What is happening in Europe - including the UK, by the way, one of the most active energy transitioners - right now is a cautionary tale of magnificent proportions.
Europe was in no particular rush to top up its gas reserves at the time, and neither was Asia.
The quick deterioration in the energy situation in Europe should make anyone planning major energy system overhauls think twice before following the exact same scenario that Europe did.
For weeks now, there has been virtually no other news but the energy crunch that surprised Europe in September and has since then gone on to roil every market and industry and spur fears of blackouts, astronomical utility bills, and rising food prices.
The official version of events is that rising energy demand coincided with tight energy supply. The unofficial version has to do with Europe’s energy transition agenda and the possibility it may have rushed to it without enough long-term planning. And now, the U.S. has basically an identical agenda, focusing on boosting wind and solar power generation capacity, reduce demand for oil and gas, and encourage people to buy EVs instead of cars with internal combustion engines.
David Blackmon wrote earlier this week for Forbes that “The energy crisis in Western Europe this summer has been brought on by premature retirements of hundreds of coal and natural gas power plants in favor of massive over-reliance on wind power and, to a lesser extent, solar.”
He went on to note that, “Ironically, this crisis is taking place just as House Speaker Nancy Pelosi and congressional Democrats attempt to ram through their massive $3.5 “budget reconciliation” bill that is in large part designed to recreate the European model in the United States.”
Europe currently has some 220 GW in wind power, according to Wind Europe. Solar capacity stood at close to 131 GW at end-2019 but rose strongly last year, prompting media praise of how not even the pandemic could slow down the rollout of cheap solar farms that would bring Europe closer to its net-zero ambitions for 2050. And then suddenly all changed.
Right now, there are factories closing in Europe—including greenhouses in the Netherlands that produce, not to put too fine a point on it, food—and utilities desperately looking to buy coal—those lucky enough to still have coal-fired power plants. Some are switching from gas to oil derivatives, as the latter have become cheaper than natural gas. And official figures such as the IEA’s head Fatih Birol are cautioning against anyone blaming renewables. If anything, the narrative for ever more renewables remains as strong as ever, at least in some circles.
What is happening in Europe—including the UK, by the way, one of the most active energy transitioners—right now is a cautionary tale of magnificent proportions. Even Bloomberg, which a few weeks ago came out with an article stating that Europe’s Energy Crisis Shows the Downside of Fossil Fuels, recently published another, cautioning that Global Energy Crisis Is the First of Many in the Clean-Power Era.
The energy crisis in Europe and, to a considerable extent in China, is showing the rest of the world how not to do an energy transition at a time when many parts of that rest of the world are planning their own transitions. The American plan is, by all means, the most ambitious and generous one, as befits the world’s largest economy. But this also makes it the riskiest transition plan in light of recent European events.
“This massive piece of legislation [the $3.5-trillion Biden administration bill] is loaded up with hundreds of billions of dollars in new subsidies, mandates and incentives for these very same intermittent, low-density energy sources, along with new taxes and draconian regulatory actions designed to drive up the cost of fossil fuels in power generation and transportation,” Blackmon wrote.
Essentially, then, the current U.S. administration is repeating the mistake that the EU made in its ambition to green itself up and cut emissions both deeply and quickly. The consequences of this rushed transition will begin with higher emissions, by the way, as the continent leans heavily on fossil fuels and supply remains tight because of transition efforts that led to years of underinvestment in new production.
In all fairness, there has been a speculative element to the gas price crisis in Europe. In mid-September, Reuters’ Clyde Russell wrote a column that must have passed relatively unnoticed as the noise around price began getting louder. What Russell noted in the column was despite rising prices for LNG on the spot market, flows of the fuel to both Asia and Europe were steady.
In other words, Europe was in no particular rush to top up its gas reserves at the time, and neither was Asia. Everything was business as normal. Europe was importing LNG at a rate of 5-6 million tons monthly over the second quarter, which, Russell said, was the usual seasonal amount. There was no crisis until September.
The speculative element of the crisis deserves separate attention. Its mention here is for the sake of fairness. Because something else happened this year: the wind didn’t blow as much as everyone expected. Major wind power industry players suffered profit drops because of that, and utilities suffered output drops. Demand, however, did not drop, and apparently, solar farms could step in to shoulder the weight, so it was gas that had to be used, however grudgingly, to keep the lights on.
The quick deterioration in the energy situation in Europe should make anyone planning major energy system overhauls think twice before following the exact same scenario that Europe did. It should motivate the development of alternative paths to net zero or maybe even reconsider the necessity for net-zero commitments. Sadly, this is unlikely to happen.