Franco-German energy firm seen focused on renewables -sources

PARIS Tue Jan 14, 2014 2:44pm EST

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PARIS Jan 14 (Reuters) - A French-German joint initiative in the energy sector announced by President Francois Hollande is likely to focus on renewable energy but is not aimed at forging alliances between major utilities firms, political and industrial sources said.

Hollande surprised markets on Tuesday with a reference to the creation of a Franco-German joint venture energy company modelled on European aviation group Airbus, but sources told Reuters that French state-controlled utility EDF and German energy major E.ON had not been consulted about a major cooperation initiative.

"We are very satisfied with Airbus," Hollande told a news conference. "The idea is to make a big French-German company for the energy transition."

The announcement was one of an avalanche of new-sounding proposals put out by Hollande, determined to seize back the news agenda from allegations that he is having an affair with an actress.

A French government source told Reuters that Hollande wants concrete proposals for cooperation in the renewable energy sector at joint French-German cabinet meeting scheduled for a February 19.

"The president wants to encourage French and German companies in the area of energy transition, and to bring together some of our industrial capacities," the source said.

No major operation is planned or imminent, he added.

A French business source said the cooperation would likely involve the French-German Office for Renewable Energies (L'Office franco-allemand pour les energies renouvelables), an initiative put in motion by former energy ministers Peter Altmaier and Delphine Batho last summer.

The sacking of Batho shortly after the meeting and the German coalition talks have delayed the initiative, but with new energy ministers in place in both countries, the initiative will get new impetus, the source said.

Batho has now been replaced by Philippe Martin, while German chancellor Angela Merkel last month appointed SPD member Barbara Hendricks as environment minister. Hendricks is also in charge of nuclear safety.

Initial talks in the French-German energy initiative focused on security of supply, better interconnection of power networks and the support for renewable energies.

A coordinated capacity mechanism to reward utilities for keeping power generation capacity on standby is also on the agenda. E.ON CEO Johannes Teyssen and French GDF Suez CEO Gerard Mestrallet have both called for a capacity mechanism initiative.

France and Germany are both undertaking major shifts in their electric power generation mix.

Following the Fukushima disaster in 2011, Germany has decided to phase out nuclear energy, while Hollande has pledged to reduce France's reliance on nuclear power in its power mix from the current 75 percent to 50 percent by 2020.

Better network connections between the two major power markets is also crucial as both face very different peak load challenges. Germany is vulnerable to the intermittence of its massive renewable energy capacity throughout the year, each time there is a cloudy, windless day.

France, which relies heavily on electricity for residential heating, is vulnerable during the coldest winter days, which generate peak demand between mid-January and mid-February

Last summer, Altmaier told a conference in Paris that both countries could lower power prices and boost security of supply by cooperating more closely in the field of energy. (Reporting by Geert De Clercq, Julien Ponthus, Andreas Rinke and Christoph Steitz; Writing by Geert De Clercq; Editing by Will Waterman)

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