Monday, 14 February 2022 05:14

The sensible bet is to accelerate the energy transition

The energy price shock currently gripping Europe is settling in for the long term and needs to be addressed with market reforms to avoid high gas prices pushing up the cost of electricity, writes Teresa Ribera.

After the biggest health crisis in a century and its serious social and economic consequences, we are experiencing turmoil associated with a strong recovery and the consequent increase in demand for raw materials.

In the eye of the storm is gas, which has experienced a significant price increase due to, on the one hand, increased demand in Asian countries, particularly in China, and, on the other, growing tension with Russia.

The increase in the price of natural gas is in itself a major economic problem. In addition, there has also been an unprecedented rise in the price of electricity. This increase is not attributable either to the energy transition or renewable energies. Still, it is a direct consequence of the effect of the price of gas on the electricity market, which is intrinsically linked to the market’s regulatory design.

For months, the response has been based on three premises that today appear to be wrong. Initially, it was emphasised that we were facing a temporary problem. However, the current situation has lasted longer than expected and is likely to continue for some time yet, given the strong demand and the geopolitical context.

The second stressed the importance of the stability of the regulatory framework for market operators. However, with such a high differential between actual cost and price paid, one wonders whether these prices were part of reasonable expectations for operators. Unfortunately, it does represent an enormously destabilising factor for industrial consumers.

Finally, it is worth questioning the wisdom of the Commission’s proposals, which focus on shifting costs from consumers’ to taxpayers’ pockets. This proposal has two major problems: in addition to the risk of social and economic tension, which represents a reduction in available resources, there is also the risk of greater inequality in the response of the Member States, since the volume of expenditure depends on their individual budgetary and fiscal capacity.

Such a situation has an obvious answer. We must accelerate the energy transition to reduce our dependence on gas, exposure to the volatility of international markets and avoid continuing to drain resources that should be allocated to socially facilitate the transition, enhance innovation and accelerate investments in energy transition, including renewables storage, digitisation and efficiency.

We would be making a mistake if we thought that this price shock could give significant signals for the market itself to allocate the excess revenues received to accelerate the transition. For the moment, the only evidence we have is that this situation has led to a highly complex situation for consumers and industry that has economic consequences for the EU. The consumer protection measures allocated by the Member States until January 2022 are estimated at around €21 billion in the case of France. Will we tolerate the volume of resources allocated to alleviate the impact of the energy crisis to be on a scale similar to that of the economic stimulus and recovery plans?

It is essential to use the public resources at our disposal intelligently and to accompany the deployment of renewables by accelerating the commitment to innovation and research into new technologies, such as storage, which should be the backup for renewables.

Therefore, in our opinion, the EU should address this context with temporary and exceptional measures to limit the contagion effect of gas prices on electricity prices. Gas should be reimbursed at its cost, decoupling it from the price matching mechanism and preventing it from harming markets with a high penetration of clean technologies with low operating costs, such as renewable energies.

All this, without prejudice to the unavoidable opening of a broad debate, with all stakeholders, on how the regulation designed in the 1990s should be updated and adapted to today’s challenges. The formation of a consensus around this evolution takes time, but starting the exercise is today an unavoidable imperative.

In any case, until all this happens, we will maintain fiscal support for consumers and the effort to accelerate the transition from the micro, from the local, by increasing the deployment in our cities and towns of solar roofs and self-consumption, creating new local energy communities, reducing consumer bills, developing micro-plants that favour social participation or betting on efficiency. In this way, we can ensure access to the benefits of the energy transition for all.