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Green policy caused Europe’s energy crisis

5 min read

By Steve Goreham

The energy crisis in Europe exposed risks of reliance on renewables, imported gas, and lack of energy diversification

  • Europe faces precarious energy situation
  • Dependence on Russian energy imports
  • Evaluate energy policies for sustainable economic growth

The year 2022 was a year of energy disaster for Europe. Citizens and businesses suffered from astronomical prices for natural gas and electricity, sky-high home energy bills, shuttered industrial plants, and bankrupt companies. Observers have blamed COVID-19 supply chain disruptions and the Russian invasion of Ukraine, but Europe’s green energy policies were the big elephant in the room.

Europe faces precarious energy situation

For the last two decades, closures of traditional power plants and renewable energy policies made European countries highly dependent upon a combination of intermittent wind and solar sources and natural gas. More than 100 nuclear plants had closed or were scheduled to close. At the same time, 23 nations announced that they would phase out coal. In addition, rising imports from Russia created a serious dependency. Russia provided Europe with 27% of its natural gas, 17% of its crude oil, and 38% of its coal in 2021.

Then, in 2021, the wind didn’t blow much in Europe. Electricity output from wind was down by 20ꟷ30% from historical norms. To compensate for the loss of wind output, utilities burned gas to generate electricity. By the end of the year, stocks of natural gas were unusually low and gas prices were rising.

Natural gas prices in Europe averaged about EUR 13 to 18 ($14 to $20) per Megawatt-hour (€/MWh) during 2019 and 2020. With economic recovery and the decrease in wind electricity output during 2021, prices soared to 80 €/MWh ($89/MWh) by December 2021. This was a price increase of about five times that occurred two months prior to Russia’s invasion of Ukraine. Electricity prices also skyrocketed, up by a factor of six by the end of 2021, prior to the invasion.

When Russia invaded Ukraine on 24 February 2022, prices exploded. Natural gas prices soared to over 200 €/MWh ($224/MWh) by August. Monthly average electricity prices had doubled again, up by 10 times from the first half of 2020.

The unprecedented hike in energy prices caused a step-function decline in Europe’s standard of living. Even after the price controls used by the UK government, UK homeowners spent as much as 10% of their income on home and vehicle energy. Household gas bills in Germany more than doubled from 2021 to 2022, and oil heating bills were up by three-quarters. Energy bills for Italian families were the highest in 25 years.

Dependence on Russian energy imports

The crisis bankrupted several energy supply companies. By February 2022, 31 UK suppliers of natural gas, serving two million customers, had gone out of business. Uniper SE, Germany’s largest natural gas provider, was forced to buy gas at exorbitant prices after Russian giant Gazprom halted shipments due to the war in Ukraine. In September 2022, the German government acquired the company for over EUR20 billion ($22.4 billion) but the cost, including daily losses, is expected to approach EUR100 billion ($112.2 billion).

High energy prices heavily impacted energy-intensive industries. Natural gas is essential to produce ammonia, which is used to make urea and ammonium nitrate fertiliser. More than half of Europe’s ammonia production and 33% of its nitrogen fertiliser production shut down in 2022.

Metals producers were clobbered. One metric ton of aluminum requires about 15 megawatt-hours of power, costing EUR7,000 ($7,855) at August 2022 prices, but could only be sold for less than EUR2,500 ($2,805). Half of Europe’s aluminum and zinc output was forced to close. Hundreds of companies in chemicals, fertiliser, energy, metals, steel, glass, paper, and food processing struggled to operate. Energy policies appear to have set the table for a new era of deindustrialisation in Europe.

Evaluate energy policies for sustainable economic growth

Publicly, European officials continue to support a transition to renewable energy, but nations are stepping back from green policies. Germany restarted 27 coal-fired power plants. Netherlands resumed drilling for gas, and Denmark, Italy, and Norway announced plans to increase gas production. Twenty-five new liquified natural gas (LNG) import terminals were in process or planned by the fall of 2022.

Natural gas and electricity prices fell over the last six months but remain high. Gas prices have fallen to about 30 €/MWh ($33/MWh), double 2020 prices, and electricity prices remain about triple 2020 prices. But Europe may be in trouble again if the upcoming winter is a cold one.

The lesson from Europe is that reliance on wind, solar, and imported natural gas is expensive and risky energy policy. If you experience a low-wind year, a cold winter, an embargo, or a war, you can’t turn up the wind and solar.

Steve Goreham is a speaker on energy, the environment, and public policy and the author of the new book Green Breakdown: The Coming Renewable Energy Failure.

Keywords: Energy Crisis, Green Energy Policies, Natural Gas, Electricity, Bankruptcies, Standard Of Living, Wind Output, Gas Prices, Electricity Prices, Energy Supply Companies, Deindustrialisation, Renewable Energy, Liquefied Natural Gas
Institution: Uniper SE
Country: Russia, Netherlands, Italy, Germany
Region: United Kingdom, Europe
People: Steve Goreham
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