Out of masterresource
By Steve Goreham – June 28, 2023
“The lesson from Europe is that dependence on wind, sun and imported natural gas is an expensive and risky energy policy. If you have a windless year, a cold winter, an embargo or a war, you cannot turn up wind and solar power.”
The year 2022 was an energy catastrophe for Europe. Citizens and businesses suffered from astronomical prices for natural gas and electricity, sky-high household electricity bills, closed industrial plants and bankrupt companies. Observers blame supply chain disruptions from COVID-19 and the Russian invasion of Ukraine, but Europe’s green energy policy has been the hammer of the room.
Over the past two decades, the closure of traditional power plants and renewable energy policies have left European countries heavily dependent on a combination of intermittent wind and solar sources, as well as natural gas. More than 100 nuclear power plants were closed or due to be closed, including 30 in Germany and 34 in the UK. At the same time, 23 nations announced their exit from coal.
By 2021, wind, solar and natural gas provided 48 percent of Germany’s electricity and provided most of electricity consumption in Italy (63%), the United Kingdom (64%) and the Netherlands (78%). Households in the Netherlands get 83 per cent of their heating energy from natural gas and gas provides 78 per cent of the heat in British households.
Imports provided a growing share of the continent’s energy. In 2000, Europe produced 56 percent of its natural gas and 44 percent of its oil. However, the region chose to invest in wind and solar power rather than boosting oil and gas production through hydraulic fracturing. In 2021, Europe produced only 37 percent of its own natural gas and 25 percent of its oil. In addition, increasing imports from Russia led to serious dependency. Russia supplied Europe with 27 percent of its natural gas, 17 percent of its crude oil and 38 percent of its coal in 2021.
In 2017, the European Commission published a study that identified 49 shale formations in Europe that contained either natural gas or oil, with high shale potential in Bulgaria, France, Poland, Portugal, Romania, Ukraine and the United Kingdom. A large slate field, the Fennoscandian Shield, stretches across northern Europe from England to the Baltic States. But Europe chose not to break into any of these fields, relying on intermittent imports of wind, solar and natural gas.
Then, in 2021, the wind in Europe stopped blowing much. Electricity generation from wind was 20 to 30 percent below historical levels. To compensate for the loss of wind power, utilities burned gas to generate electricity. At the end of the year, natural gas inventories were unusually low and gas prices rose.
Natural gas prices in Europe averaged around 13 to 18 euros per megawatt hour (€/MWh) in 2019 and 2020. With the economic recovery and the decline in wind power production in 2021, prices increased to €80/MWh by December 2021. Prices increased by about five times compared to two months before the Russian invasion of Ukraine. Electricity prices also skyrocketed, rising sixfold by the end of 2021, again before the invasion.
When Russia invaded Ukraine on February 24, 2022, prices skyrocketed. Natural gas prices in Europe immediately jumped above €100/MWh and crude oil prices rose above $100 per barrel. Russian energy exports to Europe began to fall. In April, the European Union agreed to ban coal imports from Russia. Russian gas flows to Europe fell by 80 percent by July 2022. Natural gas prices rose to over €200/MWh by August. The monthly average electricity prices had doubled again, i.e. tenfold compared to the first half of 2020.
The unprecedented increase in energy prices has led to a gradual decline in living standards in Europe. Even after the UK government’s price controls, UK homeowners spent up to 10 per cent of their income on home and vehicle energy, which was more than during the oil crises of the 1970s. UK residents cooked less, showered less and turned down the heat in their homes. Household gas bills in Germany more than doubled from 2021 to 2022, and bills for oil heating increased by three quarters. Whenever possible, Germans showered and shaved at work. Italian families’ energy bills were the highest in 25 years.
The crisis has bankrupted several energy supply companies. By February 2022, 31 UK natural gas suppliers serving two million customers had gone out of business. Price controls had forced these companies to sell gas at prices below their wholesale purchase price. Uniper SE, Germany’s largest natural gas supplier, was forced to buy gas at inflated prices after Russian giant Gazprom halted supplies due to the war in Ukraine. In September 2022, the federal government acquired the company for over 20 billion euros, but the cost, including daily losses, is likely to approach the 100 billion euro mark.
High energy prices have had a major impact on energy-intensive industries. Natural gas is essential for the production of ammonia, which is used to make urea and ammonium nitrate fertilizer. Europe’s fertilizer producers without long-term gas contracts were losing money with every tonne of fertilizer produced. More than half of Europe’s ammonia production and 33 percent of nitrogen fertilizer production will be phased out in 2022.
Metal producers were crushed. A ton of aluminum requires around 15 megawatt hours of electricity and costs 7,000 euros at August 2022 prices, but could only be sold for less than 2,500 euros. Half of Europe’s aluminum and zinc production had to be shut down. Hundreds of chemical, fertilizer, energy, metals, steel, glass, paper and food processing companies have struggled to keep operating. Energy policy seems to have laid the foundations for a new era of deindustrialization in Europe.
Publicly, European officials continue to support Net Zero and the transition to renewable energy. But nations are retreating from green politics. On July 6, 2022, the European Parliament voted to classify nuclear and natural gas projects as “environmentally sustainable”. The Netherlands resumed gas drilling and Denmark, Italy and Norway announced plans to increase gas production. By fall 2022, 25 new liquefied natural gas (LNG) import terminals were under construction or planned. It was the surge in LNG shipments from the US and other countries in 2022 that caused quite a stir in Europe last winter.
Coal-based power generation in France, Germany, Italy, the Netherlands, Spain and the United Kingdom combined grew by more than 20 percent in 2021-2022 as gas prices rose. Germany has restarted 27 coal-fired power plants. This increased coal consumption contradicted national commitments to phase out coal.
Natural gas and electricity prices have fallen over the past six months but remain high. Gas prices have fallen to around €30/MWh, double 2020 prices, and electricity prices remain around triple 2020 prices. But Europe could find itself in trouble again if the coming winter gets cold.
The lesson from Europe is that dependence on wind, sun and imported natural gas is an expensive and risky energy policy. If you’re going through a low wind year, a cold winter, an embargo, or a war, you can’t turn up wind and solar power.
Steve Goreham is an energy, environment and public policy speaker and author of the new book Green Breakdown: The Coming Renewable Energy Failure.