceptable and nationally-appropriate solutions.

“The power sector is more independent and more global than it used to be,” Frei said in an interview on the sidelines of WELS, a high-level gathering featuring ministers and CEOs hosted by the World Energy Council. Privatization of the energy sector in many major economies has allowed integrated and specialized energy companies to operate across borders and across markets in a way that can leave them more exposed overall, but less dependent on policy in a single country.

Even in the renewable energy sector, where national policy focused on subsidies in return for local jobs has been the trend of the past decade, shifts in production economics as costs fall and the ability of debt-strapped governments to pay for subsidies has declined have undermined the importance of any single country’s policy for the industry’s increasingly global firms.

International energy forums are increasingly taking center stage in setting the priorities for renewable energy investments. The International Energy Agency has taken an aggressive stance on the need for renewable energy investment to prevent more costly investments later, while the United Nations Sustainable Energy for All effort is set to receive a huge boost in attention at the Rio + 20 climate change talks scheduled for June.

“The UN can bring cross-border dialogue to renewable energy,” ABB’s Frei said. “Large regional and global solutions are particularly important for renewables.”

Energy’s “I” Words: Investment, Innovation, International

In addition to manufacturing components and handling complex projects like transmission grid interties, the massive Swiss-based ABB has pilot programs in smart grid and energy storage, and as a firm remains optimistic about the future integration of renewable energy into large-scale multinational grids.

“That’s the future,” Frei said of the push to renewables that has been overshadowed by cheaper natural gas in much of the world and limited government appetite for new renewable energy funding. “Overcoming the challenges drives innovation; putting in another gas-fired turbine doesn’t change anything.”

Despite concerns about the state of renewables regulation across the region she manages, Frei said the company should continue to thrive precisely because of its international scope. “We’re a global company – one market goes up when another goes down,” she said.