Are Europe’s Energy Hopes Fading Into Darkness?
WHY YOU SHOULD CARE
Because the continent’s dramatic energy problems offer more lessons on global conservation.
By Matthew Saltmarsh
It’s going to be chilly this winter for the wallets of consumers in Lisbon, where gas prices are up 62 percent since early 2011 and electricity costs have risen 26 percent during that time. Over in Berlin, citizens are preparing to shiver under their topcoats, though they might burn up over their electricity bills — which have outstripped inflation growth by three times.
At a time America has managed to get a good handle on its energy headaches — gas prices are down and shale oil is booming — our friends across the pond are dealing with a welter of power problems severe enough that some fear they could constitute the next European crisis. Back in 2011, European leaders planned to have integrated national energy markets by now while offering greener, more affordable choices. But consumers are still waiting. And energy costs for many of them continue to rise while the hope for cheap energy quickly diminishes. In Copenhagen, the cost for energy was five times greater than Belgrade in September, when electricity and distribution prices reached their highest level since VaasaETT, a Helsinki-based think tank, began to survey them in 2009.
We are, in Europe, facing the risks of the lights going out soon.
It’s not just prices that are a problem, either — but supply. While there are some new pipeline projects set for the EU, most are designed to push energy to only certain countries in the region. And with few other solutions on the horizon, some experts worry the EU will be hit by a major energy shortage in the future. “We are, in Europe, facing the risks of the lights going out soon,” Fatih Birol, the International Energy Agency’s chief economist, said recently.
Of course, it wasn’t supposed to be this way. For years, the EU has made strides in trying to get its member countries to act. It pushed them, for example, to open their trading of energy among countries more freely and to give consumers cheaper options. But critics say too many countries have been giving the energy integration efforts lip service. As with many other practices in Europe, energy policies remain far more local than open across borders. “There is no European energy policy,” Kurt Bock, chairman of BASF, told the media last month after the German chemicals giant released its earnings.
What went wrong? For starters, major companies aren’t willing to invest in new infrastructure without the prospect of major profits. Take the company EDF, a leading energy player in France, who along with a Chinese partner recently won approval to build the U.K.’s first nuclear power station in two decades — but only after they received a guaranteed power price that’s more than twice the market’s rate. And guess how long that price is locked in? Thirty-five years. Even so, those types of subsidies certainly won’t last forever, and the International Energy Agency has wondered where future investments will come from.
Europe is running a schizophrenic policy.
And, as it turns out, energy has deep cultural roots. For example, France is a nuclear powerhouse, while Germany has been divesting from nuclear (after Fukushima) and gravitating toward a mix of fossil fuels and renewables. Poland prefers coal, and Spain is hot for hydro. “Europe is running a schizophrenic policy,” Vicky Pryce, chief economic adviser at the London-based Centre for Economics and Business Research, told me. “There’s no real coordination and a lack of competition. It’s a big problem and could become an increasing source of discontent.”
For many consumers, this has meant rising energy bills even as global commodity costs have recently fallen and demand for gas in the EU has weakened. In the United Kingdom, where energy bills have risen at double the rate of inflation and quadruple the rate of wages since 2010, the Archbishop of Canterbury, Justin Welby, waded into debate last year, suggesting price rises were “inexplicable.” (The British opposition Labour Party has since proposed a price freeze — for the next three years.)
There may be some solutions on the horizon. Spain is now allowed to sell up to 15 percent of its energy to France through the Pyrenees mountains. And one new pipeline project will bring Azerbaijani gas across Turkey to EU countries on the Adriatic, as it will flow from Greece to Italy and be distributed from there. There’s also a planned natural gas pipeline that would stem from Algeria to Sardinia and then on to mainland Italy.
Even so, it’s a hard sell in a region that’s still reeling from recession. In fact, Europe needs to find $7.6 trillion — yes, with a “t” — to invest in energy in the next two decades if it wants to make up for retiring thermal plants and aggressive carbon-reduction goals. And, for now it seems, countries are largely left fending for themselves.
- Matthew Saltmarsh, OZY AuthorContact Matthew Saltmarsh