a brave new Europe towards energy independence – POLITICO

The greatest challenges for post-pandemic Europe

As the EU economy slowly began to recover from the pandemic, new and old crises loom on the horizon. We are fully aware of the energy price situation – which is mainly due to gas volatility and not carbon price – and we are working with governments and institutions to find collective, quick solutions to relieve families and businesses who are being impacted by the Price increases are affected. Against this backdrop, alongside rising energy prices, Europe now faces a complex geopolitical crisis that threatens not only its energy transition strategy but the very essence of its own energy independence. A society that does not have access to abundant, reliable, cheap and clean energy is at stake for its economic and social progress, and this concern affects all of Europe today. It is more of a pan-European issue than one that only touches on the individual interests of member countries. In order not to destroy the Energy Union, it is important to propose a European solution to the problem and avoid collocating a series of uncoordinated national measures.

Uncoordinated market interventions distort and ultimately destroy the integrated electricity market, which is based on a common EU-wide pricing rule.

Francesco Starace
CEO of Enel, Jean-Bernard Levy
CEO of EDF, Ignacio S. Galán CEO of Iberdrola

Dependence on gas imports is one of the main problems facing Europe today in the energy sector. Member countries’ dependence on gas varies widely, but the interconnection of gas markets is now such that it reflects some countries’ over-reliance on the eurozone as a whole. Europe’s long-term goal would therefore be complete independence from fossil fuels. But in the short to medium term, Europe needs to become self-sufficient and avoid potential disruption from a single supplier, as illustrated by the current surge in energy prices: the recent gas shortages have pushed up gas prices drastically, thereby raising electricity prices in the markets overall this fall and winter. Europe may be tempted to take short-sighted measures to resolve the energy price crisis and address geopolitical risks. But returning to oil, gas or even coal is not the right answer to secure Europe’s energy independence in the medium to long term. On the contrary, with the ever-present threat of the climate emergency, the urgency of moving towards a zero-emissions Europe is now becoming ever more urgent. In this context, the energy transition in Europe has also become a security and economic issue that could sustain the European economy for years to come.

The energy price crisis: causes, current interventions and real solutions

The current energy price crisis has led to a growing number of interventions in the electricity market, but surprisingly not in the gas markets, although gas prices are the main driver of electricity prices and the sales prices of natural gas are clearly not aligned with the real costs of supply. These interventions have typically focused on trying to capture so-called “deadweight gains” made by electricity producers. We cannot help noticing that they are often based on several misunderstandings. For example, they assumed that high spot prices mean windfall revenues for non-gas priced power generators and vertically integrated companies. However, they ignored that the majority of the energy does not receive the spot or day-ahead price, as much of the electricity is sold to consumers in advance via supply contracts. In its communication of March 8, the EU Commission rightly proposed protective measures and limits for the implementation of such measures at member state level. But this cannot be enough. And solutions must be implemented at EU level. In fact, these uncoordinated market interventions distort and destroy the integrated electricity market, which is based on a uniform EU-wide pricing rule.

There are several concrete measures that could be taken to keep prices down. In the case of structural measures, liquid futures markets and long-term price signals need to be developed and play an even greater role in order to hedge risks and facilitate investments. However, the European Commission is currently examining possible options to temporarily limit the contagion effect of gas prices in electricity: We believe that we need an EU-wide cap on gas prices in order to at least bring them back to pre-crisis price levels. However, the real solution to the current price crisis will not come from ill-conceived changes in electricity market design or from generating non-existent additional profits. The structural solutions must enable the acceleration of the introduction of zero-carbon, reliable and flexible technologies. This is the only way to eliminate the gas dependency of our energy system.

We believe that we need an EU-wide cap on gas prices to at least bring them back to pre-crisis price levels.

The way forward: a new energy sovereignty for Europe towards net zero

A net zero Europe is an evolving process. But we’re almost out of time. 2050 is just one investment cycle away. We firmly believe that this energy crisis is the impetus to accelerate the energy transition in Europe. The direction is clearly irreversible. For example, we need to provide more renewable energy much faster by ensuring fast permitting and permitting processes at EU level. Under the REPowerEU plan, we could potentially supply an additional 35 TWh of electricity from new renewable projects over the next year and reduce gas consumption by more than 6 billion cubic meters, according to the IEA. This would also provide a concrete advantage in household electricity bills. We must gradually replace gas boilers with high-efficiency heat pumps and support the development of a European clean heating industry. As Commissioner Timmermans noted, the EU needs to double the installation rate of heat pumps over the next five years, bringing 20 billion a year by 2026. The equivalent of 25 percent of the EU’s current fossil gas imports from Russia can be achieved by 2030 through renovation, according to the European Climate Foundation and electrification of Europe’s residential buildings. We should promote interconnectors and power infrastructure to ensure the system’s flexibility and reliability and to optimize the use of our current resources. A Europe that rapidly develops zero-carbon technologies, electrifies household heating and transport, and diversifies fuels for heavy industry is a more sustainable, citizen-friendly and independent Europe. a brave new Europe towards energy independence – POLITICO

Fry Electronics Team

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