54 industrie
Energy
getting fit for the competitive jungle
As the Luxembourg Energy Office (LEO) investigates new partnerships to strengthen its market position, it has received a capital injection of 60 million euros and taken over commercial operations from the City of Luxembourg for electricity and gas supplies.
Duncan Roberts (text), Etienne Delorme (photo)
When, in 2003, the City of Luxembourg created its own private company to manage its electricity and gas supplies, its aim was to remain active as a participant in the liberalised energy market. “We wanted to continue to provide our citizens with energy needs as an alternative to other suppliers,” explains City Mayor Paul Helminger, who is also President of LEO. “We have demonstrated that we can do that. But the changes it has brought about have been manifold. Indeed, on the one hand the city was free to buy its own supplies in an open competitive market, whereas before it was tied to the monopoly supplier – Cegedel.” On the other hand, the liberalisation has also meant that it lost its own monopoly as a supplier to households and business in the capital. But equally importantly, says Helminger, the opening of the market has allowed the city to choose what type of electricity it buys. “One of the objectives we have pursued is to maximise within the energy that we bought, and therefore offered our citizens, as much energy from renewable sources as possible.” That objective has been achieved to the extent that almost 60% of the electricity that households now receive is from renewable sources, supplied at no extra cost to the consumer. Last year LEO launched also its Green Energy offer which provides electricity from 100% renewable sources, for which there is a surcharge. So far 320 private customers (representing some 2,400 megawatt hours, or the equivalent of some 1,000 average households) have taken up the Green Energy offer. In addition the EcoMix option, which supplies 100% renewable energy electricity to larger companies, the city’s own public buildings, as well as the communes of Steinsel and Fischbach, represents some 15% of LEO’s sales. But while Helminger is pleased with the success of the first five years of the LEO project, he says it soon became clear that over time the company would have to look for partners if it was to survive and grow. “This comes out of the very nature of the market, which knows no boundaries. It certainly does not stop at the city limits.” More and more businesses were demanding energy supplies in bundles, and at the most competitive prices, for their agencies and branches throughout the country, not just their headquarters in the city. Which meant that some customers located in the city were even starting to
“We wanted to continue to provide our citizens with energy needs as an alternative to other suppliers.” Paul Helminger (LEO/City of Luxembourg)
buy electricity from outside. “In a competitive world you cannot live long with the fact that everyone else can come into your market but you can’t enter theirs.” So, for the last two years the city has been looking at potential partners for LEO, among which is the new company that is being created with operators Cegedel, Sotec and Saar Ferngas. “But we have been looking and continue to look at other alternatives.”
Maximise revenue flow To participate in any such merger, however, the city decided to make LEO a fully operational commercial company. Although set up as a private company, of which the City of Luxembourg still has 100% ownership, up until January 2009 it was acting merely as an agent for the city. “We have moved the marketing aspect, the clientele and all that involves – billing, customer service and so forth – to LEO. Which is why LEO has been recapitalised to the tune of 60 million euros.” City of Luxembourg Finance Director Thierry Kuffer explains that this sum – part of the extraordinary budget for 2008 – derives from an evaluation of what LEO’s 60,000 clients are
worth to the business. However, the only difference the consumer will notice is that the logo of the city will disappear from their bill, and their payments will be made into the bank account of LEO rather than the “recette communale”. The income the city receives from the energy sector makes up a good proportion of its annual revenue, so Helminger says that good management of LEO is essential. “The transaction has been set up so that the revenue flow to the city can be maximised.” For technical reasons, billing for water has not yet been transferred to LEO. The mayor explains that the city wants to change the way it invoices water in any case. “We want to change to a system where you will be invoiced for water every six months at most, and then on your real consumption rather than as an advance.” Another concern was that moving water billing to LEO might be interpreted as a signal that the city supports moves to liberalise the water supply market. Helminger emphasises that this is not the case. “We support the government’s position that water is not the kind of commodity that should be commercialised.”
paperjam | Février 2009 | ÉconomIE & Finance
07_54_leo.indd 54
16/01/09 11:07:17