Wednesday 1st of February 2023

a fascist-inspired market.......

An energy policy that bans investment in some technologies based on ideological views and ignores security of supply is doomed to a strepitous failure.

The energy crisis in the European Union was not created by market failures or lack of alternatives. It was created by political nudging and imposition.

Renewable energies are a positive force within a balanced energy mix, not on their own, due to the volatile and intermittent nature of the technology. Politicians have imposed an unstable energy mix banning base technologies that work almost 100 percent of the time and this has made prices soar for consumers and threatened security of supply.


BY Daniel Lacalle


This week, Ursula von der Leyen, President of the European Commission, gave two messages that have grabbed many headlines. First, she announced a strong intervention in the electricity market, and then she stated at the Baltic Sea Energy Security Summit the proposal to increase renewables to 45 percent of the total generation mix by 2030. She considers that this is not an energy crisis but “a fossil fuel crisis.”

However, Ms. von der Leyen’s messages have two problems. Europe’s energy crisis is due to intervention at a massive scale. Furthermore, massively increasing renewables does not eliminate the risk of dependence on Russia or other commodity suppliers.

The European electricity market is probably the most intervened in the world. More intervention is not going to solve the problems created by a political design that has made most countries’ energy mix expensive, volatile, and intermittent.

Ideology is a bad partner in energy.

Between 70 and 75 percent of the electricity tariff in most European countries are regulated costs, subsidies, and taxes set by governments and, in the remaining part, the so-called liberalized generation, the cost of CO2allowances has skyrocketed due to those same governments that limit supply of permits and the energy mix is imposed by political decisions.

In Germany, only 24 percent of all costs in a household bill are “supplier costs,” according to the BDEW 2021. The vast majority of costs are taxes and costs set by the government: grid charges (24.00 percent), renewable energy surcharge (20.00 percent), sales tax (value-added tax) (16.00 percent), electricity tax (6.00 percent), concession levy (5.00 percent), offshore liability levy (0.03 percent), surcharge for combined heat and power plants (0.08 percent), levy for industry rebate on grid fees (1.30 percent). However, the “problem,” according to the messages of the President of the European Commission, is the market. Go figure.

It is surprising to read that Europe’s power markets are “free markets,” when governments impose the technologies within the energy mix, monopolize and limit licenses, prohibit investment in some technologies or close others, as well as forcing a rising cost of CO2 permits limiting their supply.

Intervention was to shut down nuclear power and rely massively on natural gas and lignite as Germany did. Intervention was to prohibit the development of domestic unconventional natural gas in Europe. Intervention is to shut down reservoirs when hydro power is key to lower household bills. Intervention is increasing subsidies at the wrong time and then raising taxes on efficient technologies. Intervention is to stop the gas pipeline that would double interconnections with France. Intervention is to prohibit lithium mining while talking of defending renewables, which need this commodity. Intervention is to fill the consumer’s bill with taxes and regulated costs that have nothing to do with energy consumption. Intervention, in essence, is the chain of errors in energy policy that have led Europe to have electricity and natural gas more than twice as expensive as in the US, as Durão Barroso warned in 2013.

European power prices are not expensive by chance, but by design. The exponential increase in subsidies, regulated costs, and the price of CO2 emission rights are political decisions.

Eliminating baseload energies (nuclear, hydraulic) that work all the time and replacing them with renewables that need a backup of natural gas and heavy investments in infrastructure is expensive. It has been throughout Europe, and it will continue to be.

An energy transition must be competitive and guarantee security of supply, or it will not be. More intervention does not solve the problems.

European governments should worry about erasing from household bills all those items that have nothing to do with electricity consumption, including the cost of past planning errors, and lower taxes that are simply unaffordable. Those items should be in the national budget and other nonessential expenses should be cut to avoid rising deficits.

The market is not always perfect, but government intervention is always imperfect.

Governments are awfully bad at picking winners, but they are even worse at picking losers. Constant intervention leaves a trail of debt and cost overruns that all consumers pay.

What happens when the government intervenes? It closes nuclear power out of ideological obsession and then depends on 40 percent of its energy mix on coal, lignite, and gas, like Germany. Or it brings its flagship public company to the brink of bankruptcy by intervening tariffs, like France. Or, like Spain, it creates a diplomatic conflict with its largest natural gas supplier, Algeria, and, with it, doubles its gas purchases from Russia since the beginning of the war to July 2022.

Now, the European Union is rushing to install new floating regasification plants. More than thirty. The problem? That practically all the liquefied natural gas ships for this winter have already been contracted.

The same governments that refused to strengthen natural gas supply chains when it was cheap are now rushing to spend vast amounts on low-efficiency solutions.

Installing renewables does not eliminate dependence on natural gas. Renewables are, by definition, intermittent, and volatile as well as difficult to plan. Additionally, installing more renewables also requires huge spending on transmission and distribution investments, which makes the tariff more expensive.

Investing more in renewables is positive, but no politician can say that they are the only solution. The storage problem, the astronomical cost of a battery network and the necessary infrastructure, estimated at more than two trillion euros if it were feasible, are key factors. If today Europe had a 100 percent solar and wind mix, it would be excessively volatile and intermittent, and in periods of low solar and wind availability it would increase dependence on natural gas, which is necessary as backup, and the need for hydro and nuclear, baseload energies that work all the time. Additionally, renewables, which are positive in a balanced energy mix, do not reduce dependence on other countries. Countries become dependent on China and other nations for lithium, aluminum, copper, etc.

Installing 45 percent renewables in the mix does not eliminate the dependence on natural gas, it only reduces it slightly in the part of the renewable load factor that is more stable (part of wind production). In fact, dependence on periods of low wind energy and low solar yield would be extremely high and, as we have already experienced, those coincide with periods in which gas and coal are more expensive due to greater demand.

If there is one thing that this crisis shows us, it is that what Europe needs is more market and less intervention. Europe arrived at this crisis due to a combination of arrogance and ignorance on the part of the legislators who control the energy mix. The importance of a balanced mix, with nuclear, hydro, gas, and renewables is more evident every day.

Interventionist energy policy has failed miserably. More intervention is not going to solve it.













shooting oneself in the foot.....


 BY Salman Rafi Sheikh


In Washington, economic and financial sanctions remain one of the most favourite options for fighting wars by other means. We continue to witness the use of this tool quite often, with the US strategy to fight Russia’s military operations in Ukraine being the most recent example. A key reason that has thus far enabled the US and its allies in Europe to weaponise economics and finances to punish their enemies is the territorial centrality of the global economic order, a legacy of western colonialism entrenched further at the end of the Second World War.


But geoeconomics is a tricky game, as the power potential of a given source of power can radically alter in different contexts. The Russia-Ukraine war is a very useful example of such an alteration. While the West – US and EU – responded in its usual way by imposing “sanctions from hell” on Russia, little did they realise that Moscow will eventually use their own tactics against them. Responding to Western support for Ukraine and retaliating against sanctions imposed on Russia, Moscow’s ‘gas politics’, or its decision to weaponise its gas sales to Europe, has clearly outmanoeuvred the Transatlantic alliance, unsettling it from within and forcing it to tackle one of the most serious ‘cost of living crisis’ in decades.

Due to the war in Ukraine, gas prices in Europe have increased by almost 400 per cent. If “sanctions from hell” were meant to punish Russia and weaken Vladimir Putin’s political position, soaring gas prices in Europe have created a serious dilemma for the whole continent. This has led many in Europe to look for alternative sources of gas, especially LNG.  But as reports in Western media itself have highlighted, even if Europe replaces Russian gas with LNG, there is simply not enough LNG to keep Europe warm in the winters.

According to Germany’s Federal Network Agency, even if German reserves were one hundred per cent full, they would be empty in less than three months if the Russian gas supply were halted completely. In this context, Russia’s decision to shut down gas supply via Nord Stream 1 has jolted the whole continent from within. According to reports in the Western media, the energy crisis facing the whole continent is likely to revive old rivalries, with threats of the European alliance fracturing from within intensifying.

Some countries have indeed begun charting their own course. For instance, both Hungry and Bulgaria have announced renegotiating gas deals with Russia. Whereas the UK has gone back to its traditional ally, the US, to find more sources of gas supply, it remains that it is also one of the worst hit countries by the gas crisis. According to the International Monetary Fund (IMF), due to the gas crisis, an average household in the UK is likely to lose 8.3 per cent of its total spending in 2022. While Germany and Spain are likely to lose around 4 per cent, Estonian and Czech households face higher impacts than the UK in the whole of Europe.

Many in Europe think that they can potentially offset the impact of this crisis by securing extra supplies from the US. But, again, as reports in the Western mainstream media show, the US is itself moving towards a gas crisis, and that it could end up worsening Europe’s gas crisis too. As a recent report in Wall Street Journal said, gas stockpiles in the US are already 11.3 per cent lower than the past five-year average. While this shortage is largely driven by hot weather and extra use of electricity for air-conditioning, it remains that the US has only a limited capacity to fill Europe’s needs.

There is thus no automatic transition for Europe to alternative sources of gas supply. This is perhaps the reason why a gas crisis in Europe is now turning into a major economic crisis. As reported in the Western mainstream media itself, soaring gas prices have forced fertiliser plants to shut, threatening a continent-wide food crisis.

Other large scale manufacturers in Europe are also taking measures to minimise the impact of the gas crisis. According to reports, Volkswagen said it is stockpiling components that involve glassmaking. The fact that making glass involves melting sand, soda ash and limestone and requires large amounts of natural gas and the fact that Europe does not have enough gas means that these manufacturers are anticipating a big fall in their production capacity. A rising ‘cost of living’ crisis also means that there will be fewer buyers of Volkswagen and other cars in 2022 or even beyond.

Glassmaking is not exclusive to the auto industry. Not enough gas available for glass making means that other sectors will also be affected adversely.

So, what is the option for Europe? Many in the US media have spent hours arguing for Europe to develop ‘nerves of steel’ to face the Russian challenge. But this is only a way to convince Europe to stay in the US axis. A better alternative for Europe might be to review its deeply costly alliance with Washington. On the one hand, many European states, such as Germany, have been forced to spend more on defence, and on the other, they are now facing a crisis that could unravel European unity and political stability.

Developing a geopolitical framework that does not see and project Russia only as an enemy state might be a useful start. Showing some sensitivity to Russia’s legitimate security interest vis-à-vis NATO’s expansion can help Europe quickly overcome the crisis that the US created but cannot help overcoming.



Salman Rafi Sheikh, research-analyst of International Relations and Pakistan’s foreign and domestic affairs, exclusively for the online magazine “New Eastern Outlook