The long-awaited EU intervention on the issue of energy accuracy was recently announced. The proposal revolves around eight points concerning electricity (see the EU website: Action Plan for Affordable Energy: Unlocking the true value of our Energy Union to secure affordable, efficient, and clean energy for all Europeans – European Commission).[1].
The market reaction was lukewarm to negative, to say the least. This is to be expected, considering that the EU leadership and the Commission in particular are largely responsible for the current situation of austerity and, especially, for the new dependence on American (much more expensive) Liquefied Natural Gas (LNG), which is leading to the deindustrialization of Europe.
But what does the proposed strategy show?;
1. It is unacceptable that, on the issue of reducing energy costs, the Commission is largely proposing measures to reduce network charges (at a time when networks need to be strengthened) and tax cuts (essentially an excuse for the lack of action at source/production).
But are network charges and taxes the main problem?;
As is evident from the double graph showing household and industrial electricity prices, the problem of accuracy from 2021 onwards lies in the basic cost of energy, not in the networks and taxes. But for the Commission, this targeting seems like an easy solution.
2. The findings on the current situation omit the reality. Europe's energy costs are more than double those of the US and China, mainly due to the EU's decision to stop importing Russian natural gas via pipelines in favor of LNG (which costs four times as much and is mainly American).
The «funny» thing here is that while imports of natural gas from Russia via pipelines (at a cost of 1/4-1/5 of LNG from the US) have been dramatically reduced, Russian LNG has also increased. Although it costs half as much as American LNG, it is logically (compression, cooling, transport) more expensive than pipeline imports.
3. The action plan appears to be mainly geared towards maintaining the status quo in electricity production and trading, while there is no government intervention strategy to curb speculative phenomena. It shows that the EU is focused on safeguarding the interests of large energy groups and transatlantic LNG traders in particular.
4. There are also positive points, but with reservations:
● In general, the strategic direction towards electrification/renewable energy sources is correct. Electricity from renewable energy sources is by far the cheapest option, provided that it does not become subject to speculation (see Target Model and market speculation).
● The direction to strengthen competition (which exists in Western Europe and is non-existent/oligopolistic in Greece) is correct. However, there is no mention of changing the stock market model, which ultimately allows speculation.
● The direction to strengthen long-term agreements (PPAs) is correct, as they will share the market risk and provide certainty, especially to large consumers, which unfortunately are still practically non-existent in Greece. In Greece, almost 100% of electricity supply goes through the exchange, while in Germany it is only 30% and in other countries even lower.
● The energy saving strategy is certainly correct, but it requires substantial funding (which is called into question by the Commission's latest ideas for a dramatic increase in military spending). The question is «Butter or guns!»
● The strategy for creating a truly unified European market, which does not exist, is correct. The goal should be to have a single European wholesale price (which naturally requires interconnections, etc., and resources; see the comment above).
My opinion is that the EU's intervention is insufficient. Efforts to reduce energy costs in Europe must include:
● Elements of the proposal (renewable energy sources, networks and interconnections, energy savings, etc.) but under state control to ensure that the actions fulfill their purpose (adequacy, accessibility, environmental compatibility of energy).
● Emphasis on Energy Democracy (self-production/self-consumption/storage) by both households and businesses. Renewable energy technology allows/requires this. And a corresponding, decentralized architecture, direction of networks, and necessary investments.
● The possibility of state intervention when things get out of hand (something that Brussels circles have repeatedly ruled out, see rejection of proposals by the Greek Minister of Environment and Energy). However, it is the job of governments, see the European Council, and not the Commission, to impose strategies.
● Change in the architecture of the Electricity Exchange (see comments in articles with references even to «market manipulation») and proposals by the president of CAPE, D. Kardomateas (The target model led to permanently increased electricity prices. It failed and must be revised.)[2]
● And finally, control of the unregulated TTF natural gas exchange (which «jumps on paper» about 100 times the actual quantities of gas traded—one can understand the speculation that takes place).
● In the meantime, I believe that the necessary medium-term role of fossil fuels, especially natural gas, should not be ignored. The most immediate intervention is to resume the supply of Russian natural gas in the short term through pipelines, with a medium-term unified agreement for the entire EU (the same is required for all supplies), which will dramatically lower prices. At the same time, in Greece, in the medium term, investments in domestic renewable energy sources should proceed. These are more like bridge measures on the path to energy transition.
I believe that the strategy of electrification based on renewable energy sources is correct (under certain conditions, see above) and is the only way forward (the climate crisis is a reality). However, the transition must be made for the benefit of households, businesses, and society, not at their expense. There are ways to achieve this, but it requires appropriate targeting and political will.
*Former president and CEO of BP Hellenic S.A.
