Europe’s energy security is on a knife edge and Cyprus is not immune [GGP]
Europe’s energy security is on a knife edge. The concern that there will be further Russian cut-offs is real. Given recent developments, with the on-and-off but continuous reduction in Russian gas supplies, Europe is now in a constant state of uncertainty, with the real possibility of a complete gas cut-off before winter sets in.
On July 27 gas supply through Nord Stream 1 was reduced to 20 per cent of capacity and prices in Europe shot to over €200/MWh. Exactly a year ago the price was €23/MWh – an almost ten-fold increase. The impact of this on electricity prices will be passed to consumers, causing even more hardship.
But this will fade into insignificance if there is a complete gas cut-off, with massive repercussions on Europe’s economy, likely to plunge into recession. And it is not just that. Prolonged high energy prices, which is now inevitable, impact everything from transport, to food, goods and industry, making Europe uncompetitive.
Bloomberg estimates that the total bill for rescuing the European energy market this winter “could easily top €200 billion”. And this does not even include the worst-case scenario of a complete gas cut-off by Russia.
Concerned about the consequences, on July 20 the EU published its gas and energy crisis plan with the aptly chosen title of “save energy for a safe winter”, that also outlines energy demand reduction measures. A watered-down version of this, with exceptions for some countries, was approved by the European energy ministers on July 26. Essentially, it introduces a new target for EU member states to reduce their gas consumption this winter by 15 per cent, with the possibility that this becomes legally binding in case of emergency.
This consumption reduction target is designed to cushion the effects of entering the winter with insufficient gas in storage, that could cause an energy crisis of immense proportions, and to reduce security risks. In effect, Europe is preparing for gas-rationing.
European member states are expected to update their national emergency plans by September with measures to meet these objectives. But despite all these measures, it is still highly likely that the EU may not be able to avert a crisis this winter.
Cyprus is not immune to these developments.
However, the EU recommendations are lacking serious consideration of the impact these measures will have on vulnerable households, and do not include any effective instruments to protect them. Very few politicians seem to grasp the magnitude of the coming crisis, its impact and its costs. This also applies to Cyprus.
EU decarbonisation targets
The European Commission (EC) is advising member states to switch to renewables more quickly and to use other energy sources for power production, including coal in the short-term. Clearly the war in Ukraine is forcing Europe’s economy to change faster than it would like, but this is putting companies and citizens in a vulnerable position. The “Just Transition Mechanism” is grossly inadequate to deal with this. Much more will be needed.
However, the EC has emphasised that throughout this process, including fuel-switching measures, its decarbonisation objectives for 2030 should not be compromised. According to the EC, “switching to coal, oil or nuclear is a temporary measure as long as it avoids long-term carbon lock-in”.
The warning is that in the effort to deal with the energy crisis, the EU should not end up “slowing-down the transition as a whole”.
But renewables alone will not solve Europe’s energy problem for a long time to come. As long as intermittency remains an unsolved challenge, renewables will need to be partnered by a stable and flexible energy source, such as natural gas.
But the EU does not appear to be ready to accept this. Instead, it is still imposing artificial limits, that “natural gas shall continue to play an important role in terms of energy consumption and electricity generation in the EU until 2030, after which its use in the EU will decline in line with its climate neutrality commitment by 2050.”
This discourages oil and gas companies, and investors, from committing to the longer-term projects required to ensure security of energy supplies until such time that renewables can function without the need for back-up. Without solving this problem, by recognising and accepting that gas will be needed much longer than 2030, Europe is in danger of drifting from one energy crisis to another.
Reducing energy consumption
According to the EC, “energy saved in summer is energy available for winter.” The measures it suggests are similar to those proposed by the International Energy Agency that include setting-up cooling and heating standards and controls, such as setting air conditioning systems to a higher temperature in the summer.
When the heating season starts with the onset of winter, national governments can also save energy by asking households to lower their thermostat by 1°C, and mandating reduced heating of public buildings, offices and commercial buildings.
Government and public buildings should take the lead on this to set an example while publicity campaigns should encourage behavioural changes among consumers. Public awareness campaigns have in the past proved to be successful. Used in the context of the current energy crisis it can help reduce energy demand.
What is very worrying in Cyprus is that there are no serious longer-term measures taken to deal with the social impacts of high energy prices, other than temporary fixes. On top, there are no measures taken to alleviate the increasing risk and incidence of energy poverty. And this despite the fact that the state is collecting increasingly higher revenues from the burgeoning energy prices and the ever-increasing cost of carbon allowances, creating surpluses.
The measures announced this week to provide up to €50 million subsidies on electricity bills, while restoring VAT back to 19 per cent, are wholly inadequate.
Seriously dealing with these problems appears to have been left for the next government. This is unfortunate because by the time Cyprus has a functioning government after the elections, the problems are likely to become quite acute and more difficult and costly to deal with.
An information campaign to advise households, especially the more vulnerable, on how to deal with the energy crisis, high prices and implement measures that help reduce energy consumption is essential.
Cyprus should also prioritise approvals and support for rooftop solar for electricity generation. Demand has been rising as a result of the ever-increasing electricity prices. Approval, funding and subsidy processes should be expedited. This is a very effective way to help households ‘help themselves’ and can lead to substantial reductions in electricity bills over fairly short time periods, as well as contribute to Cyprus’ achievement of its renewables and emissions targets.
Dr Charles Ellinas is a senior fellow at the Global Energy Centre the Atlantic Council.
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