Rafael Villaseca: The energy market doesn’t work at the moment

They say there are three kinds of corporate managers: lawyers, economists and engineers. Rafael Villaseca, CEO of Gas Natural Fenosa is an industrial engineer and it shows. He has worked for a wide variety of companies: Panrico, Inisel, Nueva Montaña Quijano…And lately he has become a harsh critic not of the renewable energy firms themselves, but of the subsidies they receive.

 

Q: What would be the ideal system for establishing energy prices?

A: It depends on what we want the energy sector to be. We want it to do so many things, particularly the electricity sector…it’s almost impossible to expect the market to do everything. We continue with the trial and error method, with a balance which, in fact, requires a lot of good judgement. Let’s remember that when there was a policy of huge subsidies for the renewables, there was a 30 billion euros shortfall. Would you compete in a market where everyone can sell their product, but for some the price is irrelevant? In short, they really only supply their product because they have to and they are guaranteed a  7.4% yield, regardless of whether the price rises or falls. And these people – renewable energies, including hydraulic – now have 40% of the market. Would you compete in such a market? All this is unfair, but I recognise that finding a solution is very complicated. But what really concerns me is that for years nobody has wanted to do it.

 

Q: Well at least for now, someone has stopped the bleeding as far as the subsidies for renewables are concerned

A: Yes, as far as reducing a level of compensation which seemed excessive. But no, as regards making them compete outside the market. The only thing they achieve is to artificially depress prices.

 

Q: But you can’t take them out of the market

A: Well something will have to be done…Because if you offer a fixed yield to such a high percentage of the market, in the end you ruin the rest.

 

Q: So you are in favour of complete liberalisation?

A: No, the UK was the flag carrier for liberalisation and is now taking some steps back. The last reforms, under a conservative government, were interventionist. As they need generation, they have put a fixed price on future nuclear energy which the French firm EDF will supply. This is a payment by capacity mechanism, although it’s not called that. Because they need it.

 

Q: What is the first thing Spain’s future energy minister will have to do?

A: The tariff deficit was the most urgent matter and that has been approved. Now the most important thing is to get the market to work…because at the moment it doesn’t.

 

Q: Let’s look at the Spanish electricity map? Could there be some kind of restructuring?

A: There will be if ENEL decides to sell Endesa or if the two small companies do something. But what is for sure is that neither ourselves nor Iberdrola are going to move too much. Not because we don’t want to, but because the Competition Authorities would not allow it. Except in the case of asset purchases. If Enel were to divide Endesa up, we would look at it. But our priority is to diversify away from Spain.

 

Q: Now let’s take a look at the European gas map. Could there be some restructuring there?

A: The fact is that there are fewer players in gas than in electricity. I think it would be complicated. There may be alliances. But I don’t think it will go beyond that. Shell has bought British Gas and now Engie and ourselves are left. In any event, Europe’s gas problem comes from outside. Producers are tired of the abuse and are threatening to leave us with renewables, which is not in Europe’s interest.

 

Q: Do you believe in the oil-gas marriage?

A: No. Shell bought British Gas but it was not a ‘utility’. It was more of an oil company. Its business was upstream. Besides, Shell needed the LNG market. Let’s distinguish between gas-oil companies and gas-‘utilities.’ I don’t think it’s possible to arrange a marriage between an oil company and a ‘utility.’