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ENERGY NEWSLETTER Volume 1 - Issue 1 | April 2012

Europe’s Energy - At A Crossroads

INSIDE THIS ISSUE

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03

Introduction

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16

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MSLGROUP can make the difference

The European Energy Transition Who will pick up the bill? In most European countries green energy sources currently provide a very small amount of electricity, generally contributing less than 2 to 5% to the overall pool.

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Energy issues in Brussels – What’s in the pipeline? A competitive internal energy market in the EU is paramount to give European consumers a choice between different gas and electricity suppliers and make the market accessible for all suppliers.

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Poland stands on shale The Environment Ministry has so far granted over 100 concessions for shale gas exploration. The first drilling results have been encouraging and Poles are very enthusiastic about this potential new energy source.


Contents Introduction

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MSLGROUP can make the difference

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Where we are

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Energy issues in Brussels – What’s in the pipeline?

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Political Gains: Why Chancellor Angela Merkel decided to phase out nuclear power in Germany

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Renewable migration: What drives financial investment in renewables around the world?

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Back to the Future in Europe’s Offshore Centre

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The European Energy Transition Who will pick up the bill?

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What effect will the presidential elections have on energy issues in France in 2012?

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Why politics will control energy

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Poland stands on shale

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Introduction The world’s growing desire for energy is relentless and its safe and equitable production and distribution is one of the key challenges for the world in the 21st century. While in many parts of the globe the challenge is how to generate power and deliver it to people, in Europe the challenge is how can we meet demand cheaply in a climate of growing societal unease with some of the sources that have powered our growth for the last century and more. Many in developing markets still have no access to power, for example 45% of Indians have no access to power at all, while in Europe we are highly energy consumptive on a per capita basis. How can we help those countries to secure the energy they need in the most sustainable way? The differing challenges of climate change, growing fuel poverty and security of supply are testing the resourcefulness of our leading energy companies to find affordable new solutions while keeping the lights on. As has been seen in recent years, no source of power has undisputed hegemony over the market. There is no single answer to Europe and the world’s energy needs. Post-Fukushima, we have seen Germany pull back dramatically from nuclear power, creating a ripple of reflection across Europe – as even France, Europe’s nuclear industry leader, paused to review its position. In the Netherlands, we have seen a new coal fired plant blocked, while in Britain the concerns over security of supply are growing, combined with a fear of over reliance on imported gas. Meanwhile, although other European countries have banned fracking, Poland has heartily embraced the shale gas revolution as a means of lessening its reliance on energy from Russia. But, if we are to give up all these sources of supply, what will fill the void they create? It is not just the raw materials for the generation of power that is posing an increasing headache for Europe’s leading politicians and companies, but also how to get that power to the consumer. With ageing transmission grids, often situated in the wrong location to accommodate new sources of power such as hydro in Europe’s north, or solar from the south, or even wind from Europe’s Atlantic rim, there is much rethinking and investment required if our dreams of a lower carbon future are to be realised. As communications professionals, MSLGROUP’s dedicated energy team has to confront these issues every day on behalf of our clients and in this, our inaugural newsletter, we wanted to share some of our thoughts on these issues. With a growing footprint across Europe and beyond, MSLGROUP has a fantastic team in place to help our clients rise to the challenge of communicating effectively with stakeholders around the world on these and other critical issues.

Nick Bastin Managing Director, Capital MSL, Head of Energy, MSLGROUP EMEA

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Our team Anders Kempe Regional president MSLGROUP EMEA anders.kempe@ jklgroup.com

Nick Bastin Head of Energy MSLGROUP EMEA nick.bastin@ capitalmsl.com

MSLGROUP can make the difference

Per Ola Bosson Sweden per.ola.bosson@ jklgroup.com

Alessandro Chiarmasso Italy Alessandro.chiarmasso@ mslgroup.com

George Godsall UK George.godsall@ mslgroup.com

Pierre-Samuel Guedj France guedj@ publicis.com

Niklas Proksch Germany Niklas.proksch@ mslgroup.com

Peter Steere Belgium/ Sweden Peter.steere@ jklgroup.se

MSLGROUP is one of the world’s top five PR and events networks, employing more than 3,400 people in 22 countries around the world. The Group offers the best regional and local cohesion and integration on-line and off-line - across a range of communications disciplines. We specialise in Social Media, Public Affairs, Brand and Talent, Financial Communications, Corporate Comms and Reputation Management, Consumer and Events. We work for a quarter of the top-100 most valuable brands globally. MSL GROUP’s EMEA Energy Practice is a leader in advising companies from Europe and around the world on communications issues in the energy sector. Across 15 countries and 27 offices, our European network supports clients that range from large publicly listed Fortune 500 organisations, to small, privately held companies. We currently advise a third of the energy companies in the Eurotop 100. From attracting the best talent, to communications with investors; from crisis preparedness, to corporate reputation management; and from nuclear to renewables: we understand the key communications issues that keep energy companies awake at night. With both breadth and depth of energy communications expertise across Europe’s key markets, we know that effective, best practice communications can deliver value to stakeholders across the energy value chain. If you want to find out more about the work we do, or enquire as to how we might be able to help, don’t hesitate to contact our team member in your market – or contact Nick Bastin at nick.bastin@capitalmsl.com

Pawel Tomczuk Poland ptomczuk@ publicrelations.pl

Jan van Ingen Netherlands jan.van.ingen@ msl.nl

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Where we are

EMEA

NA

800 EMPLOYEES

775 EMPLOYEES

Helsinki Warsaw

ASIA

Stockholm (2)

SWEDEN

Gothenburg NORWAY

Oslo (2) Boston New York (6)

RUSSIAN FEDERATION

Copenhagen (2)

CANADA

ESTONIA LATVIA DENMARK IRELAND

Breda

Toronto

LITHUANIA

UNITED KINGDOM

BELARUS GERMANY

POLAND UKRAINE

CZECH REPUBLIC

Seattle (2)

FRANCE

Chicago (2)

AUSTRIA

HUNGARY

KAZAKHSTAN

MOLDOVA

MONGOLIA

ROMANIA

London (5) Paris (8)

UNITED STATES OF AMERICA

1335 EMPLOYEES

FINLAND

SERBIA MONTENEGRO ITALY ALBANIA PORTUGAL

BULGARIA

KYRGYZSTAN

BAKU

GREECE

SPAIN

UZBEKISTAN

GEORGIA

TURKEY

TURKMENISTAN

NORTH KOREA JAPAN

TAJIKISTAN

SYRIA

Brussels (2) Amsterdam Geneva

MEXICO

LEBANON

IRAQ

IRAN

JORDAN ISRAEL

MOROCCO

LIBYA

EGYPT

SAUDI ARABIA

NEPAL

INDIA

BANGLADESH BURMA

MAURITANIA

PUERTO RICO

Tokyo (2) Seoul (2) Taipei Shanghai (4) Beijing (4) Hong Kong (2) Chengdu

AFGHANISTAN

PAKISTAN ALGERIA

WESTERN SAHARA

SOUTH KOREA

CHINA

LAOS OMAN

Los Angeles (2) San Francisco VENEZUELA

COLOMBIA

Atlanta

ECUADOR

Detroit Arlington

PERU

BRAZIL

Washington DC

BOLIVIA

PARAGUAY

Monaco Cologne Frankfurt Hamburg Milan (2) Munich Rome Berlin Johannesburg

MALI

SENEGAL

NIGER

CHAD

YAMEN VIETNAM

SUDAN BURKINA GUINEA

LIBERIA

ETHIOPIA CENTRAL AFRICAN REPUBLIC SOMALIA UGANDA GABON CONGO

Abu Dhabi

PHILIPPINES

CAMBODIA SHRI LANKA

MALAYSIA

BRUNEI

Guangzhou (2)

KENYA

DEM. REP. CONGO

INDONESIA TANZANIA

ANGOLA ZAMBIA MOZAMBIQUE ZIMBABWE NAMIBIA

PAPUA NEW GUINEA

Ahmedabad Mumbai (2) Pune (2) New Delhi (3)

Singapore Kuala Lumpur

MADAGASCAR

BOTSWANA AUSTRALIA SWAZILAND

CHILE SOUTH AFRICA

URUGUAY

ARGENTINA

Dubai

BENIN NIGERIA TOGO IVORY GHANA COAST

Sao Paulo

Bangalore (2) Hyderabad (2) Chennai (2) Kolkata

NEW ZEALAND

Buenos Aires

LA 65 EMPLOYEES

MSLGROUP Office

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Affiliate Office

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Energy issues in Brussels – What’s in the pipeline? A competitive internal energy market in the EU is paramount to give European consumers a choice between different gas and electricity suppliers and make the market accessible for all suppliers.

Henrik Bernitz MSL Brussels henrik.bernitz@jklgroup.com

The draft EED was discussed at ministerial level in Brussels mid-February 2012, at which point most Member States were politically willing to commit to the movement, but unwilling to spend, refusing binding targets for energy savings, only accepting flexible “measures”.

According to the European Commission, a competitive internal energy market in the EU is paramount to give European consumers a choice between different gas and electricity suppliers and make the market accessible for all suppliers, especially the smallest and those investing in renewable forms of energy. The first liberalisation Directives were adopted in 1996 (electricity) and 1998 (gas), with the objective of opening up the electricity and gas markets by gradually introducing competition. The second liberalisation Directives were adopted in 2003 and included ‘unbundling’, whereby energy transmission networks have to be run independently from the production and supply side. These directives have allowed businesses and private customers to choose their power and gas suppliers freely in a competitive marketplace. However, a competition enquiry in the electricity sector, published in January 2007, revealed some “serious malfunctions” in the market for industrial consumers. After long negotiations, a new Directive on market liberalisation was adopted in 2009. This was to be transposed in Member States by March 2011, but Bulgaria, Cyprus, Spain, Luxembourg, the Netherlands, Romania, Slovakia and Estonia are yet to do so.

Key dossiers in the pipeline The Energy Efficiency Directive (EED) - In June 2011 the European Commission proposed a new set of measures as a new Directive on increased Energy Efficiency. This brought forward ways of stepping up Member States’ efforts to use energy more efficiently at all stages of the energy chain – from the transformation of energy and its distribution to its final

consumption. Proposals included a legal obligation to establish energy saving schemes in all Member States, major energy savings for consumers, the Public sector to lead by example, etc. The draft EED was discussed at ministerial level in Brussels midFebruary 2012, at which point most Member States were politically willing to commit to the movement, but unwilling to spend, refusing binding targets for energy savings, only accepting flexible “measures”. However, after added pressure within the Parliament from MEP Claude Turmes (Greens, Luxembourg), the rapporteur for the draft Directive, the committee for Industry, Research and Energy (ITRE) voted on 28th February to jump start negotiations with the EU Council as soon as possible, before the vote in the Parliamentary plenary session mid-March. In order to succeed, the directive will have to find ways of appeasing national governments that are less supportive of binding efficiency legislation. The Danish Presidency is then willing to find a compromise at Council level before the end of June as it is one of its main priorities. Energy Roadmap 2050 - Presented by Energy Commissioner Günther Oettinger in December 2011, it aimed at achieving the EU goal of reducing greenhouse gas emissions by 80-95% from 1990 levels by 2050. The Roadmap sends a strong message that decarbonisation efforts in the energy sector would be generally beneficial, with a shift from imported fossil fuels to domestic investments. The Roadmap 2050 puts forward several illustrative scenarios combining the four main decarbonisation routes, namely energy efficiency, renewable, nuclear and carbon capture and

photo by -Tripp- on flickr

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According to Davies, “even in the absence of a binding international treaty of the kind that we seek, Parliament accepts that the EU should accept the role of first mover, and must take the steps necessary to build a low carbon economy by 2050.

storage (CCS); these include: stronger commitments to high energy savings, diversified supply technologies, high renewable energy sources, delayed CCS and no new nuclear reactors. While the EC reiterates Member States’ responsibility in determining their energy mix, it highlights the need for an effective and greater policy framework to ensure a solid ground for energy security and competiveness. Gas is seen as critical for the transformation of the energy system in achieving emission reduction as it can be a substitute for coal and oil in the short to medium term.

photo by ‫ | قرب ةكبش‬B.R.Q on flickr

On 29th February, the proposal was passed in the European Parliament, with a majority vote in favour from the committee for Economic and Monetary Affairs (ECON).

The Roadmap was criticized by some at its publication for its lack of policy recommendations and interim targets for 2030 (to be proposed by the EC in the coming months). The Energy Roadmap 2050 dossier is currently in the preparatory phase at the European Parliament, under the responsibility of the committee for Industry, Research and Energy (ITRE). Low Carbon Roadmap - The EC is of the position that Europe could cut most of its greenhouse gas (GHG) emissions by 2050, thus making the European economy more climate-friendly and less energy-consuming. Reducing GHG emissions to 20% is one of the EU’s goals by 2020. The Roadmap for Moving to a Competitive Low-Carbon Economy in 2050 (March 2011) looks beyond this time period, setting out a plan to meet the long-term target of reducing domestic emissions by 80 to 95% by mid-century, as agreed by European Heads of State and governments. It shows how the sectors responsible for Europe’s emissions power generation, industry, transport, buildings and construction, as well as agriculture - can make the transition to a low-carbon economy over the coming decades.

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To reap the benefits of a low-carbon economy, the EU would need to invest, on average, an additional 1.5% of its GDP annually over the next four decades. The extra investments will spur growth within a wide range of Europe’s sectors and services, and 1.5 million additional jobs could be created by 2020. The European Parliament’s committee for Environment, Public Health and Food Safety (ENVI) recently adopted a report by MEP Chris Davies (ALDE, UK) backing the Commission’s low-carbon roadmap, before the vote in plenary in March. According to Davies, “even in the absence of a binding international treaty of the kind that we seek, Parliament accepts that the EU should accept the role of first mover, and must take the steps necessary to build a low carbon economy by 2050.” Energy Taxation - In April 2011, the EC presented its proposal to revise EU rules on the taxation of energy products. They find the current Energy Taxation Directive to be outdated and unable to address the EU’s higher ambitions in energy and climate change policies. With the revised Directive, the EC wants to promote energy efficiency and consumption of more environmentally friendly products and to avoid distortions of competition in the Single Market. The revision to the Directive would change the way energy products are taxed, in order to eliminate current imbalances and take into account both CO2 emissions and energy content of products. It would end diesel’s tax advantage over petrol. On 29th February, the proposal was passed in the European Parliament, with a majority vote in favour from the committee for Economic and Monetary

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Affairs (ECON). As the new Directive would price diesel more highly than petrol (the opposite being the case for most EU countries) there have been certain conflicts. The EPP abstained from the vote, whereas the Socialists, Liberals and Greens have been more supportive of the move. The EU Danish Presidency is expected to present fresh compromise proposals to the Council committee of national experts on Monday 5th March.

When it comes to security of energy supply, even though the Commission tries to reconcile Member States’ diverging positions and ensure than the principle of common interest is maintained, it nonetheless proves to be a contentious topic.

Infrastructure - A strong EU internal energy market with security of supply depends on a reliable and coherent energy network in Europe, and therefore on infrastructure investment. The Trans European Energy Networks (TEN-E) are considered important to the EU’s overall energy policy objectives, increasing competitiveness in the electricity and gas markets, reinforcing security of supply, and protecting the environment. The EU is currently financing electricity and gas transmission infrastructure projects of European interest. Most of the projects are cross-border or have an influence on several Member States. Last November, the European Commission presented its energy infrastructure priorities for the coming two decades which included: electricity grids (e.g. an offshore grid in the North Sea and interconnections in South Western Europe) and gas connections (e.g. the Southern Corridor and the North-South corridor in Western Europe). New guidelines for trans-European energy networks list and rank projects eligible for financing. The dossier is currently awaiting the first Parliamentary reading, under the responsibility of the committee for Industry, Research and Energy (ITRE), with António Fernando CORREIA DE CAMPOS (S&D, Portugal) as rapporteur.

When it comes to security of energy supply, even though the Commission tries to reconcile Member States’ diverging positions and ensure that the principle of common interest is maintained, it nonetheless proves to be a contentious topic. For instance, complications of rivalry exist between supply channels, such as the Nabucco project and the South Stream project. Furthermore, some Member States’ agreements with thirdcountry suppliers are not necessarily compatible with EU regulation. For instance, the Commission is stressing the need for Russian oil to observe EU rules on competition and nondiscrimination. Moreover, among the European community there are conflicting opinions as to the extent to which Europe should focus on moving away from energy dependence on Russia, looking to domestic resources. Unconventional Resources of energy - Over the past ten years or so, discoveries of unconventional fuel sources, such as oil shale and tar sands, look to revolutionise the global energy market. There have been major discoveries in the USA of these kinds of sources and extractions have already been carried out on large commercial scales. In Europe, the matter is more complicated – many say this is because of population density, which makes drilling problematic, and because of stricter regulations around energy production. Discoveries of significant shale resources have been made in certain EU countries (Poland, Ireland, UK, Bulgaria and Ukraine), but there has been a huge amount of opposition to the process of extraction – hydraulic fracturing – believed by many to be dangerous for the environment and for human health. There has been pressure on EU institutions to

photo by kismihok on flickr

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investigate further with the hope of formulating tighter policy around shale gas exploration. The Commission has carried out studies on current regulatory frameworks on the matter in Member States and continues to research the possible effects of hydraulic fracturing, and the Parliament is also producing reports on the subject.

photo by ell brown on flickr

A series of important changes will also be taking effect as to the way the EU ETS works. For instance, on 28th February, a vote in the European Parliament for an amendment to the EU Energy Efficiency Directive will allow permits in the Emissions Trading System (EU ETS) to be withheld.

Emissions Trading System - The Commission believes the EU Emissions Trading System (EU ETS) to be a cornerstone of the European Union’s objectives to combat climate change and reduce industrial greenhouse gas emissions cost-effectively. It covers some 11,000 power stations and industrial plants in 30 countries (the 27 EU Member States, Iceland, Liechtenstein and Norway). The ETS will be expanded to airlines in 2012 and the petrochemicals, ammonia and aluminium industries in 2013.

tar sands are assigned a default greenhouse gas value of 107g of carbon/MJ, advising buyers it has more climate impact than conventional crude with 87.5g. Canada has engaged in a battle with Europe over the proposal, as it is a country rich in tar sand resources, and has been aggressively lobbying for the plans to be rejected. The EU has also been subject to heavy lobbying from the other side of the debate. The vote finally took place in the Fuel Quality Committee on Thursday 23rd February, but there was no qualified majority, which means the vote will be passed onto the Council of Environment Ministers on 11th June.

A series of important changes will also be taking effect as to the way the EU ETS works. For instance, on 28th February, a vote in the European Parliament for an amendment to the EU Energy Efficiency Directive will allow permits in the Emissions Trading System (EU ETS) to be withheld. The move is designed to reduce the surplus of allowances currently on the carbon market produced by a combination of uncertainty over the eurozone crisis and stalled economic activity as a result of the recession. Fuel Quality Directive - In October 2011 it was proposed that the EU Fuel Quality Directive be revised, in terms of the implementation of the labelling and pricing of fuels according to their carbon emission. One area that has been particularly contentious has been the treatment of tar and oil sands, which are believed by many to be highly polluting. Under the proposal,

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Political Gains: Why Chancellor Angela Merkel decided to phase out nuclear power in Germany Despite some initial criticism, Merkel’s decision proved to be a tactical masterpiece.

Florian Wastl MSL Germany florian.wastl@mslgroup.com

Merkel’s decision to accelerate the phasingout of nuclear energy in Germany Within the industrialised world, Germany’s energy policy is the odd one out. While many industrialised countries are extending their nuclear programmes, Germany has not only decided to stick to its original decision to put an end to nuclear energy, but last year it even opted to accelerate this process. The decision sparked some initial criticism in Germany, but now a broad consensus has been reached.

At the heart of the decision to do away with nuclear energy at an even earlier date than originally planned, was a successful tactic by Chancellor Angela Merkel to snatch the topic away from the Greens.

At the heart of the decision to do away with nuclear energy at an even earlier date than originally planned, was a successful tactic by Chancellor Angela Merkel to snatch the topic away from the Greens. Going against public opinion, Merkel’s conservative-liberal coalition had extended the lifetime of Germany’s nuclear reactors by up to 14 years in late 2010, thereby watering down an earlier decision to phase out nuclear power by the Schröder government. With the Fukushima nuclear accident in March 2011, Merkel faced a massive media backlash and outpouring of popular sentiment. She quickly declared a moratorium during which the oldest nuclear reactors were switched off. Within the following three months, the government decided to decommission all German nuclear plants by 2022. Despite some initial criticism, Merkel’s decision proved to be a tactical masterpiece: The Greens reached unforeseen highs in the polls of up to 25 per cent shortly after the Fukushima accident. However, they quickly dropped back and now stand at 13 per cent.

It is inconceivable that any German government would go back on the accelerated phase-out decision. Even if there were a significant shortfall in the energy supply, the government would consider other options first (imports, fossil energy) before considering even a modest extension of the lifetime of the last remaining German reactors.

A challenging way ahead In addition to the decision to accelerate the phasing-out of nuclear power, the government decided to implement a very ambitious programme designed to transform Germany’s energy system, commonly known in Germany as the “Energy Shift” (“Energiewende”). The programme entails a substantial increase in renewable energy, improving energy efficiency and, most importantly, a considerable extension of the energy grid. As it stands, the “Energy Shift” suffers from a number of weaknesses which could endanger its chances for success. The institutional challenge: Uncertainty in the political process Since Germany has still no energy ministry, competences and responsibilities between the two ministries in charge (economics and environment) are not clear, leading to uncertainties and delays in the planning process. There is considerable wrangling between the liberal economics minister, Philipp Rösler (FDP), and the “greener” and more progressive environment minister, Norbert Röttgen (CDU).

photo by World Economic Forum on flickr

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Once citizens themselves have taken a democratic decision, it will be far more difficult for them to go back on it.

The logistical challenge: Huge investments vs. long distances and citizen protests The proposed shift to renewable energy relies heavily on offshore wind power. The building of wind parks in the North Sea and the Baltic Sea will be very expensive and requires enormous capital expenditure by investors. The energy produced there will also need to be transported to Germany’s industrial centres in the south and west. No precise and promising plan for the large-scale construction of grids is yet in place, and NIMBY-protests along any new power lines could cause major delays and produce additional costs.

photo by bagalute on flickr

The “Energy Shift” requires fossil “bridging” technologies such as coal/lignite and natural gas. There are significant differences between the political parties over the way forward on this.

The political challenge: Coal/lignite vs. natural gas The “Energy Shift” requires fossil “bridging” technologies such as coal/ lignite and natural gas. There are significant differences between the political parties over the way forward on this. While CDU und SPD favour the building of new coal-fired power stations, the Greens are strictly against coal or lignite which they say is dirtier and less flexible than natural gas when combining it with power from renewable energy sources.

The role for Communication While communication is only part of the problem and can therefore only be part of the solution, it is key to the success of Germany’s “Energy Shift” in two important ways: Communication needs to provide momentum from above, and it is important in facilitating progress on the ground. While there is much talk of the “Energy Shift” in the media and politics, the term has not so far been filled with a

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photo by brewbooks on flickr

mission or purpose which could give it the status of a national project. A national campaign needs to provide the necessary patriotic emotion to serve as a unifying theme from above and to provide momentum for the political and regulatory process. This would not just incline federal politics to continue to treat the “Energy Shift” as a matter of national importance, but it would also make it easier for individual politicians to sell hard choices and to stand firm in the face of protest – all the way down to the local level, thereby paving the way for the successful completion of individual projects on the ground. However, communication is also key at the local level itself. To prevent endless stalemates with regard to important building projects, local citizens need to be involved in the planning process at an early stage. There needs to be clear, transparent and continuous information, and participatory elements throughout the entire process are essential. While citizens cannot be involved in every detail, they must be given the opportunity to participate in real decisions. Once citizens themselves have taken a democratic decision, it will be far more difficult for them to go back on it.

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Renewable migration: What drives financial investment in renewables around the world? Within this global revolution there are plenty of spaces for the participation of private investors alongside governments and international institutions.

Alessandro Chiarmasso MSL Italia alessandro.chiarmasso@ mslgroup.com

The energy mix of each country is also important because it determines the payback period required for the investment.

The General Assembly of the United Nations has designated 2012 as International Year of sustainable energy. According to Secretary General Ban Ki-moon, we need a global clean energy revolution: a revolution to make energy available and accessible to all; to minimize climate risks; to fight poverty and improve the health of the planet, enhancing economic growth, peace and security. Within this global revolution there are plenty of spaces for the participation of private investors alongside governments and international institutions. But how are investors being encouraged to support this collective effort to transform the planet? What are the factors which affect their preference of one country or a geopolitical area over another? Firstly, it is important that there is a credible and stable regulatory and political environment, to give investors comfort that if there is a change in government the rules and regulations will not be rewritten over night. The financial community needs to know that the decision to support alternative energy is robust and is firmly supported by the wider community, and that there is an attractive investment environment. Secondly, investors will consider the geography of the country and how this will impact the mix of energy renewable and traditional - in which they will invest. For example, wind power is attractive in France, while solar is attractive in Italy and Spain and hydro in the Nordic countries. Turkey has developed an energy plan, which is considered to be very attractive, as it includes assistance for infrastructure modernisation. The geological nature of Turkey offers the opportunity to develop all the main renewable

energies and the environmental awareness of the population has grown significantly in a few years. The energy mix of each country is also important because it determines the payback period required for the investment. For example, while biomass is a good choice in the absence of other resources, particularly as it stimulates employment in economically weak rural areas, and it is essential in reducing greenhouse emissions, the technology is slower in producing profits. Thirdly, the geopolitical position of the country is important. The financial community knows that any country which relies on Middle Eastern oil, Russian gas or Algerian methane may suffer supply constraints due to the evolution of the geopolitical environment. The political instability of some countries in the Mediterranean, Persian Gulf, and Central Asia has plunged Europe into periods of energy crisis before – in 1973 for example. It was from moments such as this that the interest in renewable energy, and its promise of energy self-sufficiency initially developed. Fourthly, the attractiveness of a country’s regulatory environment and the incentives for investment are critical. Let’s take for example three countries that have maintained a balance between economic development and the environment, and which have considered a blend of traditional and new sources of energy. To meet its energy needs, South Africa launched a development plan for 50,000 MW by 2030. 42 percent of which will be covered by renewable energy across wind, solar / photovoltaic, biomass and hydroelectric power. This is against a

photo by mjmonty on flickr

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photo by Magharebia on flickr

backdrop of political stability, economic growth and attractive regulatory framework. Bulgaria is now attracting capital for solar and wind power, with a focus on solar. While the duration of incentives are only decided at the time of construction of the plant, the typical rate is 25 years for solar compared with 15 years for wind.

The challenge for Governments is to balance incentives with a clear industrial direction, to help sustain the young industries born around renewables and stimulate the market for greater investment in R&D. This not only helps to make the further development of plants more cost effective, but also helps to generate profits by exporting technology to other developing markets.

Within four years, Italy has become a European leader for solar power, due to the incentives within the Energy Bill (Conto Energia). While much investment is focused on installing equipment; that is imported from Germany and China, Italy is clearly building growing expertise in this area. Italy currently has about 159,895 renewable energy plants, of which there are 2,729 hydroelectric, 487 wind, 155,977 solar, 33 geothermal, 669 bioenergy. Collectively, these produce almost the same amount of energy as two nuclear power plants.

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Back to the Future in Europe’s Offshore Centre Europe and the UK needs to continue to develop the potential of the North Sea, which is going to remain a global centre of excellence for some time to come.

Nick Bastin Capital MSL nick.bastin@capitalmsl.com

There is no doubt that advances in technology have opened up areas of the North Sea that were previously too difficult or expensive to target.

Much has been written about the long standing demise of the North Sea as an oil and gas production centre. With peak production reached as far back as 1999, the North Sea has increasingly seemed like yesterday’s story. With many of the oil majors choosing to focus their investments elsewhere in exciting new finds as far afield as Angola, Azerbaijan and Brazil, it is not surprising that the North Sea has seemed somewhat unattractive by comparison. In addition, the continuous development of new technologies and techniques has meant that resources from shale and tar sands, that were previously unattainable, can now be accessed more readily than ever before. A recent study by Oil & Gas UK, the UK’s trade body, highlighted that the decline in production in the UK North Sea had accelerated from an average of 6% in recent years to 18% in 2011 – despite a backdrop of high oil prices. Given concerns over UK energy security, it was doubly ironic that George Osborne MP, the Chancellor of the Exchequer, decided to target North Sea producers for a higher tax contribution in 2011, further destabilising the investment case.

of Shetland at Clair Ridge and Kinnoull are two examples of where technology has helped to make production not just possible but attractive, despite the challenges of the location. As more sophisticated sub-sea drilling techniques are deployed, more and more opportunities will emerge. In 2008, when the Abu Dhabi National Energy Company (TAQA) bought a range of fields and assets from Shell and Exxon, many commentators questioned the logic behind the investment. However, the last few years has seen TAQA double production from its portfolio and bring new discoveries on line in record time. By investing in renovating its platforms and leveraging its sub-surface infrastructure, TAQA has been able to bring new wells into production rapidly and cost effectively.

Does this mean that it is the end of the road for the North Sea? With an estimated 24bn boe still remaining, and with the unknown potential that new technology keeps opening up, many commentators believe that a huge amount more could still be extracted. But what are the drivers for accessing this and are they sufficiently attractive.

With continuous production in the North Sea since the 1970s some may think that the seabed has been sliced and diced with seismic by many operators, many times over. One might assume therefore that there can be nothing new to learn, no new fields to be identified. However, on the contrary, recent advances in seismic technology are allowing explorers to see through tricky structures and formations, particularly salt, to the oil and gas lying beneath in a way never considered possible before. This ever evolving understanding of the geology of the North Sea, and emerging knowledge of the North Atlantic, combined with better technology for extracting hydrocarbons, means that once unattractive acreage is now being brought into production.

There is no doubt that advances in technology have opened up areas of the North Sea that were previously too difficult or expensive to target. Recent new investments by BP in the area west

The key macro driver for this trend is – unsurprisingly - the oil price. With a high and relatively stable oil price, it is possible for significant investment to be made and to still turn a profit even

photo by Ken Lund on flickr

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photo by jkirkhart35 on flickr

in a tough location like the North Sea. When the oil price was below US$70 a barrel, the commercial rationale for investing significantly in the North Sea was limited, but with prices remaining over the US$100 a barrel mark it is clearly a lot easier to take those long term investment decisions. Despite the smash and grab raid by the UK’s Chancellor, most producers seem to have swallowed the increase and are continuing with their investment plans – the ability to produce significant quantities of oil close to key markets, in a stable political environment is just too attractive.

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Global demand for energy remains insatiable. The International Energy Agency predicts that demand for energy will grow by some 40% by 2030, and, despite major investments in developing alternatives, fossil fuels are expected to make up some 80% of this demand. Europe, and the UK in particular, needs to continue to develop the potential of the North Sea. It is clear is that it is going to remain a global offshore centre of excellence for some time to come and that the continuous evolution of technology will allow an ever greater proportion of hydrocarbons to be extracted.

Energy Newsletter

Volume 1 issue April 2012


The European Energy Transition Who will pick up the bill? At a time of extreme budgetary pressure, who will foot the bill for what Greenpeace dubbed “the battle of the grids”?

Jan van Ingen MSL Amsterdam jan.van.ingen@msl.nl

By ticking the right boxes on the application form of their energy provider of choice, consumers participate in a green energy pool, obligating their provider to buy an equal amount of ‘green power’ as is being used by their green power customers.

For Dutch consumers buying green electricity has never been easier. By ticking the right boxes on the application form of their energy provider of choice, consumers participate in a green energy pool, obligating their provider to buy an equal amount of ‘green power’ as is being used by their green power customers. The Dutch government exempts green power from pollution taxes, which means it is hardly any more expensive than conventional power. In several European countries with common carrier arrangements, electricity retailing arrangements make it possible for consumers to purchase renewable electricity from either their utility or a green power provider. Paradoxically, I believe this development will prove disastrous to the quality of the debate on the European energy transition. Let me explain. In most European countries green energy sources currently provide a very small amount of electricity, generally contributing less than 2 to 5% to the overall pool. The most important European sources of renewable energy are hydro-electric, solar and wind power. Whether burning bio-fuels and biomass is a sustainable form of generating energy is still open to debate, while the impact of tidal, wave and geothermal power generation in energy transition scenarios is small by any standard. So, in order to make a substantial transition from conventional to renewable electricity possible, Europe will have to rely on water, sun and wind to replace carbon and nuclear energy sources. Let’s have a brief look at the economic characteristics of these sources of energy.

Hydro-electricity has three major advantages. It is a flexible source of electricity since plants can be ramped up and down very quickly to adapt to changing energy demands. The cost of fuel (both in terms of money and CO2 emissions) has been eliminated completely. Also, hydro-energy provides the only way to store electricity on a large scale, simply by trapping water behind a dam. Unfortunately, due to natural circumstances, European hydropower is mainly produced in the Nordics and to a lesser extent in France and Switzerland. Solar thermal power and solar photovoltaic power is currently generated in substantial quantities on an experimental scale in the South of Europe, most notably Spain and Portugal. For obvious reasons, European solar energy generation in southern Europe and North Africa has the highest potential. Wind farms could be placed anywhere on the European continent and the British Isles. However, because better wind speeds are available offshore compared to on land, and also because of the impact large wind farms have on the natural landscape, the trend is towards offshore wind power generation. The London Array, which is under construction off the coast of Kent, will be the largest offshore wind farm in the world. Equally massive offshore wind farm projects are in the process of being constructed in the North Sea, near the German coast. What are the implications of this? To put it simply, in order to make 60% of its electricity production green (from just 4% today), Europe will have to transmit hydro-electricity from North to South, solar electricity from South to North and wind energy from the coast to the mainland. Therefore key to the realisation of any energy transition

photo by infomatique on flickr

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There is only one possible answer: European citizens, in their role as taxpayer and consumer, will have to pay for the European energy

photo by twicepix on flickr

transition. scenario is the reinforcement and expansion of the European electricity grid, requiring significant investment in cross-border interconnections and in integrating renewable energy into the network. According to many recent studies, trillions of Euros are needed to upgrade Europe’s electricity grids and the way they are operated over the next few decades. To achieve this, the European Commission has calculated that half of the required capital expenditure will have to come from Governments. Michael Süss, member of the managing board of Siemens AG, calculated that the German Government’s decision to phase out nuclear energy will cost the country €1.7 trillion between now and 2030. To put this sum into perspective: this is two-thirds of Germany’s GDP in 2011. At a time of extreme budgetary pressure, who will foot the bill for what Greenpeace dubbed “The Battle of the Grids”? There is only one possible answer: European citizens, in their role as taxpayer and consumer, will have to pay for the European energy transition. Will politicians be brave enough, especially in times of economic crisis, to explain to their voters the enormous financial consequences of moving away from our current dependency on carbon and nuclear energy to a new paradigm of sustainable energy

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sources? Or, put differently, will they have the guts to present European citizens with the choice between a relatively rapid transition, requiring massive investments and huge personal financial sacrifices, and a long term transition scenario taking a century or more, in which we will still rely on nuclear energy and natural gas for quite some time, only to phase them out gradually in order not to disrupt our economies? With customers still naively believing that all it takes to move to renewables is ticking some box in an energy provider’s sales form, convincing them will prove quite hard to do. Arguably, this is the toughest challenge European thought leaders in the field of energy are facing: to obtain broad, active public support for the energy transformation, across countries, sectors and political parties. Without a European public debate on energy transition scenarios and their financial implications, citizens will never agree on public and private money to be spent on such a scale. With the energy companies’ reputation at an all time low, what Europe needs most is a transnational campaign “resetting” the mind of the public to implications of green energy. The public relations industry would be more than happy to provide the framework and methods of an interactive exchange of arguments between all stakeholders involved - the general public, governments, thinktanks, activists and the energy industry.

Energy Newsletter

Volume 1 issue April 2012


What effect will the presidential elections have on energy issues in France in 2012? A surprising aspect in this campaign is that, compared to 2007, energy issues have been at the center of the debate.

Pierre Samuel Guedj Publicis Consultants France guedj@publicis.com

It is hard to predict what lasting impact the French presidential elections will have on this particular issue; however, what is certain is that for once, they will have an impact. Energy issues will be considered, weighed carefully, discussed, and decisions will be made.

With the looming first round of the French presidential elections only a few weeks away, France is facing a critical decision at a time of uncertainty and fear, following a year of unsettlement with the loss of France’s triple AAA and the Euro crisis. A surprising aspect in this campaign is that, compared to 2007, energy issues have been at the center of the debate. Most experts and observers remember that in 2007, during a live, televised debate between then French candidates Ségolène Royal and Nicolas Sarkozy, both had given erroneous numbers concerning the part of nuclear in France’s overall energy consumption, a reflection of the belittlement of energy in that presidential debate. Yet this year, after Fukushima, with rising oil and gas prices, the bankruptcy of a refinery and Iran’s threats to cut off oil exports, most candidates have made France’s energy mix and its choices one of their priority targets. In a matter of days following the announcement of the local refinery Petroplus’ demise, François Hollande, the Socialist candidate, Eva Joly , the Environmentalist candidate, and Eric Besson, Minister of Trade, had gone on site to reassure the hundreds of employees that their fate had not gone unnoticed. Nuclear energy has become a hot topic, with the ruling UMP maintaining its stance that nuclear is a safe and necessary energy for France, while the environmentalists vow to go the German way and slowly but surely, close off nuclear plants in France, with no particular consideration for the

economic impact this could potentially have on France’s nuclear expertise. Of particular importance is that despite the differences in the parties’ stances, they have all understood the importance of this issue. In a time of financial crisis, rising energy costs directly impact a French person’s purchasing power, and with close to three million French homes currently facing difficulties in being able to afford heat and electricity, these issues are fast becoming newspaper fodder. It is hard to predict what lasting impact the French presidential elections will have on this particular issue; however, what is certain is that for once, they will have an impact. Energy issues will be considered, weighed carefully, discussed, and decisions will be made. The future president will no longer discard the energy mix as a secondtier subject of no importance to the French; he or she will listen to the population and take into account their worries. When José Bové, a French environmentalist and European MP, took a stand last year against the exploration of shale gas, France as a whole listened, and it dominated the news for weeks. When Fukushima struck, the government conducted a serious reflection on France’s nuclear plants, their capabilities and their safety. Every other month, a new study is commissioned by the government on renewable energy and France’s reduction of CO2 emissions. The lasting impact of this presidential election in the end will be the sudden re-evaluation and awareness of France’s energy choices; the rest remains to be seen.

photo by Walmart Stores on flickr

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Energy Newsletter

Volume 1 issue April 2012


Why politics will control energy The political grip on the energy market is tightening. Following deregulation, you may have expected the involvement of fewer political and democratic decisions in the market. Instead, we now see detailed RES demands from Brussels and a decision to phase out nuclear power in Germany.

Per Ola Bosson JKL Group per.ola.bosson@jklgroup.com

The desire to regulate, monitor and control the energy market is stronger than ever. It seems that there are no limits to what can be controlled by political decisions.

The energy market is regulated through a series of EU directives adopted during the past few years. The 2006 Energy Efficiency Directive was followed by the 2009 Eco-Design Directive, the 2010 Energy Efficiency Labelling directive and the 2010 Energy Performance of Buildings Directive. A new Energy Efficiency Directive is expected in June. On the national level as well, more political decisions and regulations are affecting the energy markets. Thresholds for entering the energy market remain high. In many places, it is virtually impossible to obtain a political decision for a new power plant, including wind power, or a permit to extract oil or gas. This is not a coincidence, and may actually look like a pattern when you put them next to each other: a clear and consistent trend towards regulation, subsidies and political deadlock in European and national level energy politics. The desire to regulate, monitor and control the energy market is stronger than ever. It seems that there are no limits to what can be controlled by political decisions. The political landscape of the 2010s is framed by issues relating to climate change, the financial crisis and the euro crisis. Solutions are sought in politicians’ toolboxes rather than the market. In terms of energy, politicians want to do more than cap emissions with a trading scheme. They want to control all aspects of the transformation of the energy system, including the prohibition of ordinary light bulbs. The big paradox is that most of Europe is controlled by centre-right governments: Cameron (UK), Rutte (Netherlands), Reinfeldt (Sweden), Coelho (Portugal), Rajoy (Spain) and Tusk (Poland) … and this is only a

partial list. The generation of politicians governing Europe today was born in the 1960s or late-50s and brought up in youth organisations where the free market was the watchword, Margaret Thatcher was the icon, and Ayn Rand’s books were elevated nearly to the status of the Bible. How can this development be taking place in a European Union that many voices on the left are constantly touting as a market-liberal project? We see four possible explanations behind the actions of Europe’s leaders – and these are coherent rather than disparate. Politicians’ backgrounds in ideologically-driven youth organisations have not made any deep impression. White certificates, nuclear decommissioning and government subsidies for renewable energy are political tools used with dedication and joy rather than with ideological difficulties. Today’s political leaders are pragmatists. Teachings on political handicraft have set deeper traces than ideological training. Especially in energy matters, politicians seek solutions in science rather than ideology. Fukushima and the long-running debate about how to create a sustainable community have set the limits. Public opinion does not accept the market as a solution ... so the market is no solution for anyone who wants to win elections. Public opinion controls politicians. Today’s politicians listen to voters rather than trying to bring them round. The stronger the European Union becomes, the greater the opportunities to legislate, govern and regulate. Energy has always been a safe haven for fine-tuning. But energy policy has now been extended to the common

photo by TVA Web Team on flickr

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photo by tsuda on flickr

European level. Politicians are meddlesome by definition. Not even free-market liberals can resist when opportunities pile up. People are worried about the climate, and politicians want to appear active in climate issues regardless of decisionmaking level. This is why we now have municipal climate investment programmes, regional climate task groups, national climate incentive schemes and common energy and climate policy. Global warming is behind the revival of energy regulation on all levels.

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This will not end. Europe is only at the beginning of its mission to transform the energy system and decrease emissions. Like all major changes, there will be winners and losers. And politicians – through regulations, incentives and taxes – will decide who will win and who will lose.

Energy Newsletter

Volume 1 issue April 2012


Poland stands on shale The Environment Ministry has so far granted over 100 concessions for shale gas exploration. The first drilling results have been encouraging and Poles are very enthusiastic about this potential new energy source.

Marcin Roszkowski mroszkowski@publicrelations.pl

and Małgorzata Halaba mhalaba@publicrelations.pl

According to the EIA, these reserves are large enough to meet Poland’s demand for natural gas for 300 years. If these calculations prove correct, the country could become a major player in shale gas.

How did it start In April 2011, the U.S. Energy Information Administration (EIA) announced that Poland has 5.3 trillion cubic meters of recoverable shale gas resources. This is the largest amount among the 32 European countries where geological surveys for shale gas have been conducted. According to the EIA, these reserves are large enough to meet Poland’s demand for natural gas for 300 years. If these calculations prove correct, the country could become a major player in shale gas. Poles are in favour The Environment Ministry has so far granted over 100 concessions for shale gas exploration. The first drilling results have been encouraging and Poles are very enthusiastic about this potential new energy source. They hope that shale energy might solve many of countries problems, enabling them to catch up with their western neighbours more quickly, or guarantee higher pensions in the future. According to a September report by CBOS (polling institution), most Poles are in favour of shale gas exploration in Poland. 73% of respondents support shale gas production against only 4%, who say ’no’ to drilling for the new energy source. Since then, opposition to shale is increasing, but over 50% of citizens still support it. The reason is simple – at present Poland is dependent on Russian gas and crude oil and has been desperately looking for ways to diversify the list of its suppliers in recent years.

photo by USFWS Mountain Prairie on flickr

New law In January 1, 2012, the new Geological and Mining Law came into force. The new bill aims to help companies to get easier access to potential shale gas reserves. It also introduces the possibility of maintaining mandatory reserves of natural gas in storage installations located outside of Poland (in EU and EFTA countries). The Law also states that if a company finds a gas deposit it will have precedence in receiving the production concession.

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The Government is supportive Such huge potential shale gas deposits have drawn interest from international companies, including such global players as ConocoPhillips, ExxonMobil or Chevron. Polish companies are also involved and get encouragement from the Government which would like to see a consortium of the largest state-owned companies — crude oil refiners PKN Orlen and Lotos; gas monopoly Polskie Górnictwo Naftowe I Gazownictwo (PGNiG); power companies Polska Grupa Energetyczna (PGE), Tauron, Enea and Energa, or even copper producer KGHM Polska Miedź SA. However, analysts are sceptical about the idea, for a number of reasons. Firstly, all the companies have their own massive, long-term investment programs in their respective core businesses. Secondly, while the scale of necessary investment into shale gas exploration and excavation is more or less known, potential revenues are still difficult to establish. In the meantime, shareholders will have to brace themselves for a share price roller-coaster ride – for example the case of Dublin-based and Londonlisted San Leon Energy Plc. San Leon is focused on the exploration and production of oil and gas projects in Poland, Ireland, Italy, Morocco, Netherlands and North America. In Poland, the company holds six concessions and hopes they have the potential to change the shape of gas supply in the future. At present, San Leon’s share price performance remains volatile, depending on market reports of recent finds—or lack of them: over the last year the share price swung between a high of £39.50 and a low of £7.76. This neatly showcases how great the market’s expectations are and how closely it is following shale market participants – particularly in Poland.

Energy Newsletter

Volume 1 issue April 2012


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To find out more about MSLGROUP’s services, please contact

Nick Bastin +44 (0) 20 7255 5117 nick.bastin@capitalmsl.com

Europe's Energy: At A Crossroads  

A comprehensive newsletter with insights from MSLGROUP experts on the state of the energy industry in Europe. Produced semi-annually. With...

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