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Renewables are the answer to the 2021 gas price surge - not the cause. To avoid future crises, reduce gas demand and make sure costs are equally shared.
Lisa Fischer is Programme Leader for Climate Neutral Energy Systems at independent climate change think tank E3G.
Less than 18 months ago, gas prices were at a historic low following the economic impacts of COVID-19.
Now, both the EU, a major importer of fossil fuels and the UK, a country with significant albeit dwindling own oil and gas production, see spiralling gas prices impacting consumers.
Southern European countries are preparing packages to cushion impacts.
In the UK, energy companies have gone into administration and energy intensive industries further down the supply chain been affected.
It is tempting to pick out a single factor behind this and make it fit a political agenda, such as that the energy transition cannot work due to the volatility of renewables or that climate policy is unaffordable.
Sticking to this would not help reducing the likelihood of future crises, instead, we need to look at what this tells us about how to prevent future crises.
This crisis was triggered by a combination of factors. Among them are lower Russian gas supplies while demand for gas in Asia and Europe increased, a period of low renewables output, an increase in carbon prices over the past few months and the breakdown of a critical piece of interconnecting grid infrastructure between the UK and the EU following a fire.
Taken together, they illustrate three urgent steps that Europe and the UK need to take to increase energy security and affordability as we modernise and clean up our energy system. First, a simple and clear focus on reducing gas demand, second, investment in the clean infrastructure that supports renewables and third, ensuring markets share out costs and benefits fairly in this new system.
Taking the first step: this crisis has shown that the volatility of fossil fuel prices is enormous, but that the answer to tackle that does not lie in increasing supply of fossil fuels. Instead, it lies in reducing demand.
Whether importer or producer of fossil fuels, critical reliance on fossil fuels makes a country extremely exposed to global market shifts. Past strategies of supply side diversification in the EU have delivered more infrastructure than needed, but failed to pass the most recent energy security stress test. This in itself is not a new insight.
What it should do, is prompt decision makers to overhaul the approach to energy security, moving away from a fossil fuel and supply side centred perspective. Gas pipeline projects to the value of €87bn are planned in Europe. At the same time, net power grid additions in Europe have declined since 2015.
Yet, it is power grid infrastructure and reinforcements that are needed to enable fast resource sharing and energy security in an increasingly electrified and renewable world. In addition, measures under the EU’s Green Deal, which include an ambitious energy efficiency target, could reduce gas imports by over 40% by 2030.
Moving on to the second step: energy system resilience in a high renewables system is possible, but, just like our dependence on fossil fuels in the past, it needs active management through investments in new storage solutions and encouraging users to shift their demand flexibly – be it households or industry.
Investing in smart electrification can half the need for thermal back up generation.
And finally, renewables have been very successful, successful enough to become material to the European energy system. And renewables, alongside energy efficiency and electrification measures, bring enormous benefits, such as bringing down the average cost of energy or making heating your home more affordable. The UK for example has among the coldest and leakiest homes in Europe, appropriate efficiency improvements could save households £400 per year.
But the current system does not ensure those benefits are fairly shared out. Consumers are carrying the bills from a capacity overbuild in fossil fuel infrastructure and will also be sharing the costs of further grid investments. And, as long as market prices are formulated by the last, most expensive fossil fuel unit of energy in the market, they will not see any of the benefits of declining prices in from higher shares of renewables in energy generation. It is more, in this case smart energy systems further increases the vulnerability of consumers to energy price swings.
This crisis does not show that an energy system based on renewables is prone to fail. We’d be foolish however not to learn the lessons for operating a high renewables grid - which can be more resilient and affordable. Renewables additions to the system will continue - not only because of climate policy, but because they are economically attractive. But we need the vision, innovation and determination from policy makers to design an energy system fit for purpose and shed old paradigms.
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