Is Europe’s Energy Crisis Actually A Boon?

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The energy crisis that began last year in Europe and dramatically escalated following the EU response to Russia’s invasion of Ukraine has seen many in government worry about the survival of the continent during the winter.

But not all people see such a dire picture. Some believe that Europe is in a better place than it was before the crisis. The EU received a favor in the form accelerating the buildout of renewables, and restarting hydrocarbon-fueled power stations.

This is a take that is not very common right at the moment. It was made by Per Lekander, an investment manager who is also managing partner of Clean Energy Transition LLP. Lekander spoke to CNBC this week. said that Russia had, in fact, very little to do with Europe’s crisis, and it could even be said Vladimir Putin did Europe a favor.

“This [the crisis] is the consequence of long term under investments in conventional, long term red tape in renewables and then these political closures of nuclear, coal, lignite, etcetera,” Lekander told CNBC.

Then he said that European countries had taken measures to ensure that Europe would survive the winter after Russia responded to EU sanctions.

According to the financier, energy demand reduction was one of these actions. Returning to hydrocarbons to power generation was another. A third one was the planned reduction in red tape in wind and solar power system construction—obstacles that these two industries have been complaining about for years.

You could argue that Europe’s energy demand decrease that allowed it to save gas was due to exorbitant energy prices and not any voluntary changes in energy consumption patterns.

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Indeed, millions of people across the continent are being hit with electricity bills that are substantially higher than last year’s bills because of the international gas price inflation caused by the tightening of supply following the EU sanctions on Russia and Russia’s easy to predict response. Prices rose due to the sabotage of Nord Stream.

As many people noted, the warmer European autumn was another reason for lower demand. As the weather was warmer than usual, people’s heating needs were lower. But now that winter is here, and the cold is finally setting in, the demand for heating will rise, regardless of how much gas you pay.

The worst is not over, however. The Guardian reported Germany was facing gas shortages this week after it failed to meet its consumption reduction target. The reason it had missed it—the target is 20 percent of consumption—was the colder weather last week, the head of the country’s energy regulator said.

Last month, the European Union approved a target for reducing gas consumption of 15%. Germany was however more ambitious due to its dependence on the commodity. Whether the rest of Europe would be able to hit the 15-percent target is yet to be seen because, as Klaus Mueller said, “With temperatures of -10C [14F], gas consumption shoots up dramatically.”

Lekander says that the other positive side of the crisis is the facilitation for solar and wind power capacity increases. The authorities in Brussels will make it much easier to increase generation capacity, as Europe is desperately in need of new energy sources. But this comes with its challenges.

There is severe cost inflation in critical minerals and metals, and it’s a trend that is only going to accelerate in the coming years, driven by higher demand for these metals and minerals stemming from legislation of the sort that the EU has approved for wind and solar.

Wind power developers are experiencing losses and worry about Chinese competitors. The European solar industry is heavily dependent upon Chinese panels. This is something the EU is not happy with and is trying to change.

However, the main concern of most observers is that next year’s winter could be worse. European countries were able this year to hold onto Russian gas supplies before they declined significantly.

These flows will continue to be low next year. Europe will have to look for alternative sources of gas. The EU is already preparing next winter. They are discussing joint gas purchases and getting a shoulder to the IEA with a series of measures aimed at securing sufficient energy for next heating season.

Unfortunately, demand reduction is a big part of these 2023 winter energy consumption management plans, And while it is easy to consume less energy in the summer, especially in the cooler parts of Europe, it is not that easy in the winter without adverse effects on people’s health and wellbeing.

By Irina Slav for Oilprice.com

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