No truer thing has been said of the CommodityPoint SourceBook series, our very successful series of guides for companies that are seeking to acquire CTRM software, services, or ancillary products, and for which we continue to be peppered with queries as to how valid a specific publication is to the particular vendor or consultant in question and/or which one they should be listed in.

Perhaps this may be due to CommodityPoint’s analysts being too close to the product or that these same analysts actually formulated the names for the publications. It could also be the many, many hours of work that actually goes into creating a SourceBook, the conceptualization, the sending out of forms to vendors/service providers, the editing, and re-editing, researching the validity of content (yes, we try to make sure that fact fudging doesn’t take place), re-editing, formatting, sending for review, re-editing, formatting in PDF, formatting for the web and finally sending out to market…(whew!)… that has got us scratching our heads as to why it is that some vendors/consultants might still be confused as to what SourceBook publication is actually suitable for them and which one they should list their products and/or services in.

And so without further ado, I give you, the reader, CommodityPoint’s most definitive and simple explanation regarding the SourceBook Series.

Firstly, the term SourceBook is the actual brand name of the product family such as Coca-Cola, Ford or Sony. Under that brand, you have individual products, such as Coca-Cola Light (or Diet Coke if you’re in North America), Ford Fiesta, or Sony Walkman. The SourceBook series is a series of different publications that are the definitive guides to commodity trading software, providing the industries only up-to-date and comprehensive overview of the systems and providers servicing this dynamic and complex industry. The SourceBook is the primary tool offered by CommodityPoint to help prospective buyers of software and services in this space.

We then move to the actual publications, which would be the term used directly after SourceBook. So that would be SourceBook—CTRM Products, SourceBook—Ancillary Vendors and Products and SourceBook—Consultants and Systems Integrators.

The SourceBook—CTRM Systems

This publication provides a listing of those products and vendors that provide most or all of the core CTRM functionality in their software (contract management, deal capture, position keeping, logistics, etc.). The current version provides coverage of more than 45 CTRM products, is distributed free of charge and has established itself as the definitive resource for those companies and individuals seeking to better understand the landscape of providers and solutions, including prospective buyers of CTRM software, investors and market consultants.

The SourceBook—CTRM Systems is updated annually with the next version due for release in March 2012.

The SourceBook—Ancillary Vendors and Products

This publication focuses on products and software which, while ancillary to the core CTRM software used by commodity trading and risk management organizations, have become an increasingly critical part of the infrastructures necessary to compete in today’s markets. The current version provides coverage of more than 40 ancillary CTRM products.

The SourceBook—Ancillary Vendors and Products is updated annually with the next version due for release in June 2012.

The SourceBook—Consultants and Systems Integrators

This SourceBook covers the consultant/systems integrator landscape—companies who offer services in and around CTRM and ancillary software. For example, those firms who offer CTRM software selection or software implementation services or who may offer training services, risk management consulting or custom development services.

The SourceBook—Consultants and Systems Integrators is updated annually with the next version due for release in September 2012

In order to ensure that we continue to provide the most comprehensive resources of products or services, we do not charge for listings in any of our SourceBooks. However, in order to support their development and distribution, we do offer opportunities for companies to advertise their products or services via a quarter page ad for those with a listing in a particular SourceBook, or a larger ad for those companies that are not listed in that particular SourceBook. Each new SourceBook release is announced via e-mail to our 112,000+ IssueAlert subscribers and made available via free download of a PDF document. On average, the SourceBooks are downloaded 3,000 to 4,500 times with an expected redistribute rate of 25 percent.

To Conclude:

Although CommodityPoint’s mission is to help simplify the complexities of the commodity trading and risk management space, we do try to reserve our acronyms and contractions to actual recognized phrases. We will always strive to not confound our clients with a whole bunch of Fs & Qs when an actual explanatory title may be more becoming and welcome.

The announcement last week that OpenLink Financial (OLF), one of the world’s largest CTRM solutions providers, had entered into an agreement to acquire their sometime rival (depending on the industry segment) SolArc has created quite a stir in the market. Though we’ve seen a couple of CTRM vendors change hands at the investor level in the last couple of months, including Hellman and Friedman buying into OLF, this new announcement reflects the largest acquisition of one vendor by another in this space for many years, and is a combining of two of the top five CTRM solution providers.

The announcement is less than a couple of weeks old and, as one might expect, there are a number of elements to this deal that must still be worked out. Nonetheless, I did have the opportunity to engage in a bit of Q&A with the leaders of both companies, Kevin Hesselbirg, CEO of OLF, and Brad Anderson, the founder and CEO of SolArc, to get their thoughts about what prompted the acquisition, the value of the deal for their clients, and whatever thoughts they could share about the future direction of the combined company.

Patrick Reames (PR): When is the acquisition expected to close?

Kevin Hesselbirg: We expect our acquisition of SolArc to close by the end of 2011, subject to legal and other regulatory approvals.

PR: What do you see as the primary synergies that can be expected from this combination of companies?

Mr. Hesselbirg: OpenLink and SolArc both share a culture and philosophy focused on delivering high quality, market leading solutions, which are customer driven; we are both focused on creating value for our customers.

Combining the shared values and talents of our organizations will enhance our ability to meet market trends including the convergence of physical and financial traded markets, and continue to develop leading solutions, such as our SmartETRM platform. This platform is designed to allow market participants to manage their operational and financial risk and the associated complexities of physical delivery and settlement from a single vendor.

Brad Anderson: The greatest benefit of the two companies combined will be the ability to provide our respective current and prospective customers an unparalleled, single-vendor solution for all of their commodity trading and risk management needs.

Combining the best-in-class capabilities of both companies’ products will provide customers enhanced functionality with a lower total cost of ownership.

PR: What were the primary drivers for your company in pursuing this acquisition?

Mr. Hesselbirg: Ultimately, it is our main focus to meet client needs with a more comprehensive solution and to leverage the IP of each entity as a combined unit. The additional value of SolArc as a complementary provider furthers our commitment to our customer base. The trusted vendor reputation of both companies and newly combined offering enables us to extend the footprint at existing customers, and improve overall customer satisfaction.

Furthering that, the unparalleled R&D investment of both organizations will allow us to accelerate time to market on emerging industry concerns and important new markets, benefitting both our clients and the marketplace.

Mr. Anderson: We have always focused on driving value to our customers. We believe delivering long-term customer value is the key to long-term success. The most effective and efficient path to additional value creation was to partner with a complementary provider such as OpenLink.

SolArc’s leadership position in bulk commodity physical management is the perfect match to OpenLink’s market-leading position. This value is best represented by our mutual customers.

Together, we will be better able to leverage the R&D dollars the other has already spent. This creates value for the customer and the two companies combined.

PR: What’s the leading value proposition for your company’s customers?

Mr. Hesselbirg: As a combined entity we will have an unprecedented overview of the overall market needs and will be able to maintain a global industry level conversation with the true market leaders-our customers. We will be in an ideal position to deliver value and innovation to improve operational efficiencies while reducing risk and meeting the evolving regulatory and market changes of our combined clients.

The combined entity will also position us to invest more R&D dollars than anybody else, which will enable us to continue to transform market requirements, emerging trends, and strategies into viable, valuable, best-of-breed solutions for our clients.

Mr. Anderson: We have a number of mutual customers already. These customers will benefit from better collaboration with the two companies combined, reduce vendor relationships, and simplify systems architecture with greater overall functionality.

Additionally, a customer currently benefiting from one company’s products will have the opportunity to leverage the other company’s products and their capabilities. For example, many of SolArc’s customers have significant operations in the electric power markets which SolArc does not support. OpenLink has a market-leading solution for power. Customers will benefit from the complementary nature of our offerings.

PR: Will SolArc’s RightAngle continue as a standalone product offering in the future?

Mr. Hesselbirg: While we cannot comment on future product direction at this time due to regulatory issues, we are committed to the existing roadmaps of both companies’ products.

Mr. Anderson: Yes. We are committed the existing roadmaps of both companies products. We are anticipating the delivery of our RightAngle S12 release in 2012.

PR: OpenLink and SolArc have competed for opportunities and do share capabilities (such as crude trading and physical logistics)—will there be an attempt to reconcile those capabilities/products in order to create a single CTRM product offering?

Mr. Hesselbirg: Historically we have competed on very few opportunities. We consider the merger to be extremely complimentary to both companies because we have different expertise in different areas.

Both companies/products provide best-of-breed solutions for their respective customers’ needs. Historically, we’ve each served distinct customer needs. Again, though, we cannot make forward statements about product at this time.

Mr. Anderson: There are no current plans in place for merging the products.

PR: What role will Brad Anderson play in the combined organization?

Mr. Hesselbirg: Brad will become a valuable member of the OpenLink Management Team and continue to oversee RightAngle product strategy and customer relationships.

Mr. Anderson: I’m looking forward to taking a very active role as a member of the OpenLink management team and continuing provide guidance and direction with regard to product strategies for the SolArc product lines.

PR: Will there be an immediate combining of offices/functions between the two companies?

Mr. Hesselbirg: Our priorities are to work on customer and product issues first and foremost. We have an integration team in place who will be working through issues to determine the most efficient and effective way to deliver our products and services to the marketplace.

PR: With OLF’s most recent acquisitions, the acquired companies have remained somewhat independent—is there an expectation that SolArc will continue to operate in a similar manner?

Mr. Hesselbirg: OpenLink’s philosophy has been to handle these situations as mergers, being respectful of the employees, the innovation, and the products that helped create each company’s success. This model results in a higher level of independence for the acquired company, which has previously not been the norm in the industry.

As with previous transactions, we will invest significantly after the acquisition. This strategy has allowed our previous acquisitions to grow dramatically.

PR: How well do the products (RightAngle and Endur) mesh technologically?

Mr. Hesselbirg: At this time, due to regulatory and legal obligations we have not been able to review each other platforms at the detailed level. However, both solution suites are built with technologies that facilitate interoperability, and we share customers who utilize the market leading qualities of both solutions already.

Mr. Anderson: Both products are built on technologies that allow for interoperability between platforms. We have many mutual customers that “meshed” our products together, and we expect to work closely with them to leverage their experience and reduce their support burden over time.

PR: This deal appears to be of most benefit to each company’s banking clients—what are the benefits to the combined companies’ non-banking clients?

Mr. Hesselbirg: Any of our customers engaging in both physical and financial trading activity merging logistics functionality, will benefit.

We will continue to strive to improve our capabilities through the conversion of shared vision into delivered solutions; fulfilling our clients’ increasingly complex and evolving market needs—in the markets and industries we serve. This includes Banks as well as energy and agricultural companies.

Mr. Anderson: While our banking customers will see obvious benefits, we actually have more common customers outside of banking than we do within banking. Energy and agricultural customers will benefit in the much the same way as our banking customers.

PR: What is the overlap in client bases between the two companies?

Mr. Anderson: The overlap in client base is slight, approximately less than 15% of SolArc’s current customer base and less than 5% when compared to the entire customer base of the to be combined entity.

PR: Does this acquisition expand OLF’s market reach outside of the top tier of the market, an area in which OLF has traditionally been most successful?

Mr. Hesselbirg: All of our customers are using our sophisticated solutions in extremely complex and evolving markets.

OpenLink has never viewed our go to market approach based upon a particular tier, but rather a level of sophistication to meet their business needs. We consider all of our clients to be top tier regardless of traditional metrics for determining tier such as market capitalization or revenue.

PR: Is there advantage in this acquisition in terms of OLF’s pursuit of the agricultural markets?

Mr. Hesselbirg: Both OpenLink and SolArc have been increasingly focused on improving solutions in the agricultural marketplace:

• SolArc being a first mover in the wider commercial industrial section (e.g., airlines, CPG, Manufacturing) which includes agriculture
• OpenLink having the largest number of customers in this space, through dbc (OLF’s supply chain/CTRM solution for grain producers, traders and wholesale consumers).

Therefore, neither one of us would view this combination as a change in strategy to address this important industry group.

PR: SolArc has been a market leader in innovating data/transaction visualization. Is there an expectation those capabilities will be leveraged into Endur and the other OLF products?

Mr. Anderson: Absolutely; we expect that SolArc’s experience and leadership position in the area of data visualization and usability will mature more aggressively in the combined company.

PR: Are there any anticipated synergies between RightAngle and the IRM products?

Mr. Hesselbirg: Due to regulatory and legal obligations, we’re not able to discuss product specific questions at the detailed level at this time; however, both solution suites are built with technologies that facilitate interoperability, and we share customers who utilize the market leading qualities of both solutions already.

PR: Does this acquisition move OLF closer toward a public offering?

Mr. Hesselbirg: This acquisition is a new chapter at OpenLink with our new supportive owners. As demonstrated by our recently completed transaction event with Hellman & Friedman, OpenLink has never had a problem attracting investor interest in our growth platform and our vision for the marketplace.

An IPO is just a different variation of a financing vehicle and we would make a decision on that step if it made sense to so do it. At this point in time, we have no plans to pursue new capital investors.

CommodityPoint’s View of This Transaction

With limited client overlap, there should be little pressure from the combined company’s customer base to merge the Endur and RightAngle product lines, allowing OLF to continue to operate SolArc as a somewhat independent entity, much as they have with the IRM and dbcSmart acquisitions. While on the surface this strategy would seem not to create great operational efficiencies, experience has shown that attempting to force-fit and merge acquired E/CTRM technologies into a singular product line has rarely, if ever, yielded significant positive benefit; in fact, such strategies generally lead to increased customer dissatisfaction and significant loss of clients for the merged entity.

In our view, the greatest benefit of this acquisition will be a sharing of knowledge and experience between the two companies. Each has a long history in this market and has developed market leading capabilities—OLF in the areas of multi-commodity trading, risk management and analytics, and SolArc in the area of bulk commodity trading and logistics. The ability to leverage capabilities and resources across the two platforms should ultimately create ever improving offerings from both, enabling the combined company to win new clients that individually they might have otherwise lost to their competition.

So What are the Six Largest E/CTRM Vendors Based on Annual Revenues These Days?
With the vast majority of E/CTRM vendors being private companies, it’s difficult to know for certain what any vendors revenues really are, therefore this list will certainly be open to some debate. Nonetheless, according to our latest estimates of global revenues for commodity trading and risk management, OpenLink Financial (OLF) is probably still sitting atop of the list weighing in with estimated revenues in excess of $225 million (of which a significant proportion is not related to E/CTRM, of course), but these days Triple Point isn’t that far behind, with estimated revenues of approximately $110 million. OLF and Triple Point have managed to open up a sizable gap between themselves and all of the other vendors in the space over the last few years. Triple Point’s growth rate, supported by several good acquisitions, as well as organic growth, has probably been stronger than all other vendors in the space over that period. OLF has also made some astute acquisitions, particularly those which have given it quite a strong presence in the agricultural commodity trading space, while Triple Point has been present on the metals side for several years with one of its early acquisitions. Both OLF and Triple Point can offer multiple commodity group coverage but both remain some distance from being able to cover all commodities in all markets.

SunGard Energy & Commodities is also one of the industry’s largest vendors by virtue of SunGard Energy’s large installed base (which was also acquired primarily via a number of earlier acquisitions of companies like Caminus, for example) and the addition of the SunGard Kiodex business when the two were rolled up into a single entity in 2010. SunGard Energy & Commodities has largely remained energy-centric as its more recent acquisitions, such as Energy Softworx, have been more about moving up and down the energy value chain. SunGard Kiodex has historically been more geared towards financial players but it too has had a more energy-focused past.

SolArc also ranks in the top six of revenue, thanks to several years of solid growth and more international business. SolArc can cater for non-energy commodities, as well as energy, but currently lacks an electric power aspect to its Right Angle product line. SolArc’s strategy has been quite interesting to watch, as it has targeted various industry segments and dominated them such as products marketing, coal and fuels in sectors such as the airline industry. Additionally though, SolArc is perhaps not yet well-known for this yet, it has for the last several years been—in our view—a leader in technological innovation developing products for visualization, migrating its application to .Net and delivering support for various handheld devices.

Another of the six largest companies by revenue is likely to be Allegro Development. Allegro has been around since before the beginning of ETRM/CTRM software as an identifiable software category and has certainly had some ups and downs along the way. But Allegro, too, has been a technology innovator with the first migration to .Net and deep modularization of its product. It has a broad footprint but it too is still somewhat energy-centric.

The top six E/CTRM vendors from our perspective in revenue terms are then OLF, Triple Point, SunGard Energy & Commodities, SolArc, Allegro and Brady PLC but CommodityPoint still tracks 74 other E/CTRM vendors in the space. As of 2011 there is still no outright winner as each vendor has different specialties so there is no “one size fits all” supplier out there. . The requirements for E/CTRM software are so complex and broad that no single vendor can provide a total solution meaning that multiple solutions often supplemented by homegrown custom functionality are still required.

Will This Change?
CommodityPoint doesn’t see much chance of E/CTRM being dominated by 2-3 vendors in the short to medium-term because the industry is still too volatile in terms of requirements and there is still a lot of evolution left. It’s a complex industry with a set of complex requirements and it will take some time before anyone vendor will be “best in class” across the entire space. The smaller vendors can survive quite nicely in such a market and the market offers opportunities for new start ups as well to fulfill highly specialized niche market needs.

We have noticed that other major software companies are involved, if only peripherally, including SAP and Oracle. SAP has a number of applications in areas like logistics for certain commodities and Oracle can also claim some ancillary ETRM capabilities in energy—but, is it yet a big enough market for such companies to show increased interest in? CommodityPoint’s 2011 Market Sizing Study report showed it is a sizeable a market of close to $500 million per annum in license opportunity alone.

Meanwhile, those with access to capital can, and will, continue to make acquisitions to grow. Since the start of the year iRely has acquired Summit Software and Constellation Software has acquired Agris. Many readers may not have heard of these companies, but just three years ago, very few of our readers might have known who Brady PLC was, either. The conclusion is that there remains plenty of time for the E/CTRM vendor play to work itself out and there remain plenty of smaller vendors to be acquired to change the entire scene.

Note: Vendor revenue estimates are based on CommodityPoint’s research and methodology for market sizing. The CommodityPoint 2011 CTRM Software Market Sizing report was kindly sponsored by Brady PLC and Eka.

Note: The term ‘by revenues’ used above refers to revenues gained via the licensing, support, maintenance and provision of certain consulting services around E/CTRM software. Other vendors may have larger revenues overall but much of that revenue stream originates from other software categories and/or services.

This content was issued as an IssueAlert newsletter article on 8/3/2011. If you would like to subscribe to that newsletter, please do so here.

On June 23rd, 2011 the International Energy Agency (IEA) made a significant announcement. For just the third time in its history, it announced the release of oil from strategic reserves—some 60 million BBLs over the preceding month. The announcement pointed to the Libyan situation, where it estimated some 132 million BBLs of light, sweet crude oil had been removed from the market by the end of May, 2011 and noting that greater supply tightness (and the resulting run in up in prices) could threaten the fragile global recovery. The impact of this “shock” announcement was pretty immediate as crude prices fell with Brent Futures falling close to 7.5 percent in the immediate aftermath.

Reuters analyst, John Kemp¹, immediately saw the move as targeted against speculators in the market. A view echoed by many U.S. newspapers which ran ugly headlines proclaiming the end of speculation in the market and a return to “fundamentals” and saner prices. If this unheralded and hugely coordinated and difficult decision by the IEA was targeted at speculators, it failed. The sudden unexpected downwards move did hit long biased hedge funds for sure—that can be seen in some rather disappointing returns for May from many managers, but was it even an effective “warning shot” as The Street² put it? Was it a warning shot at all?

Strangely enough, oil prices were declining prior to the announcement and there was much speculation that the IEA move wasn’t as much as a surprise as initially thought. According to one oil-trader, Mark Fisher, it wasn’t and he made his accusation on CNBC.”This information, in my opinion for what it’s worth, was leaked. It was leaked,” he rasped. “Somebody knew something.” It wouldn’t be too much of a surprise if the decision, which not only required agreement of IEA members but likely consultations with OPEC and others, was leaked as crude was down by four percent already.
What is clear is that the IEA’s move was a direct market intervention, and yes, it was very much a speculative move by big governments to try to control what should be a free market. So who is crying foul now? After the announcement, the idea that another move by the IEA to keep down prices may be on the table was also mooted. But there is a problem with that strategy—the IEA simply doesn’t have enough credible political capability to keep adding from the strategic reserve to the global oil supply. In a matter of months its reserves would be gone and the price of oil would still be close to record highs. As Fisher puts it—it’s a risky gamble that the IEA can’t win.

Central to this issue is this: the price is where it is at because of fundamentals, not speculators. I have argued this many times before. “To me, price volatility cannot be significantly dampened by reducing the ability of investors to “speculate” nor can it be addressed by greater market oversight and regulation (not that this may not be required for other reasons). It can only be addressed by recognizing and understanding the fact that for now, and the future, we are truly in a supply constrained world and that demands a higher level of thinking, a more strategic set of thinking and strategies at both the national and trans national levels,”⁴ I stated back in 2009. Even the IEA announcement points to fundamentals as its raison d’etre with its statement about Libyan oil. But hold on … 60 million BBLs to replace 132 million BBLs already lost from the market? Two million BBLs/day for 30 days to replace 1.5 million BBLs per day of lost Libyan oil? No wonder the speculators barely flinched.

The real reason for the release may be indeterminable. Some suggest President Obama has an eye on re-election and sees lower gas prices at the pump as a way to sweeten his chances. Others might suggest the move was really aimed at OPEC, the other speculators in the oil market, but the ones who really can impact prices. The fact is that it is irrelevant. What is relevant today, three years after my last article on this topic, is that nothing much worthwhile has been done to address the underlying issues of supply and demand. The United States still doesn’t have an energy policy worth squat, and neither do many other Western economies. In fact, to me, it seems like only China has a practical energy/commodity policy these days—spend worthless T-bills on buying reserves in the ground anywhere you can—and fast.

But since 2009, the situation truly has gotten much worse. The population of this planet grew in those three years to 6.7 billion (by more than three times the population of Germany) and is set to rise to around 10 billion by 2050. Those extra people and their demands for food, energy and raw materials of every kind is the problem. In fact, policy decisions across the board have been counterproductive and counterintuitive. For example, The World Trade Organization changed its rules on subsidies, meaning that rather than buy and stockpile produce from farmers building reserves, governments pay subsidies without buying any of the produce. The impact of that move? No reserves to protect against volatility when some crisis arises. Another example is the move to biofuels again driven by government subsidies&3151that means farmers are turning arable farmland into corn or other ethanol making materials rather than grow food people can actually eat.

Through all of 2011, the cost of food has sat at record levels as measured by FAO price index⁵. I don’t see any inkling of a sign that that situation will improve in the medium to longer-term., which brings me back to the title of this article, “The Beginning of the Beginning of the End.” To me, the move by the IEA signals the beginning of the beginning of the end of the life we know. Something has to change and fast, but no one seems willing to tackle the issue. Boris Johnson, Lord Mayor of London, said it better than I back in 2007, “How the hell can we witter on about tackling global warming, and reducing consumption, when we are continuing to add so relentlessly to the number of consumers? The answer is politics, and political cowardice.”⁶ “The debate is surely now unavoidable. Look at food prices, driven ever higher by population growth in India and China. Look at the insatiable Chinese desire for meat, which has pushed the cost of feed so high that Vladimir Putin has been obliged to institute price controls in the doomed fashion of Diocletian or Edward Heath,” he states further in his article. Before concluding, he writes, “It is time we had a grown-up discussion about the optimum quantity of human beings in this country and on this planet.” Amen to that.

¹ IEA Targets Oil Speculators: John Kemp, Reuters, 6/23/2011

² IEA Fires Warning Shot at Oil Speculators, The Street, 6/23/2011

³ Mark Fisher: Someone at IEA leaked SPR release announcement, http://www.youtube.com/watch?v=xGgrFOixctg

⁴ Commodity Crisis: Are We Simply Avoiding the Real Issue?, UtiliPoint IssueAlert, July 13th, 2009

⁵ See www.fao.com

⁶ Global over-population is the real issue, Boris Johnson, The Telegraph, 25th October, 2007

]]> http://www.ctrmblog.com/2011/07/the-beginning-of-the-beginning-of-the-end/feed/ 0 http://www.ctrmblog.com/2011/03/the-european-japan-factor/ http://www.ctrmblog.com/2011/03/the-european-japan-factor/#comments Thu, 24 Mar 2011 09:03:38 +0000 Gary M. Vasey http://www.ctrmblog.com/?p=593 On Tuesday the 15th of March, Germany announced that it was suspending operations at seven of its pre-1980 nuclear plants for three months in the wake of the ongoing nuclear crisis following the earthquake in Japan, while other European Union (EU) countries called for “stress testing” nuclear power facilities across Europe. An emergency meeting convened by the EU energy commissioner discussed the idea asking questions about the ability of European reactors to cope with natural disasters and/or terrorism. Not only has this already had a huge impact on prices in Europe, but it many respects, it represents a potential turn around in policy for Europe.

Impact on Prices
Bloomberg reported on March 16th that European power, natural gas and emissions allowances surged to their highest prices since November 2008 on the back of the German government’s announcement. The removal of 25 percent of Germany’s generation capacity overnight immediately reduced the oversupplies that had lowered prices and introduced some risk to the German grid. Surrounding countries are also impacted due to the unavailability of German power imports. According to some analysts, some or all of the seven impacted generation facilities might never come back into service and power stations that have been offline for the past year or so due to oversupply are now required.

Coal prices are also rising on the view that shortfalls in generation will have to be covered off by reduced demand and increased coal-based generation.

Interestingly, the rush to renewable in order to meet EU CO2 goals have helped push prices lower and threaten fossil fuel generation facilities over the last year or so. Earlier this year at E-World in Essen, the talk was of plant closures, depressed energy prices and the need for new technologies in gas-fired facilities to facilitate the growing reliance on wind power in Europe. The crisis in Japan has turned all of this on its head more or less overnight as prices surge and fossil fuel plants are suddenly required again. In Germany, 17 percent of power came from renewables in 2009.

Impact on Policy
While in its very early days to see how the EU and individual European countries react, there has been something of a rush to nuclear power as a way to decrease fossil fuel-based generation and its CO2 issue in many countries in the area. France, for example, relies on nuclear power for 80 percent of its supply, but Austria, on the other hand, has been a fierce critic of nuclear power. One issue causing concern are the Soviet-built reactors across parts of central and eastern Europe, many in areas that are also subject to seismic disturbances. The EU Energy commissioner even apparently told German TV this week, “We must also raise the question, ‘If we in Europe, in the foreseeable future, can secure our energy needs without nuclear energy.’”

The most likely outcome may well be—and probably should be—some form of increased standards and risk assessment for European nuclear generation facilities. But, given the EU’s emissions goals and the near reliance of some European countries on nuclear power, it seems unlikely that Europe has a realistic nuclear-free future—at least in the medium-term. There will be more pressure placed on the operators of older facilities—especially Soviet-built facilities. But, again, these facilities are mostly located in countries that have few other options and limited budgets. Meanwhile, Germany, it seems, may be heading towards less reliance on nuclear power even in the short-term and that will impact supply in central and western Europe and help to increase prices back to a level under which other developments may look more attractive.

For many European countries, this situation is uncomfortable situation. Italy, a seismically active country, had planned to move towards nuclear power and the United Kingdom is also committed to building out new nuclear capacity, for example. As stated above, many countries emerging from communism are also reliant on some level of nuclear power. All are also committed to reducing CO2 emissions, as well.

Summary
While all eyes are on Japan and the ongoing attempts there to control the reactors, there is potentially a ripple effect developing from this event that may have far-reaching strategy, supply and pricing consequences—not just here in Europe but around the globe. Interestingly, Europe, with its goals of significantly reducing CO2 emissions, may end up caught in a no-win situation as one low emission generation option may be removed from the table—if not by politicians, then by public opinion.
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©2011, UtiliPoint® International, Inc. All rights reserved. This article is protected by United States copyright and other intellectual property laws and may not be reproduced, rewritten, distributed, redisseminated, transmitted, displayed, published or broadcast, directly or indirectly, in any medium without the prior written permission of UtiliPoint® International, Inc.

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