European Energy Crisis

Germany and the EU have spiraled headfirst into the globe’s worst energy crisis since the Arab oil embargoes of the 1970s and 1980s. All across the continent, Europe’s energy policies have led to astronomical price increases, industry shutdowns, potential energy shortages, and geopolitical vulnerability. The European Union and its 27 member states have invested more money, effort, and political capital in energy policy than any other region in the world. Until this year, Europe was admired globally as the gold standard for energy and climate policy.

No one aspires to emulate the Europeans today. Germany and the EU have spiraled headfirst into the globe’s worst energy crisis since the Arab oil embargoes of the 1970s and 1980s. All across the continent, Europe’s energy policies have led to astronomical price increases, industry shutdowns, potential energy shortages, and geopolitical vulnerability. Germany, in particular, is in crisis mode and will likely see much worse, as its entire economic model—based on energy-hungry manufacturing, cheap Russian gas, and a self-mutilating shutdown of nuclear energy that Berlin still won’t reverse—is on the verge of collapsing without a plan B. In short, Europe is in a mess of its own creation. It will take years for Europe to build new energy sources.

Things do not look good. Energy prices (especially gas and electricity) are now sky-high. Europe is struggling to contain an energy crisis that could lead to rolling blackouts, shuttered factories and a deep recession. The primary cause: Russia has choked off the supplies of cheap natural gas that the continent depended on for years to run factories, generate electricity and heat homes.

There are a few sore spots as regards major policy trends that produced significant damage to the fabric of the European Union and divided it. One such problem is that of energy, and the impact of the recently begun war in Ukraine and the response of the EU to the war throw these issues in stark relief. EU stared string sanctions against Russia when it started the war against Ukraine, and Russia reacted to them. Putin’s squeeze on European energy is threatening disaster across the continent. Europe is facing an energy crisis as Russia cuts gas. Politicians worry that Putin will eventually shut off all gas exports. It would be a disaster to many countries, especially many industries in Germany and heating around Europe. High energy prices are already threatening to cause a recession this winter through record inflation, with consumers having less to spend as costs rise for food, fuel and utilities.

Now Europe is struggling to contain an energy crisis that could lead to rolling blackouts, shuttered factories and a deep recession. The primary cause: Russia has choked off the supplies of cheap natural gas that the continent depended on for years to run factories, generate electricity and heat homes. That has pushed European governments into a desperate scramble for new supplies and for ways to blunt the impact as economic growth slows and household utility bills rise.

Besides heating homes and generating electricity, gas is used to fire a range of industrial processes: forging steel, making glass bottles, pasteurizing milk and cheese, bake bread and to make many chemicals. In Europe, gas prices this winter are expected to go so high that markets will break down, industries will close and governments will impose rationing. Companies warn that they often can’t switch overnight to other energy sources such as fuel oil or electricity to produce heat.

In addition to Russia related natural gas problems, the electrical power generation around Europe has some serious problems. Electricity prices also have skyrocketed because gas is a key fuel to generate power. To make matters worse, other sources of power have lagged for reasons not connected to Russia. Both hydroelectric and nuclear power has serious problems. Drought has undermined hydroelectric power from rivers and reservoirs. France’s fleet of 56 nuclear power plants is running at half-strength because of shutdowns over corrosion problems. The majority of France’s 56 nuclear reactors are currently throttled down or taken offline due to a combination of scheduled maintenance, erosion damage (worryingly, mostly at the newer plants of the ageing fleet) and cooling water shortages due to recurring heatwaves and droughts.

Analysts at Rystad Energy say Europe could face a serious electricity shortage as soon as this month. This winter, a worst case of cold weather, low wind generation and a 15% cut in gas use “would prove very challenging for the European power system, and could lead to power rationing and blackouts.” Electricity prices have already increased a lot, which means that many homes will need to pay many times more for their electricity than before and have to worry about potential outages.

There’s no quick fixes to the European energy crisis. Some people have started preparations. In advance, those Europeans that have their own fireplace have started to gather wood for winter heating. Those people who own suitable forest, are chopping wood but it will take time before wood is ready for burning. At the moment firewood is in more demand than it is easily available, so in many countries firewood prices have already doubled.

BACKGROUND – how did we get here?

The European Union has many inherent advantages and a number of good policy decisions made over the years, to promote convergence and take advantage of its size for economies of scale. However, there are a few sore spots as regards major policy trends that produced significant damage to the fabric of the European Union and divided it.

Since 1990, the European Union has pursued a rapid decarbonisation strategy, at first based largely on emissions trading but increasingly reliant on thermodynamically incompetent renewable energy. The intention was to internalize the environmental and specifically the climatic externalities of the EU’s energy consumption, and in so doing to show leadership to the world and achieve dominant market share in the new low carbon industries that were believed to be on the verge of economic viability.

These aspirations lie in ruins. The results of over twenty years of unilateral and dirigiste environmental policy have been to increase energy costs both in absolute terms and relative to competitors. Energy consumption, particularly electricity consumption, has fallen in the EU since about 2005.

High costs for electricity and other energy, caused by green-energy policies, have substantially reduced the consumption of energy in the EU (and UK). With its Green Deal announced last year, the EU has now adopted the symptoms of disaster as the criterion of success and is actually planning to legislate for further dramatic reductions in energy consumption.

Europe built its energy policy along several main policy lines: incentives and mandates for renewable energy; restrictions on domestic and other natural gas supplies to boost demand for renewables; reliance on market mechanisms, such as trading hubs for energy sales; and the complete separation of energy from national security considerations.

Natural gas is the second most important primary energy source in Germany’s energy mix, after petroleum. Natural gas will continue to make a significant contribution to energy supply in Germany over the coming decades. The heat market is still by far the most important market for natural gas. Nowadays, however, the use of gas is not restricted solely to heat generation. In addition to its role as a raw material primarily in the chemical industry, gas is a flexible and versatile energy source for generating electricity, storing energy and – looking to the future – as a storage facility for renewable electricity as well as for mobility. Natural gas is also more climate-friendly compared to other fossil fuels as it produces less CO2. Finally, as a cheaper and more climate-friendly fuel, natural gas is also playing an ever more important role in the area of mobility. With the electricity generated from renewable sources varying considerably depending on factors such as weather conditions and season, natural gas-fired plants and hydroelectric power can play an important role in offsetting such fluctuations.

WHAT IS EUROPE DOING TO EASE THE CRISIS?

There’s no quick fixes to the European energy crisis. Europe’s Tiny Steps Won’t Solve Its Energy Emergency. The bad policies that created the crisis are still in place. It will take years to build new European energy capacity to answer all needs. If the EU is going to significantly improve its energy security, it will need to move beyond policy tweaks.

Recently, the EU has taken several steps in hopes of improving its energy security and extricating itself from its current crisis. The steps include asking natural gas producers other than Russia to supply additional volumes, a recent decision by the European Parliament to classify natural gas and nuclear energy as eligible for investments dedicated to green energy, and new gas storage mandates for member states. These steps, however, will not be enough to avert a major energy crisis in Europe in the coming months. Europe needs to do better—and fast.

Even if combating global warming takes a backseat during energy crisis is not enough. Brussels’s recent decision to allow natural gas and nuclear energy to receive investments from green funds is an important step toward better energy security. However, several commercial hurdles still stand in the way. And those changes realizing to investing takes easily years. Around Europe, countries are looking for ways to cut energy consumption and fill up their gas stores in response to lower Russian gas deliveries and in preparation for a possible total cut-off.

Securing additional gas volumes to replace Russian supplies is not enough. Brussels needs to ensure not only sufficient supply but reasonable prices. Russian gas has been a cheap source of energy that Europe says it now wants to phase out—by two-thirds by year’s end and entirely out within a decade.

This policy makes a mockery of Europe’s vaunted green goals. The energy crisis in Europe—which, contrary to the popular narrative, began long before Russia’s invasion of Ukraine—has shown that when European countries don’t have enough gas, they turn to coal and fuel oil. By restricting new gas contracts, Europe ended up with higher coal and oil consumption and thus higher air pollution and carbon emissions.

Europe has lined up all the alternative gas supplies it could: shipments of liquefied natural gas, or LNG, that come by ship from the United States and more pipeline gas from Norway and Azerbaijan. LNG is much more expensive than pipeline gas, however.

Germany is keeping coal plants in operation that it was going to shutter to reduce greenhouse gas emissions. It also is keeping the option of reactivating two nuclear plants it’s set to shut down.

The 27-nation EU has approved a plan to reduce gas use by 15% by next March.

National governments have approved a raft of measures: bailouts for utilities forced to pay exorbitant prices for Russian gas, cash for hard-hit households and tax breaks.

To fill the gap, the EU has started a crash program to cut natural gas usage by 15% before winter. Air conditioning is cut off in hallways. Heat is turned off in swimming pools. Germany is restarting several coal-fired electricity plants and is debating decommissioning its last three nuclear power plants. World coal prices have increased six-fold over the last year.‘

Spain puts limits on air conditioning and heating to save energy already this autumn.

Germany, Europe’s biggest energy consumer, earlier this month told people to defrost their freezers regularly, change shower heads to more efficient ones and switch to LED lighting in offices around the country.

Germany’s largest residential landlord Vonovia (VNAn.DE) has said it will reduce heating for tenants in many of its apartments at night.

Europe’s energy crisis is now so severe that Denmark urged its citizens to take shorter showers and dry clothes outside as part of a raft of measures to conserve power and natural gas.

Sweden Turns to Burning Oil as Power Prices Soar to Record. Record power prices spur Uniper to run reserve oil-fired plant in Sweden to alleviate Polish crunch.

Hopefully Finland is soon to be self-sufficient with Olkiluoto 3 nuclear power plant going fully on-line finally. There are already campaigns to reduce electrical power use (for example recommend to take shorter showers and heat less).

Sources:

Europe’s Self-Inflicted Energy Disaster
https://www.themarketforideas.com/europes-self-inflicted-energy-disaster-a749/

The Great European Energy Disaster
https://www.briefingsforbritain.co.uk/the-great-european-energy-disaster/

Europe is facing an energy crisis as Russia cuts gas. Here’s why
https://www.pbs.org/newshour/world/europe-is-facing-an-energy-crisis-as-russia-cuts-gas-heres-why

Putin’s squeeze on European energy is threatening disaster across the continent
https://nypost.com/2022/08/26/putins-squeeze-european-energy-is-threatening-disaster-across-the-continent/#amp_tf=L%C3%A4hde%3A%20%251%24s&aoh=16628907103095&referrer=https%3A%2F%2Fwww.google.com&ampshare=https%3A%2F%2Fnypost.com%2F2022%2F08%2F26%2Fputins-squeeze-european-energy-is-threatening-disaster-across-the-continent%2F

Spain puts limits on air conditioning and heating to save energy
https://www.theguardian.com/world/2022/aug/02/spain-puts-limits-on-air-conditioning-and-heating-to-save-energy

Dimmed street lights, shorter showers: Germany leads Europe energy savings drive
https://www.reuters.com/business/energy/dimmed-street-lights-shorter-showers-germany-leads-europe-energy-savings-drive-2022-07-22/

Danes Urged to Take Shorter Showers as Energy Crisis Worsens
https://www.bloomberg.com/news/articles/2022-06-28/danes-urged-to-take-shorter-showers-as-energy-crisis-worsens

Europe’s Tiny Steps Won’t Solve Its Energy Emergency
The bad policies that created the crisis are still in place.
https://foreignpolicy.com/2022/07/13/europe-eu-energy-crisis-war-russia-ukraine-gas-oil-coal-nuclear-germany/

What caused Europe energy crisis?
https://www.pbs.org/newshour/world/europe-is-facing-an-energy-crisis-as-russia-cuts-gas-heres-why

France prolongs shutdown of nuclear reactors over corrosion amid rising energy prices
https://www.france24.com/en/france/20220825-france-prolongs-shutdown-of-nuclear-reactors-over-corrosion-amid-rising-energy-prices

France Risks Winter Blackouts as Nuclear-Power Generation Stalls
Soaring electricity prices beset a country that was until recently a major power exporte
https://www.wsj.com/articles/france-risks-winter-blackouts-as-nuclear-power-generation-stalls-11660315467

France’s EDF plans to restart nation’s entire nuclear fleet by early next year
https://www.euronews.com/2022/09/04/frances-edf-plans-to-restart-nations-entire-nuclear-fleet-by-early-next-year

France’s nuclear plants are going down for repairs
The crunch in electricity supply comes at the worst possible time
https://www.economist.com/europe/2022/07/28/frances-nuclear-plants-are-going-down-for-repairs

France’s troubled nuclear fleet a bigger problem for Europe than Russia gas
https://reneweconomy.com.au/frances-troubled-nuclear-fleet-a-bigger-problem-for-europe-than-russia-gas

https://en.m.wikipedia.org/wiki/Nuclear_power_in_Germany

Natural gas is the second most important primary energy source in Germany’s energy mix, after petroleum
https://www.bmwk.de/Redaktion/EN/Artikel/Energy/gas-natural-gas-supply-in-germany.html

Sweden Turns to Burning Oil as Power Prices Soar to Record
Karlshamn station has been running regularly in past week
Combating global warming takes a backseat during energy crisis
https://www.bloomberg.com/news/articles/2022-08-16/sweden-turns-to-burning-oil-as-power-prices-soar-to-record#xj4y7vzkg

Record power prices spur Uniper to run reserve oil-fired plant in Sweden
https://www.euronews.com/next/2022/08/16/sweden-energy-oil

Several uncertainties in the adequacy of electricity in the coming winter – Finns should be prepared for possible power outages caused by electricity shortages
https://www.fingrid.fi/en/news/news/2022/several-uncertainties-in-the-adequacy-of-electricity-in-the-coming-winter–finns-should-be-prepared-for-possible-power-outages-caused-by-electricity-shortages/

Finnish Homes Told to Plan for Rolling Power Cuts Next Winter
Power imports from Russia ended in May because of the war
Grid company concerned by Norway plan to curb exports
https://www.bloomberg.com/news/articles/2022-08-23/finnish-homes-told-to-plan-for-rolling-power-cuts-next-winter#xj4y7vzkg

https://rmx.news/switzerland/swiss-citizens-who-overheat-their-homes-this-winter-could-face-hefty-fines-and-3-years-in-jail/

Sähkökriisi syvenee Ruotsissa: tärkeän ydinreaktorin seisokki jatkuu lähes koko talven yli
Tärkeä ydinreaktori saadaan takaisin käyttöön vasta vuoden 2023 puolella.
https://www.iltalehti.fi/ulkomaat/a/4d59a2e1-dbab-49f8-868e-a6b86f1de182

EU vaatii: Suomen leikattava sähkönkulutusta huipputunteina – tätä se tarkoittaa
https://www.mtvuutiset.fi/artikkeli/suomen-on-leikattava-sahkonkulutusta-huipputunneilta-joulukuusta-alkaen-tata-vaatimus-tarkoittaa/8516728?mtv_ref=twb_uutiset_uusimmat#gs.d69zjg

Ruotsi ohjeistaa talven sähkö­katkosten varalle: pystytä teltta sisälle
https://www.is.fi/taloussanomat/art-2000009081458.html

Osa yrityksistä supistaa jo tuotantoaan sähkölaskun takia – “Hintapiikkien aikana ei enää kannattavaa”
https://www.mtvuutiset.fi/artikkeli/osa-yrityksista-supistaa-jo-tuotantoaan-sahkolaskun-takia-hintapiikkien-aikana-ei-enaa-kannattavaa/8501296#gs.d6al8q