Europe’s green energy policies designed to transform the continent away from dependence on fossil fuels have contributed to higher energy prices in the region.
The European benchmark index that measures future electricity prices rose to a record high of $993 per megawatt-hour (MWh) on Monday, days after prices in France and Germany rose 25%, according to European Energy Exchange data compiled by Bloomberg. By comparison, the average price of electricity in the United States was $129 per megawatt-hour in June, according to federal data.
The energy crisis forced consumers to cut back on energy consumption, and industrial production and energy rationalization declined across the continent. The European Union Council has scheduled an emergency meeting of EU energy ministers next week in response to market conditions.
“The skyrocketing price of electricity is now exposing, for various reasons, the limitations of our current design of the electricity market,” European Commission President Ursula von der Leyen said during a speech on Monday. “It was developed under completely different conditions and for completely different purposes. It is no longer fit for purpose.”
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Von der Leyen blamed the record price increases on Russia’s invasion of Ukraine for upending global energy markets, but added that the crisis was evidence that the bloc needed to shift more to green energy. Russia reduced natural gas supplies to Europe in response to the sanctions deals imposed by the European Union following the invasion in February.
However, electricity prices in Europe were at all-time highs months before the invasion.
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A Reuters analysis published in December concluded that lower-than-expected wind power generation was a major factor driving up prices and forcing suppliers to turn back to coal and natural gas. Russia was the largest supplier of Europe’s imports of natural gas and coal at the time of the invasion.
“The word that comes to mind is nihilism,” Michael Schellenberger, energy expert and founder of the Environmental Progress Group, told FOX Business in an interview.
“You have people who are publicly calling to do more of the same things that actually made the crisis possible,” he said. “That’s what you see. They say, ‘Let’s go and put in some more unreliable energy.'” “It’s a sign of a troubled person who continues to engage in irrational activities that are clearly self-destructive, and that we see this behavior on a collective level.”
Schellenberger added that Europe should be “a warning to the United States that we should not go its way.”
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Over the past several years, EU policy makers have pushed hard for the abolition of traditional fossil fuel power plants and the massive expansion of green energy alternatives including wind and solar power. The European Union announced last year the so-called European Green Deal that outlined plans for the continent to significantly reduce carbon emissions by increasing investment in renewables and limiting the purchase of gas-powered cars.
In Germany, the largest economy in the European Union, wind power alone accounted for the largest share of electricity production between 2019 and 2021.
However, due to its intermittent nature, heavy reliance on wind energy has left the nation vulnerable when wind produces less output than expected.
“There has been a lack of investment in fossil fuels in Europe,” Fabian Roningen, chief energy markets analyst at Norwegian research firm Rystad Energy, told FOX Business in an interview. “There have been all these shutdowns of coal-fired power plants,” he added.
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“If you have a system with a lot of solar and wind energy, you need some support in the system,” he continued. “Until we find a better technical solution than natural gas, we need something to back it up and that is the role of coal, gas and also nuclear power in Europe at the moment.”
Wind turbines produce between 25-50% of their listed energy, according to the Energy Information Administration. Solar panels produce 10-35% of their energy.
Depending on Russia’s actions, winter, when natural gas demand peaks, could be more painful for Europeans, according to an analysis by research firm Wood Mackenzie published Thursday. Higher prices are expected to reduce demand for natural gas, and if Russia continues to halt flows through the main Nord Stream 1 pipeline, total gas stocks in the European Union could drop to just 26% by the end of winter.
“In addition to uncertainty about gas supplies from Russia, the tightness of the energy market – due to reduced nuclear, hydro and wind production – and the threat of power outages are putting additional pressure on gas price futures this winter,” Benny Lake, European gas analyst at Wood Mackenzie, In a joint statement with FOX Business.
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Lake added that in the event of normal weather conditions, natural gas prices are expected to drop by more than 35%, close to the prices recorded late last month, after the winter.
Rønningen said he does not expect widespread power rationing or uncontrolled blackouts during the winter, but said costs will remain high for consumers.
“Looking at the winter, I think one thing that’s pretty clear is that it’s going to be very expensive,” he said.
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