Changes in the Game: the New European Energy Market and Repsol

It's curious to see how, following Repsol's announcement to halt investments in Spain, alarm bells are ringing in the Spanish political environment.

On October 30, the leading media outlets reported that Josu Jon Imaz, the company's CEO, was set to freeze €1.5 billion in investments in the Basque Country, Catalonia, and Murcia due to the government's fiscal policy, an action that seemingly came completely out of the blue.

However, was this an attempt at blackmailing the status quo, or is it a consequence of other long-brewing European measures?

Current energy roadmaps, both at EU and global level, emphasise the electrification of key sectors, such as transport and heating, with the aim of establishing renewables as the main energy source, even as hydrogen generation gains attention due to the technical challenges faced in the process. This strategy aims to reduce greenhouse gas (GHG) emissions and strengthen energy security.

In this context, Repsol, anticipating the evolution of the market, decided back at the end of 2018 to venture into the electricity generation and commercialization business, amplifying its investments in renewable energies. This new strategic vision is reflected in key documents, such as its 2021-2025 strategic plan, which underlines the company's commitment to achieving net zero emissions, while giving great relevance to renewable power generation.

Hence, in order to guarantee a favourable economic performance, the company's focus has always been placed on Europe rather than Spain, given that the most relevant regulatory channels and frameworks are determined by the Commission's designs. In fact, it is precisely here where the crux of the matter lies.

After all, what did also take place last October? Well, on 17 October, after a considerable negotiation period, the European Council reached an agreement to reform the configuration of the energy market. An agreement that, in the words of vice-president Teresa Ribera, represented "a strategic step for the future of the Union". And in all fairness, I could not agree more with this statement. Especially if we look at this particular point, also documented in the internal energy market factsheet published back in April 2023:

"The Member States ensure market-based price competition between suppliers (…) and entitlement for final customers to electricity provided by a supplier, subject to the supplier’s agreement, regardless of the Member State in which the EU-compliant supplier is registered."

Looking at this point, two conclusions can easily be drawn:

• Foreign companies may dominate over local companies in the market. Companies based in countries with a lower tax burden will be able to sell the same energy at a cheaper price, thus displacing competitors located in countries with a stronger tax policy.
• Local firms may relocate abroad. There is an incentive for companies located in countries with a high tax burden to move to nations with a lighter tax burden in order to maximise their profits.

Though to be fair, it could be argued that mechanisms—whether they be fees or tariffs—were established to prevent such outcomes. However, the reality is quite the opposite, since:

"The regulation on the internal electricity market (Regulation (EU) 2019/943) revises the rules and principles of the internal electricity market in order to ensure its proper functioning and competitiveness. It supports the decarbonisation of the EU’s energy sector, removes barriers to cross-border trade in electricity and enables the EU’s transition to clean energy (...)”

Even in these circumstances, utilising the resources established by the state—such as energy system regulators—to intervene if necessary would be viable, wouldn't it? Well, this could only be achieved as long as the relevant powers were not surrendered to a European body in Slovenia.

"In June 2019, the Commission adopted the ACER Regulation (EU) 2019/942 to reform ACER to recast legal acts and strengthen its main role as a coordinator of the action of national regulators, especially in those areas where fragmented national decision-making on issues with cross-border relevance would lead to problems or inconsistencies for the internal market.”

Given the provisions of this new agreement and its outlined directions, it's understandable for energy companies to reconsider their positions and investments.

Therefore, knowing this, can we be upset with Repsol? Well, yes and no.

On one hand, citizens might disagree with the entity's decisions, considering the aid, subsidies and concessions received in the past. However, given that it is a private entity where Spanish institutional actors have little presence amongst the shareholders, they have little to say.

On the other hand, upon close examination, it becomes evident that Repsol is primarily safeguarding its interests. The organization, operating within the current scenario, is simply pursuing the most financially advantageous route. It's commonplace for them to pause their investments and contemplate reallocating them to other areas, as permitted by the current market proposal.

Therefore, observing the actions of industry giants like Repsol, it would be wise to step forward and demand greater efforts from the European institutions governing us, relying on our representatives to exert greater influence in the creation of a European energy framework that proves truly beneficial for all parties.

[1] Esteller, R. (2023). “Repsol decidirá antes del 22 de febrero las inversiones a frenar en España”. El Economista. Available at: https://www.eleconomista.es/energia/noticias/12516640/10/23/repsol-decidira-antes-del-22-de-febrero-las-inversiones-a-frenar-en-espana.html

[2] Hernández, L. (2023). “Repsol congela dos grandes proyectos industriales en el País Vasco tras criticar el entorno regulatorio”. Cinco Días. Available at: https://cincodias.elpais.com/companias/2023-10-30/repsol-congela-dos-grandes-proyectos-industriales-en-pais-vasco-tras-criticar-el-entorno-regulatorio.html

[3] Ciucci, Matteo. (2023). “Fact Sheets on the European Union: Internal energy market”. European Parliament. Available at: https://www.europarl.europa.eu/factsheets/es/sheet/45/el-mercado-interior-de-la-energia

[4] European Council. (2023). “Reform of electricity market design: Council reaches agreement”. European Council. Available at: https://www.consilium.europa.eu/es/press/press-releases/2023/10/17/reform-of-electricity-market-design-council-reaches-agreement/