EC President Seeks ‘Emergency Intervention’ in Electricity Market
Please note Ursula von der Leyen Calls for ‘Emergency Intervention’ in Electricity Market.
“The skyrocketing electricity prices are now exposing, for different reasons, the limitations of our current electricity market design,” the European Commission president said on Monday while addressing the Bled Strategic Forum in Slovenia. “[The market] was developed under completely different circumstances and for completely different purposes. It is no longer fit for purpose.
“That is why we, the Commission, are now working on an emergency intervention and a structural reform of the electricity market. We need a new market model for electricity that really functions and brings us back into balance.”
Under this system, all electricity producers – from fossil fuels to wind and solar – bid into the market and offer power according to their production costs. The bidding starts from the cheapest resources – the renewables – and finishes with the most expensive ones, usually gas.
Since most EU countries still rely on fossil fuels to meet all their energy demands, the final price of electricity is often set by the price of gas. If gas becomes more expensive, electricity bills inevitably go up, even if clean, cheaper sources also contribute to the total energy supply.
What a hoot. If clean energy was really cheaper and easier to produce, without subsidies, it would have won out long ago.
Clean may be cheaper now, but that is thanks to the EU’s sanctions on Russia.
Non-Solutions
Spain, Portugal, Greece, France, Italy and Belgium seek a “decoupling” of gas and electricity prices to put an end to the contagion effect.
How can that possibly help?
Say you pay $X for clean energy and $Y for natural gas produced electricity. The total price paid is based on the percentage use of both. There is not enough X to go around.
European Power Prices Shatter Records as Energy Crisis Intensifies
CNN Reports European Power Prices Shatter Records as Energy Crisis Intensifies
German power prices for next year, which are considered Europe’s benchmark, briefly jumped above €1,000 ($999.80) per megawatt hour on Monday before falling back to €840 ($839.69) per megawatt hour.
“This is not normal at all. It’s incredibly volatile,” said Fabian Rønningen, a senior analyst at Rystad Energy. “These prices are reaching levels now that we thought we would never see.”
The World Will Bear the Cost
Time Magazine reports Europe’s Energy Crisis Is Going to Get Worse. The World Will Bear the Cost
Until blackouts begin or pump prices make driving actually unaffordable, most people generally think no more often of energy than of air. For this reason, Americans have mostly been sheltered from the energy crisis unfolding urgently and in some cases lethally in countries around the world. In many other places, especially Europe, the escalating situation is impossible to ignore, and it’s going to get a lot worse.
To be clear, the energy crisis is already here, and Russia is fully to blame. Natural gas prices topped $3100 per 1000 cubic meters in mid-August, a 610% increase over the same time last year as measured by the Dutch TTF market. At this price, many power stations cannot afford to operate for long. As a consequence of the rising cost of input fuels, benchmark electricity prices in Europe have surged almost 300% in 2022, breaking records. Taken together, energy prices are ten times higher than the five-year average.
Not only do average households struggle to pay for power and heating at such a cost, but governments are coming up short, too. The $279 billion European governments have recently allocated to help small consumers is already not enough.
The worst has yet to come. Russian Security Council Deputy Chairman Dmitry Medvedev threatened on August 28 that gas prices will hit $5000/1000m3 by the end of 2022. With Europe dependent on Russian imports for over 40% of its gas needs, and 46% for coal and 27% for oil, Putin has a lot of leverage. And this year, he is not playing nice.
If Russia cuts off the gas—perhaps when, not if—the European consequences will be massive and the global economic consequences could be tragic. The IMF calculated in mid-July that for Hungary, Slovakia, and the Czech Republic a full cut off of natural gas from Russia could drop GDPs by up to 6%. Global economic growth would drop by 2.6% in 2022 and another 2% in 2023. On a human level, some people will not have heating, others will have to choose between warmth and food.
You Have No Idea How Bad Europe’s Energy Crisis Is
Foreign Policy says You Have No Idea How Bad Europe’s Energy Crisis Is
European natural gas prices are now around 10 times higher than they were on average over the last decade and about 10 times pricier than in the United States. Alex Munton, an expert on global gas markets at Rapidan Energy Group, a consultancy, said European natural gas is so expensive it’s like paying $500 for a barrel of oil. And these are the good months.
“Things are [at] a crisis point,” said Munton. “We have astronomic gas prices, and we’re still a few months away from when gas demand really peaks during the winter. There’s genuine uncertainty whether there will be sufficient gas to meet demand throughout the winter.”
It’s unclear how long industries and households can hold together. The United Kingdom, for instance, is looking at double-digit inflation in large part due to skyrocketing energy prices and a sharp downward revision to GDP estimates, according to Oxford Economics.
Businesses Closing
Spotlight Finland
Spotlight UK
Spotlight Germany
US Production
A Word About Scale
https://twitter.com/ResearchRonin/status/1564701092465856513
What About Aluminum?
A UK Gym
Ursula von der Leyen Emergency Declaration Speech
No Details of Emergency Plan
The EC president declared an emergency but released no details.
Q: Why?
A: There are only bad choices.
Five Bad Choices
- The EU can subsidize the price of energy increasing deficits in treaty violation
- The EU can do nothing and let businesses go under
- The EU can remove sanctions on Russia and pray that Russia will go along
- The EU can set price controls that will force producers out of business
- The EU can ration energy
The best solution is number 3, hoping that Russia will go along. But that will not even be considered.
I suspect the EU nannycrats will opt for door number 4, the absolute worst choice. Perhaps they will go with a combination of #1, #4, and #5.
But businesses will go under no matter what the EU does.
Bonus Tweet Option
6. Don’t pay the bill.
In the US that would likely lead to liens in red states and some other weird actions in blue one perhaps with Biden declaring an energy moratorium.
Good Luck to Europe, Biden Threatens Energy Exporters With Stop Exporting Mandate!
Meanwhile, the Biden administration is so concerned about inflation here it is considering a ban on US energy exports.
For discussion, please see Good Luck to Europe, Biden Threatens Energy Exporters With Stop Exporting Mandate!
The European crisis is a direct result of sanction madness.
This post originated at MishTalk.Com
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Mish
Ursula declaring an Energy Emergency is not a surprise. She just stated the obvious
and announced the implementation of already agreed upon measures to manage the penury.
In the quasi-war situation that we are in here means that relying on a totally
free market in energy will not solve the problem in the short-term and that to
keep countries, companies and speculators from bidding against each other an
imposition on the market of price caps plus rationing has to be put in place
and now officially will be. Now putting together an energy program for
countries with widely different sources of energy and needs is going to be
complicated no matter how you look at it. It demands cooperation between the
respective governments and that cooperation has already been negotiated and
agreed which by itself something of a milestone.
The core is that the sources of energy are mutualized with
price caps plus rationing. To the free market purists this is the supreme
heresy but Europe sees itself as in an economic and financial war with Russia
(the leaders do actually use that term) so to keep the economy running until alternate
non-Russian energy sources are in place that is the logical solution. In the
meantime there are plenty of incentives and plenty of money for private
companies to in the medium-term solve the continent’s energy-provision problems.
For the cap and ration they will use a flexible stick and carrot approach that will
concern principally companies where if they cut electricity consumption by the
good amount they will be paid but if they exceed the amount they will be fined.
The flexibility part comes from what the overall economy needs are that
particular day. Now with modern information processing that can be calculated
and applied in real-time which for a continent-wide economy is something new.
Obviously industries that are very energy-intensive will have to curtail their
operations and some close temporarily until better days. Since Germany is the
most exposed and the most needs this coming year it will probably suffer the
most but the current meme that people will be freezing to death is exaggerated.
By putting down the thermostat by a few degrees will save enough to keep people
warm enough. The problem is more on the industrial side because industry is in
competition with the people for energy so in a pinch you can guess who will get
cut in a cold snap. Germany will be owing a lot of favors to other members when
this is done. It probably will stimulate a more tight union.
LOL. Europe was getting 2X the amount of gas from Russia as it was getting from Norway. Good luck getting all 3X from Norway now! What a bunch of incorrigible morons!
LOL. This reminds me of the bullcrap that Tom Friedman was selling about the Iraq war. He kept saying that victory was “just six months away”. He did that for 10 years. So much so that people coined the term “Friedman Unit” (FU for short!) – https://en.wikipedia.org/wiki/Friedman_Unit
energy instead of Russian energy, and within the year, the Americans are
proving they are infinitely less reliable than the Russians, who
supposedly cannot be trusted, but have never in 50 years reneged on
contracts. Who would have known?
Very, very, VERY good point!
I look at wholesale futures at 84 cents (euro and USD for the moment) per kWh ($840/MWh divided by 1,000) and wonder how that translates into residential retail rates. In the United States, you can multiply the wholesale power price (either self-generated by the utility or purchased by 2 to 2.5 to reflect the cost of maintaining local distribution networks and utility operations.
Example: Where we live, the rate is $20/month for a connection + 9.63 cents/kWh. Most Americans don’t know what their electric rates are, mainly because the bills are so complicated. Not so where we are. No time of day rates (a three-card monte scheme) or various other add-ins.
So back to that $840 perMWh / 84 cents per kWh in Germany. This implies $2.10 per kWh next year, but I can’t imagine it. So, kids on the other side of the Atlantic, would you care to tell us how much you pay for electricity, how it’s calculated, and how much it changes? I cannot believe that you’ll pay $2.10/kWh. Last time I looked at Germany before this situation, the typical rates there were about $0.35/kWh. But I have low confidence in that number.
Can anyone explain, and this one time do so without any editorializing? I would really appreciate unadorned facts on this. Thanks.
Maybe we’ll nationalise the North Sea Gas fields and ramp up production, would that work/help? -:)
And your taxes were enormous piles of graft. Thinking like you are thinking is why your country is completely screwed. Your trains cost a lot more to operate as well. Government just hides the costs in taxes. As I explained earlier. Please, I’m typing on a cellphone, asking the same question twice is both rude and stupid. Learn some basic economics. I’m done.