France Energy Policy Maker on energy independence, energy

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SUBJECT: France Energy Policy Maker on energy independence, energy
trends, and France's new energy law


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1. (SBU) Summary: Ministry of Economy, Finance, and Industry Energy
Director General Dominique Maillard told us that France has
diversified its energy sources so that it is not dependent on any
one overseas market. A large proportion of its energy comes from
nuclear energy, and no more than one-third of its gas needs comes
from any single market. The EU has focused on deregulation, rather
than diversification of supply. He believed that EU countries
needed to invest in more electricity production and cross-border
infrastructure to prevent blackouts similar to the November 4
blackout that struck much of South Western Europe. Maillard was
confident that France's new energy law, which implements the 2003
European Union (EU) electricity and gas directives, would survive
scrutiny from both France's constitutional court and the European
Commission. End summary.

What the General Directorate for Energy Does
--------------


2. (U) On November 15, econoff met with Ministry of Economy,
Finance, and Industry Energy Director General Dominique Maillard
(Under Secretary-level) to discuss French and European energy policy
and the GOF's newly passed energy law. Maillard explained that the
General Directorate for Energy and Raw Materials formulates and
implements France's energy policy. It seeks to maintain open
markets for energy, track key energy and raw material sectors, and
supervise energy-related companies. His division drafts
energy-related laws and regulations, and implements EU energy
directives. It also participates in EU and International Energy
Agency (IEA) discussions on energy.

France Has Diversified its Energy Supplies
--------------


3. (SBU) France has taken great care to diversify its energy
sources, Maillard noted. Its nuclear program provides 80 percent of
its electricity and 40 percent of its overall energy needs. France
obtains most of its natural gas from the North Sea, Russia, and
Algeria, but no one of these suppliers accounts for more than a
third of France's consumption. Germany, he believes, has been
unwise to depend on Russia for such a large portion of its gas
supplies. He said that the UK, with dwindling energy supplies from
the North Sea, was prudent to consider reinvigorating its nuclear
energy program. The North Sea provided the largest source of oil to
France, with France importing 17 percent of its needs from Norway,
followed by 12 percent from Russia. Countries importing more than
50-60 percent of their energy needs from Russia had a "dangerous"
dependency.


4. (SBU) Maillard continued that his ministry aimed to contribute to
France's goal of reducing greenhouse gas emissions by 75 percent by
2050 and will use technical, technological, economic, and social
means to accomplish this aim. In working toward this aim, France
intends to coordinate within the EU, but realizes that other
European countries are not prepared to replace present sources of
energy with nuclear power to the extent necessary to reach this goal
across the EU.

EU Energy Policy Emphasizes Deregulation over Diversity of Supply
-------------- --------------


5. (SBU) EU policy, Maillard continued, differed from France's in
that it emphasized deregulation of energy markets, rather than
diversity of supply. Maillard and his staff meet periodically with
their EU counterparts to coordinate on energy and energy security
issues. Maillard saw a number of trends across the EU. European
dependency on fossil fuels will continue to increase at a time when
there is little hope of finding new reserves of oil, gas, and coal
in the EU. Since Russia is close, new pipelines from Russia will be
built. Russia sells 90 percent of its gas to Europe and this
dependency on the European market will continue. One important
reason is that Russia can obtain better prices for its gas in Europe
than it would likely obtain in alternative markets, such as China.
However, Russia wants to develop its liquefied natural gas (LNG)
production capability so that it can diversify its client base.
While Europe obtains 50 to 60 percent of its natural gas from
Russia, it should develop new routes to exploit gas reserves in
Azerbaijan and elsewhere, Maillard said.

More Interconnection between Energy Grids Needed
-------------- ---


6. (SBU) According to Maillard, a power outage that affected 10

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percent of France's population and much of Southern Europe on
November 4 demonstrated that European power grids needed more
interconnection. While Maillard's staff was still investigating all
the aspects of the blackout, the apparent reason was German utility
E.On's decision to switch off a high-voltage power line in Lower
Saxony, setting off the worst electricity outage in France since

1978. With greater interconnectivity switching off one power line
would not have caused such a large power outage. Investment in
cross-border power lines would help. Additionally, European
countries would have to invest in power-generation capacity.
France was able to reconnect all clients affected by the power
outage within forty minutes because its significant hydropower
reserves allowed it to compensate for the loss of the electricity
from Germany.

France's New Energy Law
--------------


7. (SBU) On November 30, the Constitutional Court will rule on
whether the newly passed energy law, which allows the GOF to
decrease its stake in Gaz de France (GDF) from 70 percent to
one-third, is constitutional. (Note: The actual GOF share of GDF
is 80.2 percent. End note.) Assuming it is upheld, the law would
enter into force two weeks afterwards. Although much attention has
been placed on the merger between energy group Suez and GDF, the
most important aspect of this law is that it will deregulate
France's energy market by July 1, 2007, consistent with the 2003 EU
electricity and gas directives. By that date, consumers will be
able to switch suppliers, if they so choose.


8. (SBU) Maillard said the energy bill contained a clause that would
maintain current tariffs for two years after deregulation. He noted
this addition to the law was politically necessary since the GOF
gained public and legislative support for the law only by arguing
that more competition would decrease prices. The legislature added
this clause "to ensure this condition is fulfilled." He expects
that the European Commission will send France a questionnaire on the
continued regulated tariffs, which are contrary to the EU Energy
Directive. Maillard said his staff would diligently reply to the EU
questions and he did not anticipate further EU intervention.

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