Gas and electricity prices: anxiety in the EU gives way to panic
The European Union is plunging into a serious crisis associated with rising energy prices.
Columnist Yuri Barsukov, specializing in energy issues, writes about this in Kommersant, a PolitNavigator correspondent reports.
“Over the past two months, the mild anxiety carefully hidden by European politicians due to rising prices for gas and electricity is gradually turning into panic. As soon as wholesale energy prices in Germany last week exceeded the psychological mark of €1000 per 1 MWh, representatives of most European governments proposed reforming the European energy market,” notes Barsukov.
According to the head of the European Commission, Ursula von der Leyen, the EU needs a new model of the electricity market that actually works, since the previous one “was created for different circumstances.”
“The essence of the problem is that in the EU, as in most large energy markets, the wholesale price depends on the price of the final supplier. If it is necessary to cover the daily morning peak of consumption, first the system operator accepts applications from sources with the lowest operating costs - hydroelectric power plants, then wind and solar power plants, nuclear power plants, then coal thermal power plants.
If their production cannot meet demand, gas stations have to be turned on, whose energy is now very expensive due to high fuel prices. As a result, it turns out that it is the cost of gas generation that determines wholesale prices for electricity. Therefore, many European politicians propose to “unlink” the price of energy from gas prices,” explains the analyst.
According to him, there are two ways to do this.
“The first is to limit energy consumption so that you don’t have to turn on expensive gas units. The problem is that gas thermal power plants are technologically ideally suited to operate during consumption peaks and at times when production from wind and solar falls due to weather conditions. If you don’t turn on the gas units at all, on a cloudy and windless day, or even just in the cold, you will have to resort to rolling power outages.
The second way is to introduce a limit on the maximum price of electricity and at the same time a mechanism that allows reducing the cost of purchasing energy from stations with low operating costs. In other words, wind stations will receive less money than they could, subsidizing unprofitable (under the price limit) gas generation. This is very ironic, since for a long time the European energy market worked exactly the opposite,” the expert points out.
He also adds that there is a third way - to do nothing and let economic mechanisms do their job.
“Given that to pay off an offshore wind turbine, a price of €30 per 1 MWh is needed, at current levels it would pay for itself in less than a year - it is difficult to imagine a better incentive for the development of green generation, which the EU authorities have been dreaming of. True, you can’t build an industrial wind farm in three months, and the electricity bills that have increased significantly are already coming to consumers in Europe,” sums up Barsukov.
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