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Category — European Union (EU)

European Energy Policy: Tramping in the Dark (Andrew MacKillop on the reality of failing public policy)

The European Energy Review has published a comprehensive article on the EU energy policy, entitled “Europe’s green energy chaos” by Andrew MacKillop (sometimes appearing as McKillop), an independent energy analyst and project advisor who has written on energy topics for over 35 years, and who worked for the European Commission’s Directorate-General of Energy as a policy expert in the 1980s.

EU policy can be summarized as 20-20-20 by 2020. Catchy isn’t it? It means 20% improvement in energy efficiency, 20% reduction in emissions, and 20% use of new renewable energy sources – all by 2020.

When publicized, the EU plan was (properly) criticized by the Economist and Dieter Helm, the chairman of the ad-hoc committee established by the EU to provide expert advice. MacKillop’s critical analysis of the current problems of government-heavy energy policy is spot on.

Government Planning in the Name of Markets

The EU energy plan inverts free markets and industrial government planning as discussed by MacKillop:

The climate and energy package makes heavy use of the notion that by preventing pipelines, power transmission lines and electric power stations being controlled by one company or entity, even if this entity is publicly owned and accountable to all democratic procedures for its control, will enable a “free market” that will create an upsurge in activity by small businesses who will gain entrance to the market. The usual way this notion is sold to voters and to the public is the claim this will automatically produce cheaper energy and more jobs, with additional climate and environment protection frills thrown in as needed.

In reality, the climate and energy package favours large industrial conglomerates in the energy sector and, as we know, Europe’s energy market liberalisation since 1996 has coincided with some of the largest energy price rises for final consumers in recent history. [Read more →]

December 23, 2011   6 Comments

Solar Energy: Tough Love in the EU

Across the European Union, solar energy is facing tough love conditions as its feed-in-tariffs (FiT) face déjà vu in another round of reduction.

Like in the classic Tale of Two Cities, the world of solar energy today seems filled with the excitement of seeing its revolutionary potential realized by rapid growth, while fearful that falling prices, changing feed in tariff subsidies and looming government deficits will overwhelm it first.

There is no denying solar energy’s promise and potential.  Its rapid growth is a worldwide phenomenon.  Lately I have been catching up on the news reports and changing solar situation in Europe.  A recent report prepared by Ernst & Young for UK’s Solar Trade Association confirmed what we already knew that solar PV prices are falling so fast that by 2013 they will be half of what they cost in 2009. But keep in mind for for on-grid applications, conventional power sources fueled by shale gas in particular are improving too.

New EU Realities

The EU’s big aspirations for a clean energy, low emissions future had run up against government budget deficits. Consequently, the mother’s milk of feed-in-tariffs for qualifying renewables is vulnerable to rapid modification.

Across the EU countries, feed-in-tariffs are being reduced or at least re-evaluated for affordability about every six months.  France is the latest country to announce changes in its feed-in-tariff regime. The UK is scheduled to follow suit slashing its feed in tariff rates in August 2011. [Read more →]

August 17, 2011   3 Comments

Anti-Energy, Anti-Industrial Policy: When is Enough Enough?

“Energy is the master resource, because energy enables us to convert one material into another. As natural scientists continue to learn more about the transformation of materials from one form to another with the aid of energy, energy will be even more important.”

- Julian Simon, The Ultimate Resource 2 (Princeton: Princeton University Press, 1996), p. 162.

Energy is the master resource, as Simon says. Even anti-energy zealots have admitted as much in their more sober moments. “A reliable and affordable supply of energy is absolutely critical to maintaining and expanding economic prosperity where such prosperity already exists and to creating it where it does not,” Obama’s science advisor John Holdren once said. (1)

UK Energy Trouble

The indispensability of affordable, plentiful energy has come to the fore as anti-energy policies have collided against human needs. During Britain’s coldest December in a century, families were forced to choose between keeping homes warm and feeding their children nourishing meals – thanks to climate policies that have forced extensive reliance on wind power and deliberately driven energy prices skyward.

Barely two months later, the UK’s power grid CEO informed the country that its days of reliable electricity are numbered. Families, schools, offices, shops, hospitals and factories will just have to “get used to” consuming electricity “when it’s available,” not necessarily when they want it or need it. A new “smart grid” will be used to allocate decreasing electricity supplies, on a rolling basis or according to bureaucratic determinations as to which consumers most need available power – mostly from wind turbines that provided a pitiful 0.04% of Britain’s electricity during its coldest days last December.

Germany Too

Meanwhile, the EU’s Energy Commissioner warned that German electricity prices are already at “the upper edge” of what society can accept and businesses can tolerate. Taxes, levies and regulations imposed in the name of reducing carbon dioxide emissions and global warming are forcing companies to relocate to other countries and causing “a gradual process of de-industrialization” across Germany. [Read more →]

March 11, 2011   5 Comments

EU Energy Orwellianism: Ignorance Is Strength

In George Orwell’s masterpiece, 1984, one slogan of the party dominating Britain was: “Ignorance Is Strength.”

It actually meant that the ignorance of the people is the strength of the government: if people do not know things, or do not have the information to make informed decisions, they are like subjects, not free citizens.

Something akin to this is going on in the European Union (EU) on the energy front. Energy is an active are of EU public policy. Yet authorities are not revealing information (data is surely has) that is crucial to determine whether its policies are distorting the market and come at too high a cost to society.

High-Sounding Aims

The website of Eurostat – the European Union’s statistical office – sells itself as “your key to European statistics.” The EU also created an ad-hoc website, www.energy.eu, in order to provide “your trusted source for past, present and projected Energy Prices and Statistics.”

While words are sweet, the implementation of the goals is far from perfect. In fact, several key statistics are not available–not even commercially–especially with regard to energy issues.

This is a major fault in Europe’s credibility in advancing its policy goals, as well as a serious limitation to the accountability of the policy making process, because it prevents, or makes it much harder, to double check the rationale, the numbers, and the declared outcomes of the EU’s policies. [Read more →]

January 21, 2011   4 Comments

Austerity Green: EU Fatigue Towards Renewables (excepting the UK)

“Many European countries are waking up to the disaster of extravagant subsidies to renewable energy.  But Britain isn’t.  The lesson for Americans is simply that throwing money at renewable energy is a huge economic mistake, but politicians can keep the racket going regardless.  It will take robust opposition to stop the United States repeating Europe’s mistakes.”

Renewable energy has proved an expensive and unreliable source of energy everywhere it has been tried on a significant scale. And now there is a big divide among the major European economies that have enthusiastically adopted wind, solar and the other renewables.

While the UK ploughs ahead by throwing good money after bad, Italy, Spain and Germany are cutting back on their taxpayer/ratepayer-funded generosity toward politically correct energies. France, meanwhile, with its abundant nuclear power, has smartly stayed out of the game.

In all, Europeans have tested the theory of a “clean energy revolution” to destruction. And William Stanley Jevons of 1865 The Coal Question fame would only say, “I told you so.”

Germany: Reversing Course

Germany is probably the most favourable environment in the developed world for renewable energy to be an “economic success” and to create “green jobs.” This country has extravagantly subsidized wind and solar through their feed-in tariff and has tapped into a well-established electrical engineering industry. If it’s possible to make a success of renewable energy in any major economy, then it is probably in Germany.

But legislation has now passed the lower house of the German parliament – the Bundestag – to cut those subsidies. The Government’s original plan was for around a 40 per cent cut in the feed-in tariff. By the time the cuts made it past the lobbyists and become legislation, the range of cuts was less severe, including a 16 per cent cut for rooftop solar and a 15 per cent cut in open-field solar installations. [Read more →]

July 7, 2010   5 Comments

Climate Politics: Running Scared in the EU (even before Climategate)

The European Union is very concerned about climate.

But its concern is not principally about the scares emanating from the assumption-driven (Malthus in/Malthus out) studies regarding man-made climate change. The EU’s leaders fear that the Old Continent’s self-declared “leadership” in the “world war against climate change” might not be joined–and thus will be rendered ineffective in the global context. And the politicians know that all-pain/no-gain climate policy will increasingly trouble the voters, who must be placated.

This is a bitter pill given that the U.S. presidential elections brought into office the environmentally oriented Barack Obama and the alarmist dream team (Carol Browner, John Holdren, etc.). Europe felt like its efforts to curb emissions would enter a new phase, where the rest of the world would have progressively joined forces and leveled the playing field on pricing carbon emissions. For Europe, that would have meant shrinking the competitiveness gap that is created by its higher energy prices, as well as gaining a competitive advantage in the newly formed carbon markets. (The EU Emissions Trading Scheme, which has been active since January 2005, is the largest functioning carbon market in the world).

The Asian-Pacific Economic Cooperation (APEC) meeting last week, though, [Read more →]

November 25, 2009   6 Comments

The Bear Growls, The EU Grovels: Adventures in the European Gas Market

Among those hoping that global warming is real we should now count the EU.  As winter approaches there is, quelle surprise, the initial hint of yet another gas supply crisis between Russia, Ukraine and Russia’s EU customers.  The problem is that those pesky pipelines have to go through somewhere to reach the market and that somewhere happens to be the Ukraine (unless it’s Poland, more on that later).

Source: US DOE, for better map resolution

All those red lines running Northeast-to-Southwest carry gas from Russia to the EU countries.  There is just no getting around the Ukraine for most of the transits; it is big and (if you are Russian) in the wrong place.

Gas: The Great Green Hope for Europe

As noted previously, gas use in Europe is roughly the same as that of the US, a bit over 20 tcf annually.  Unlike the US, gas production in Europe is falling not rising, with net imports currently at about 10 tcf/year and going up by 0.5-1 tcf annually.  Russia provides about 80% of Europe’s imported gas (about 80%), with the remainder mostly arriving in the EU as LNG.

As coal-fired power plants face increasing environmental opposition, and as a new generation of nuclear plants proves difficult to finance and construct European nations have turned increasingly to gas.  Power generation in the EU currently uses about 6 tcf/y, about the same as the US, and the US Department of Energy expects this to rise to the 6.5-7.5 tcf/y range by 2015-2025.

With falling conventional production and limited import alternatives, Russia looks to maintain its key role in EU gas supplies in coming years.  For all of the touted alternative routes and sources – Nabucco, trans-Med pipelines, LNG – the EU remains wedded to Gazprom.  In fact, Russia has made a play for even greater EU dependence with its Nord Stream (Baltic) and South Stream (Black Sea) pipelines.  Completion of those two lines will permit Gazprom to supply Germany, Austria, Italy and others without transiting Ukraine or Poland.

Energy Security or Energy Hardball – Why spend all that money for half-full pipelines?

Russia will invest more than $40 billion in new pipeline capacity without any substantial increase in its gas exports to Europe.  Why?  One view is that it is all about control: [Read more →]

November 6, 2009   1 Comment

Gas From Shale Deposits: A Worldwide Game-Changer? (Part II)

Editor’s note:  This article is the second of two on shale gas production.  The first dealt with the U.S. situation; this one looks at the potential impacts of shale gas production in Europe and China.

Natural gas production in Europe, currently just over 11 Tcf, has been falling rapidly over the past decade.   About three fourths of Europe’s gas is produced in just three countries: the UK, Norway and the Netherlands.  Production peaked in 2003 at 13.5 tcf.

Consumption, on the other hand, continues to rise.  Gas use in Europe stood at 20.5 tcf in 2008 and is likely to increase further as coal-fired power plants retire or are phased out of service for environmental reasons.  Most of Europe’s imported gas comes from Russia (about 80%), with the remainder mostly as LNG.

Conventional natural gas production is likely to continue its decline since the major source of gas production, the North Sea, seems set on a declining trajectory.

A Scramble for Supplies Seems to Be in Order

With the continent increasingly dependent on the state of Russian-Ukrainian relations, and with Russia’s sales prices pegged directly to oil, Europe’s energy future promises to be even more costly than its past.  Recent efforts at diversifying supplies – LNG, Nabucco, pipelines from Libya and Algeria – have proved only partially successful and retain the oil-linked price structure of Russian gas supplies.

Gas from Shale, Ours and Theirs, May Rescue Europe

U.S. shale gas production has already roiled the world of natural gas.  By providing plentiful supplies to the US shale gas production has promoted heavy discounting of natural gas in the U.S. relative to oil. [Read more →]

October 16, 2009   No Comments

EU Renewables Forcing: At What Cost and What Loss of Reliability?

The European Union has set a target of doubling the share of renewable energy sources (RES) to 20 percent by 2020. This is a very aggressive target given the growing grass-roots opposition of landscape-loving citizens against windpower and the large country-by-country deficits compared to the target.

The political consensus behind this renewables target is premised on the notions that:

  1. The transition will be done at little or no cost and will result in economic recovery and job creation, and
  2. The target will mitigate environmental disaster, most notably the ill effects of anthropogenic climate change.

Unfortunately, the target has been adopted before realizing what it would mean for the EU’s economy. Now, more detailed information has emerged. As more information becomes available–and the costs become more apparent–expect a public backlash. One can even predict that ‘green fatigue’ will increasingly emerge in the EU.

Cost Information

The latest piece of information that was made available is the British Government’s Low Carbon Transition Plan, and particularly its statistical annex.

Under the EU policy, Britain will have to raise the share of renewables up to 15% of its final energy demand, from just 1.6% in 2006. While London has been one of the most vocal governments in requiring stringent targets from the European Union, paradoxically it is the single member state with the largest gap to fill.

The following table shows the estimated costs for promoting RES (which exclude the costs to limit carbon emissions by relying on the EU Emissions Trading Scheme as well as a huge array of other costs attached to meeting different environmental targets). It should be noted that these costs refer to the UK’s own targets, which are more stringent than the EU’s own ones. [Read more →]

September 3, 2009   2 Comments

"The Unbearable Lightness of Wind" (EU update)

[Editor note: Ross McCracken is editor of Platts Energy Economist]

Where support mechanisms are sufficiently generous, wind power is racing ahead. In the European Union, where supported by feed-in tariffs in countries like Germany and Spain, wind power targets are very likely to be met, if not exceeded. Last year, more wind capacity was installed in the EU than any other energy source, for the first time outstripping even natural gas.

Wind has become the “market choice” because the technology is mature, bank lending is assured where prices are guaranteed, and the supply-side has been steadily ramping up production capacity. And wind is the only viable renewable that can deliver large amounts of installed capacity in the short term.

But just because you can doesn’t mean you should. As wind penetration increases, the pricing effects become more extreme, impacting the profitability of existing baseload and peaking power plant, albeit in different ways. Surges in wind power create ‘spill,’ unwanted power that sends spot market prices to zero, reducing revenues from existing plant and increasing the redundancy of more flexible plant. This might be good news for consumers but bad for investment in non-intermittent sources of power, presenting the risk of a decline in reserve capacity. [Read more →]

May 21, 2009   4 Comments