Belgium's Societe Public d'Electricite (SPE) requires funds to grow. It has stated that by the year-end it wants to conclude a strategic and financial partnership, and early reports indicate that ten suitors have come calling. As Datamonitor's Salman Wasti explains, the names being touted point to the underlying appeal of the Belgian power market...
At first glance Belgium does not immediately show any signs of being such an attractive energy market to invest in: after all, future demand is forecasted to grow at a rate of just 1.1% per annum. However, further investigation into the structure of the market offers some explanation of why ten suitors have come knocking at the door of the country's second largest power producer, SPE - among them some of Europe's energy big hitters, such as Centrica, E.ON and Gaz de France.
The potential of the Belgian market is based on two principal factors: the need to reduce the level of imported electricity and the forecasted growth of gas plants to replace nuclear and coal plants. This provides the initial opportunity for SPE and any potential partner to increase revenues and profits, and the chances of a successful joint venture have seemingly been improved by the Belgian government's open criticism of Electrabel, the country's biggest energy producer, and its dominant position in the market. The minister of state enterprise and the budget accused Electrabel of abusing its dominant position only a month ago and called for the state run rail company, la Societe Nationale des Chemins de Fer Belges (SNCB) to seek another supplier.
This means that SPE can realistically achieve its goal of acquiring a 15% market share, 6 percentage points higher than its current standing. However SPE is left with only foreign energy companies to help it to capitalize on the future potential of the Belgian market, as its majority shareholder, Publilec, which consists of Belgian municipalities, is unable or even unwilling to fund the investment needed.
The Belgian market has historically had to import 10-20% of its electricity to meet demand. In 2002 the country imported 16.7TWh, with France providing 11.5TWh of the electricity imported. The government's stated desire is to reduce its commitments for imported electricity.
The Belgian authorities also confirmed in 2002 their plans to decommission the existing nuclear plants, a process to be completed by 2024. With EU regulation on emission targets set to come into force from 2005, the number of coal fired power stations will also be reduced significantly. This maps onto SPE's current portfolio weighting, where gas plants make up a 75% share; with gas being the primary fuel to replace these plants, SPE's position looks more advantageous still to potential partners.
Thus, with the EU Second Directive implementation, the government's stance against the continuing market dominance of Electrabel and the expected rise in domestic power production, it is little surprise that the Belgian utility has found itself with so many suitors. Come the end of the year, it will be seen just which of Europe's largest utilities are willing to pay a premium to get into bed with SPE.