Bad Energy Decisions Contributed to Europe’s Energy Crisis

by | Jan 5, 2023

Abruptly decreasing domestic production of fossil fuels and shuttering of coal and nuclear plants have put Europe is an energy crisis exasperated by Russia’s invasion of Ukraine and its reduction of energy exports to Europe.

According to an author who defends the “green transition” writing in Seeking Alpha, “There are a lot of false narratives being thrown about on how ‘green energy’ is somehow responsible for the recent global energy crisis. However, the primary cause of the global energy crisis was arguably Russia’s decision to attack Ukraine and cut off natural gas supplies to the EU.” In truth, energy problems in Europe started well before the war in Ukraine was even considered a reality. In 2021, after the COVID lockdowns, energy demand came back with a vengeance, and Europe did not have enough energy readily available to meet it after banning hydraulic fracking, cutting leases for oil and gas production, and shuttering coal and nuclear generating plants while betting their economies upon renewable energy. Journalists championed the environmental benefits of lockdowns, pointing to reduced emissions while millions stayed home and factories were idled.  With things returning to near normal, Europe was forced to use its energy stocks and hoped to get more energy supplies from Russia.

But then, its wind resources failed in some areas. Two European countries with large wind capacity—Germany and the United Kingdom—while both increasing their wind capacity in 2021, produced less generation from wind that year due to a decline in wind resources. Europe had already spent over $1 trillion between 2004 and 2019 on its renewable energy transition, but it wasn’t doing the job. Further, it now needs to spend $5.3 trillion more–$3.8 trillion on wind and solar power and $1.5 trillion on green hydrogen–to reach net zero by 2050.

Germany

After Russia invaded Ukraine on February 24, 2022, Germany alone needs almost a half-trillion dollars ($465 billion) to keep the lights on. That is the cost of the cumulative scale of the bailouts and schemes the government has launched to prop up the country’s energy system since prices skyrocketed and it lost access to natural gas from Russia. Those costs have accrued after Germany shuttered almost all its nuclear plants and a number of its coal plants in favor of renewable energy. $465 billion equals about 12 percent of Germany’s national economic output.

According to BP’s Statistical Review of World Energy, Germany has the largest wind capacity in Europe. In 2022, Germany’s wind capacity totaled 63,750 megawatts, 2.8 percent higher than in 2021. Yet, its wind generation in 2021 fell by 10.7 percent, dropping from 132.1 terawatt hours in 2020 to 117.7 terawatt hours in 2021. That means wind’s capacity factor dropped from 24 percent in 2020 to 21 percent in 2021, even as it added more wind capacity. Renewable energy has inherently low capacity factors, owing to its reliance on the weather. To make up for the lost wind generation, German utilities increased their coal generation by 21.1 percent in 2021, and its carbon dioxide emissions increased by 5 percent.

Now, Germany finds itself at the mercy of the weather, both for renewable energy production and the level of demand that may result from a cold winter. Conservation plans are already in place and energy rationing may result in the event of a long cold spell.  Further, energy security is a thing of the past with the push to build up two alternatives to Russian fuel – liquefied natural gas (LNG) and renewables – both years away from targeted levels. Germany has no LNG infrastructure of its own because of its longstanding reliance on Russian gas, so it is only now starting to build its LNG import capability. President Trump told Germany not to rely on Russian gas and to build LNG terminals, but its U.N. delegation laughed rather than listened, while U.S. media scoffed at his suggestion. Germany’s self-imposed energy weakness and dependency strengthened Putin’s hand in his decision to invade Ukraine.

For the time being, Germany plans to rely on six floating import terminals to help diversify gas supply with one arriving soon. Three are expected to come online this winter, with the rest to be deployed at the end of 2023, bringing total capacity to at least 29.5 billion cubic meters a year. It is unclear from where the LNG will come. Germany has struck two modest short-term agreements for the next two winter seasons. The first is a 1 billion cubic meter a year deal with Australia and the second with Abu Dhabi National Oil Company for delivery of 137,000 cubic meters in December and unspecified further shipments in 2023.

Germany’s energy import bill is expected to grow by a combined 124 billion euros this year and next, up from growth of 7 billion for 2020 and 2021, presenting a major challenge for the country’s energy-intensive industries. The country’s chemicals sector, the most exposed to rising power costs, expects production to fall by 8.5 percent in 2022.

There is little certainty over how the country can replace Russian energy supplies. German officials still want renewables to account for at least 80 percent of electricity production by 2030, up from around 40 percent in 2021. At recent rates of expansion, though, that remains a remote goal. To achieve the 80 percent goal, new onshore wind installations would need to increase around six-fold to 10 gigawatts annually, and solar installations must quadruple every year to 22 gigawatts. In real terms, this means Germany will have to install 6 wind turbines per day, using as much as 3,300 metric tons of steel per day, which is about half the steel in the Eiffel Tower. It also will need to import massive numbers of solar panels from China.

United Kingdom

The UK is in a similar position and is already facing cold weather with several snow storms this month. National Grid, which manages much of the UK’s energy supply infrastructure, instructed two idled coal-fueled power stations to start warming up, in case the cold weather threatens the country’s power network. Customers of some energy suppliers had also been asked to reduce their energy consumption for two hours recently, in a pre-planned test being run by National Grid. Britain’s grid is likely to have to pay more than the £1.5 billion ($1.8 billion) it did last winter to companies that provide extra electricity supplies at very short notice as energy becomes more expensive. It paid upwards of £27 million ($33 million) to secure power one day recently as many parts of the country were blanketed by snow. There could be more such days as temperatures remain unseasonably low and another cold spell is forecast before Christmas.

The output from the UK’s natural gas fields in the North Sea and Irish Sea is falling, in part because too few new fields have been developed as the government cut leases. From self-sufficiency in 2004 the UK can now meet only half its own natural gas needs, in part because it continues to ban horizontal drilling and hydraulic fracturing.  As a result, the UK is increasingly reliant on imports. In 2020, the UK consumed 74 billion cubic meters of gas – about 1,100 cubic meters per person–half of which had to be imported from other countries, including Norway, Qatar, Russia, Trinidad and Tobago, Egypt and Nigeria. Unless the UK invests in its own new resources, UK gas output will drop another 75 percent by 2030. Around 85 percent of UK households use gas boilers to heat their homes, and around 40 percent of UK’s electricity is generated in gas-fired power stations. Further, houses in the UK are poorly insulated, requiring more energy to heat them.

According to the BP Statistical Review of World Energy, the UK gets almost 40 percent of its electricity from renewable energy. However, like Germany, it too experienced low wind resources. The U.K.’s wind capacity in 2021 was 27,130 megawatts—11.1 percent higher than in 2020. Yet, wind generation declined by 14.2 percent in 2021, dropping from 75.4 terawatt hours in 2020 to 64.5 terawatt hours in 2021. The U.K.’s wind capacity factor dropped 8 percentage points– from 35 percent in 2020 to 27 percent in 2021. As a result, U.K. utilities had to increase their coal generation by 18.8 percent and their natural gas generation by 11.7 percent, resulting in a 6.8 percent increase in carbon dioxide emissions, despite its net zero target for greenhouse gas emissions in 2050.

Conclusion

Abruptly decreasing domestic production of fossil fuels and shuttering of coal and nuclear plants have put Europe is an energy crisis exasperated by Russia’s invasion of Ukraine and its reduction of energy exports to Europe. Now, Europe is faced with energy shortages, skyrocketing energy prices, and major uncertainty regarding its energy and economic future. Yet, it has not given up on its energy transition to renewable energy (wind and solar power) despite their weather dependency and lack of firm power capability. Some countries such as China and India are working to improve their economies and the comfort of their citizens by investing in oil, natural gas and coal as well as nuclear and renewables. But Europeans, despite building their economies and their wealth on fossil fuels, have now turned away from them. President Biden needs to not fall into that trap, but rather than learning from Europe’s increasingly evident energy disasters, he is going down the renewable path helter-skelter despite the ramifications to America and its citizens.

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The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.

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