Energy Crisis in Europe Going Downhill

With the onset of winter, one of the most damaging cost emergencies in history is likely to get worse.

Last month’s extraordinary price rise in the UK led several industrial companies to cut production and seek state aid, a sign of things to come across Europe when the coronavirus resurfaces. Protecting supply may cause tensions with bordering countries. Households may be encouraged to save energy or prepare for rolling blackouts.

The issue is that production is unlikely to change anytime soon, with Russia piping exactly what it needs and Qatar producing only what it can. Instead, the energy business must concentrate on “demand destruction,” according to Rysted Energy analyst Fabian Roenningen.

“We have seen it over the last couple of months already, and in many industries, it will most likely continue and even increase,” he said. “It’s just not profitable to operate for a lot of the players in the current market conditions.”

The forecast adds to Europe’s sense of unease. A new COVID-19 mutation found in South Africa has re-ignited global pandemic fears. Some governments are tightening restrictions, while inflation is squeezing household budgets. Also, freezing conditions may cause power outages.

Europe’s second-largest economy France is particularly vulnerable. The possibility of a January or February freeze worries the nation’s grid operator. According to a report from November 22, t he pandemic has delayed maintenance of some reactors, reducing availability at nuclear power plants.

Power costs in France have risen to their highest level since 2012 as a cold front approaches on Monday, when demand rises.

When demand reduction contracts with manufacturers were implemented last winter, the grid operator appealed to consumers to reduce peak energy use. As a last option, the network would be reduced in voltage, followed by two-hour rolling blackouts per zone. All this before a presidential election.

A crisis in France would have repercussions in Germany, Spain, Italy, and the UK. Monday’s peak demand is predicted to be 80.7 GW, well below the February 2012 high of 102 GW.

“If there’s a deep cold snap and there’s no wind, things could become tight given the lesser availability of nuclear plants and the recent closure of dispatchable generation assets using coal,” said Nicolas Goldberg, a senior manager in charge of energy at Colombus Consulting in Paris. “If it’s getting really cold and there’s no wind, it may become a problem.”

What Russia does next will be critical for supply. While President Vladimir Putin promised increased supplies to maintain the market, shipments are still down on previous year’s levels. Even more mysterious is how much gas Russia transfers to Europe in December.

The long-awaited Nord Stream 2 pipeline from Russia to Germany would help ease the continent’s energy need. However, regulatory issues have delayed the project’s execution.

If things get extremely bad, countries may decide to stop selling gas to other areas. In a worst-case scenario, they cut off gas and power supplies to one another, causing political unrest and economic harm.

The EU has so-called solidarity rules that are designed to prevent any member state from restricting power or gas exports, especially when it comes to residential supply.

When it comes to supply security, grid operators believe they can interrupt or adjust electricity flows through inter-country cables. The “Beast from the East” struck late in the heating season in late February 2018. A less severe weather event this year could have a similar consequence.

“It shows how exposed Europe’s power system is to the volatility in commodity prices,” said Roenningen in Oslo. “In the short term, there’s not a lot that can be done.”\

Original source material for this article taken from here