ANALYSIS: Europe faces dire energy problems of its own making

Originally published at Europe in Review on August 2022

EU policy runs the risk of replacing short-term dependence on Russia with long-term dependence on China

The prospect of rolling blackouts in Germany and throughout Europe caused by a possible Russian gas cut-off is changing the EU’s plans to invest in green energy through its ambitious RePowerEU initiative.

Russian gas exports to Germany through the Nord Stream 1 pipeline have already decreased 80 percent since the war began. Now Germany, the European Union’s largest economy, is preparing plans to enable rolling blackouts throughout the country should Russia choose to completely cut off gas supplies in response to progress in Ukraine’s EU accession process or increased shipments of European weapons. [Bloomberg].

Germany also faces the prospect of a looming gas crisis this winter as its present decreased levels of Russian gas supply are insufficient to satisfy national household heating demand without additional and immediate conservation measures.

This means breaking contracts with energy providers to enable blackouts to occur in an orderly manner while prioritising households and critical facilities over factories and commercial enterprises. Germany has not been faced with an inability to provide reliable electric power in eight decades. Similar, perhaps even more dire prospects are faced in other parts of Europe.

Germany has doubled its generating capacity in the past 20 years and has the leading national solar energy production capacity in Europe. However, despite the new capacity, energy prices have also doubled, reflecting strong and growing demand for power. European electricity prices were approximately twice those of the US on average in 2021, before the war in Ukraine began. [Eurostat] [US EIA]

A phase-out of coal and nuclear power in Europe in favour of cleaner-burning natural gas from Russia has enabled the EU to temporarily both save money – compared to other natural gas options – and to meet climate goals, but at the cost of energy dependence on NATO’s principal adversary. Meanwhile, the war in Ukraine has re-established energy security as the pre-eminent priority for European governments. In retrospect, the decision to replace coal and nuclear energy with Russian natural gas over the past 20 years appears to have been a strategic mistake.

Europe is in a dire short-term energy situation of its own making. Coal represents approximately 20 percent of the European energy supply compared to 30 percent in 2012. Germany amended its Atomic Energy Act to halt new investment and begin phasing out nuclear energy in 2011, following the earthquake and tidal wave-induced Fukushima disaster in Japan. Eleven of 17 nuclear reactors operating in 2011 were shut down in Germanywithout replacement over the ensuing decade. Nuclear energy provision fell from 25 percent of national capacity to 12 percent. [European Commission] [CNBC] [IAEA]

Decreasing North Sea and Dutch production of natural gas has meant the majority of replacement energy for voluntary reduction in coal and nuclear power is Russian natural gas. Natural gas represents some 25 percent of European energy needs, with Russia supplying over 40 percent of this amount, and there is no infrastructure in place to support short-term replacements. [CNBC]

Short-term solutions

EU member states have agreed to a 15 percent voluntary reduction in natural gas consumption from July 26. [European Council]

European energy stores are at almost 66 percent capacity with the goal being 90 percent by winter, when a Russian gas supply interruption would cause the most hardship for the European population. However, that goal appears unattainable given that gas flows from Russia, accounting for 55 percent of German natural gas, were reduced to 20 percent of capacity on July 25. [NYT]

The only immediate solution is prolonging the service life of coal and nuclear plants scheduled for retirement, and bringing retired plants back online, which contradicts current German government green energy policy goals. But Berlin has ruled out bringing nuclear power plants retired in the autumn of 2021 and the first quarter of 2022 back online, despite the imminent threat of full natural gas service interruption by Russia.

Medium-term solutions

Medium-term solutions are being implemented in the form of five mobile terminals, known as Floating Storage Regasification Units (FSRU) at Brunsbuttel, Wilhelmshaven, Stade and Lubmin on the north German coast to enable imports from North America, the Middle East and Africa to replace Russian gas. The terminals have been secured through long-term lease and are currently scheduled to begin operation by the end of 2022. Permanent onshore terminals are also planned in the same locations to begin operations by 2024. [Clean Energy Wire] [Reuters]

Long-term solutions

The implementation of large-scale intermittent power produced by solar and wind energy combined with a phase-out of nuclear energy and coal has made Germany dependent upon largely Russian-sourced natural gas for baseload power. Baseload power is the power upon which a consistently functional grid depends when the sun is not shining and the wind is not blowing. Long term, a dramatic expansion of long duration battery storage, possibly at the distribution level, whether that be for neighbourhoods or individual homes and factories, may be required to enable RePowerEU renewable energy projects to provide an effective alternative.

An additional challenge for RePowerEU strategy is the deterioration of the European industrial base. Currently most European solar companies largely offshore their solar panel manufacturing to China. Given the need not only for expansion, but replenishment and maintenance of solar infrastructure, current EU policy runs the risk of replacing short-term dependence on Russia with long-term dependence on China. Economic policies, including manufacturing grants combined with equivalent or superior VAT and income tax rebates to match Chinese tax rebates and tariff barriers may be required to attract new industry and address energy supply vulnerabilities.

(rw/pk)