The energy crisis: Articles

The different ways in which European Union member-state governments add levies to the price of electricity creates huge discrepancies in the prices paid by consumers. Europe’s energy transition depends upon increasing electrification of the economy and increasing the share of that electricity produced by renewable sources. Both factors raise the importance of electricity taxes set by governments. The energy crisis drew attention to this: as electricity prices soared, governments responded with billions of euros in subsidies to protect households and companies. While the acute phase of the energy crisis has passed, growing concerns about industrial competitiveness create political pressure for governments to continue with such subsidies or tax exemptions.

Demand cuts, alternative supply and the green energy rollout mean the EU likely has enough gas for winter, even if Russian supplies are cut completely. Though in the wake of Russia’s invasion of Ukraine, winter 2022-23 was the most challenging ever for Europe’s natural gas grid (ACER, 2023), the European Union is reasonably well-prepared for the coming winter. Today’s fundamentals are solid. In the first two quarters of 2023 gas demand met the EU target of a 15 percent reduction below historic averages (McWilliams and Zachmann, 2023a), while liquefied natural gas import capacity has been expanded by 20 percent (Sgaravatti et al, 2022) and the global LNG market remains well supplied partly thanks to the lack of significant demand growth in China. The EU met its 90 percent gas storage target two months ahead of a deadline in November, with traders now sending excess gas to be stored in Ukraine.

The European Union survived last winter in a surprisingly effective way. Despite the ongoing gas crisis and Russia’s energy war with the West, there were neither painful shortages of gas or the need to ration it. This was the result of an exceptionally favourable set of circumstances: a warmer winter than usual in Europe and lower gas demand in China, and on the other hand, the actions taken by individual member states and the EU as a whole, as well as changes on the market.

In this paper, the authors set out a framework for evaluating the many interrelated issues in the current EU electricity market reform. In an environment of record-breaking electricity prices driven by a gas supply shock and below-average electricity generation, reforming the design of the European electricity market is seen as a means to delink consumer costs from volatility in short-term power markets. Electricity markets should meet three objectives: fairness, optimal investment and optimal operation. The current market design has achieved these objectives to varying degrees. Faced with the unprecedented shock, the electricity system has operated well, but electricity markets have struggled to achieve fair outcomes and investments have not been driven by market-based cashflows.

L’annonce d’une révision du marché de l’électricité par la présidente de la Commission à l’été 2022 a fait naître beaucoup d’espoirs et autant de craintes. Chacun y projetant son propre récit : solution pour passer l’hiver ou pour rémunérer le nucléaire français, source de replis nationaux ou d’un nouveau conflit franco-allemand, etc. Contexte démêle le vrai du faux

The EU has been engulfed in a serious gas (and energy) crisis since late 2021, caused by 'a perfect storm’ of various factors negatively affecting global gas supply and demand fundamentals – including a sharp reduction of Russian gas supplies. The crisis has led to sharply increased (and volatile) gas prices but not (yet) physical shortages of gas. While the EU has made a political decision to eliminate its dependence on Russian gas ‘well before 2030’, it is not in control of either the scale or the timing of this process. Helped by anomalously warm temperatures to date, the EU appears increasingly likely to get through the current winter relatively unscathed. Next winter however could be significantly more challenging if Russian gas supplies were to decrease further or stop altogether, especially if accompanied by rising China LNG demand, interruptions of other supplies, and cold winter temperatures.

The European Union has so far weathered the energy crisis brought on by Russia’s invasion of Ukraine in February 2022 and will manage winter 2022/23 even if Russia abruptly halts all pipeline gas flows. However, preparations must be made for winter 2023-24. In particular, gas storage facilities should be 90 percent full by 1 October 2023.

Europeans made remarkable progress in removing Russian gas from their energy mix in 2022. But 2023 brings with it a whole host of new challenges

Coal generation has been falling since the start of winter, and as the electricity transition heats up, falling fossil fuel power—especially gas—is set to be the story of 2023. Europe’s political response to Russia’s invasion of Ukraine in 2022 was to accelerate its electricity transition. There is now a focus on rapidly cutting gas demand—at the same time as phasing out coal. This means a massive scale-up in clean energy is on its way. In 2022, wind and solar generated a record fifth of EU electricity (22%), for the first time overtaking fossil gas (20%), and remaining above coal power (16%).

This in-depth study (200 p.) formulates more than 70 policy recommendations to shape a European electricity market that is resilient to shocks and supports the accelerated rollout of renewables over the next three decades. It emphasises the importance of distinguishing between short-term crisis management and long-term market reform initiatives. Wartime interventions should be proportionate, short-term and reversible, while sensible long-term reform proposals that support the energy transition may not help with the current crisis.

Russia’s weaponization of gas supplies caused a shock to the energy security of Central and Eastern Europe. Countries responded by increasing alternative gas supplies and LNG import capacity. Gas flows shifted from the east-west axis to west-east and north-south axes. In the short term, the usage of coal is rising; in the longer term, renewable and nuclear energy. Mitigating the effects of this shock requires the EU to prioritize policies that foster the integrity and security of its energy market.

Market turmoil and geopolitical realignment after Russia’s invasion of Ukraine put livelihoods and the green-energy transition at risk. Here’s how researchers can help overcome the threats.

According to the authors an EU gas price cap would be counterproductive, but the reasons why it is supported widely must be acknowledged and addressed.

Electricity prices are extremely high. We are short of gas in Europe, and gas power plants are pushing up the prices of electricity. We are also unlucky that an unprecedented number of nuclear power plants are under forced maintenance in France, which increases electricity prices even further. We also had a dry year, with low hydro production. Consumers are suffering, and some producers of electricity are making largely unexpected high profits.

The imposition of a cap on the price of gas traded in the EU is increasingly the focus of the policy debate in Europe. In a previous Policy Brief, we outlined a possible approach to contain the price of gas in the EU, while safeguarding security of supply as much as possible. In this Policy Brief we explore two aspects related to the measures outlined in the previous one: (i) How would the gas imported as LNG by the TSOs or the Single Buyer entity be allocated to the different TSOs/Member States? (ii) How would the additional costs of importing LNG with respect to the price cap for pipeline gas in the EU be recovered? In the proposed mechanism, the gas volumes to be procured through the LNG auctions would be determined by aggregating the requests of the different TSOs. Therefore, at least as a first approximation, the allocations of the procured LNG volumes to the different TSOs could be based on their respective requests.

If parts of Europe are cold and hungry while others are able to protect themselves, there will be a political backlash that could tear the EU apart. To prevent this, the EU needs to set up a European energy solidarity mechanism.

There are three main axes in the EU response to the Russian invasion of Ukraine. The first axis included the imposition of sanctions on Russia. The second axis related to the provision of economic and defensive support to Ukraine to help it repel the invaders. And the third axis sought to address energy, and by extension the economic crisis brought about among EU member states by the invasion itself, by the broader geo-economic disruption it has caused, and by the consequences of the sanctions imposed on Russia. The European Union demonstrated rapid reflexes in relation to the first axis. It was also very quick to react when it came to providing economic and defence support to Ukraine. But it has been disappointingly slow in activating the third axis.

Policymakers have been discussing various potential measures to cushion the impact of skyrocketing gas prices and prevent supply shortages. On 10 October 2022 an expert commission in Germany proposed a plan to keep natural gas affordable while also preventing shortages. The main element of the plan is a direct subsidy for gas-consuming households. This ZEW Policy Brief aims to warn that price subsidies in the retail market for natural gas could impair competition between providers by reducing incentives for customers to search for cheaper service plans.

The attack on Ukraine brought Europe’s dependency on Russian oil and gas into the limelight earlier in 2022. But the EU doesn’t only rely on fossil fuel supplies from Russia. Research by Corporate Europe Observatory illustrates the EU’s dependence on fossil gas from all over, and how this is a consequence of the fossil fuel industry’s successful capture of EU decision making.

The aim of this report is to examine wholesale electricity market design and proposed changes and interventions in the light of Europe’s current energy crisis and climate neutrality goals. While much of what we discuss is motivated by the crisis we are facing, any short-term action may have lasting repercussions, and we draw out some initial learnings on what this means for energy market regulation as Europe tries to move out of this crisis and towards net zero. Wholesale and retail electricity markets are closely linked, and this paper is a companion paper to our recent CERRE paper on retail energy markets.

According to the authors of this blog post, an EU energy fund is justified, but for different reasons than commonly assumed, with implications for the fund’s design.

As September 2022 came to a close, EU member states have spent EUR 100 billion on Russian fossil fuel imports since the beginning of Putin’s invasion of Ukraine. Price caps would have reduced this amount by EUR 14 billion since the beginning of July, demonstrating the importance of introducing price caps on all Russian fossil fuel exports to the EU.

Since Russia’s invasion of Ukraine, wholesale prices for electricity and gas in the European Union have risen five to fifteen-fold, with severe impacts for households and businesses. The crisis is also creating liquidity problems for energy companies, with contagion risks for the financial sector. At European Union level, several proposals have been made on intervening in markets to moderate prices.

The EU’s energy sector is in a severe shock. The Kremlin’s deliberate choice to limit natural gas exports to Europe is causing lasting damage, which is ricocheting in many directions. Electricity prices have skyrocketed in all member states, setting new grim records. Natural gas rates are also soaring, while conventional alternatives such as coal and timber are becoming pricier or more limited in supply. Leading energy utilities like Uniper SE and Électricité de France (EDF) are asking for state bailouts to recover their huge losses. European governments are pumping billions of euros each month in order to keep energy prices artificially lower for end users. Most worryingly, European citizens are asking if there will be sufficient power supply during the winter to keep homes warm and businesses running. As the EU is in the eye of the energy storm, the most important question remains, what is there to be done?

The price of gas in Europe has increased manifold over the last year. Beyond several measures adopted at Member State level to cushion the impact of high energy prices on consumers, imposing a cap on the price of gas in the EU is now being discussed. This Policy Brief proposes a strategy for implementing a cap on the price of gas in the EU, in case this is decided at political level.

La guerre russe en Ukraine entre dans son huitième mois. A l’approche de l’hiver, la question énergétique et la dépendance européenne aux hydrocarbures russes, qui dominent le débat européen depuis le début de l’invasion le 24 février dernier, se pose avec acuité pour les 27 États membres qui doivent trouver un équilibre délicat entre réduire la consommation, alléger la pression sur les consommateurs et engager une véritable transition pour faire face au changement climatique.

Ce document actualisé régulièrement présente un aperçu des mesures prises par les États Membres.
Au mois de juillet, les États membres se sont engagés à réduire de 15 % leur consommation de gaz du 1er août au 31 mars 2022. Pour alléger la pression sur les consommateurs, la Commission propose de réduire la consommation d’électricité d’au moins 5 % pendant les heures de pointe, un plafond temporaire de recettes des producteurs d’électricité infra marginaux, à 180 euros/MWh et une « contribution solidaire » sur les bénéfices des entreprises des secteurs du pétrole, du gaz, du charbon et du raffinage, lorsque les revenus excèdent de 20% les bénéfices moyens des trois années précédentes.

The ongoing energy crisis, fuelled by the conflict between Russia and Ukraine, is putting Europe under increasing pressure as the continent faces many uncertainties this upcoming winter. This paper presents the measures that seem to be the most economically effective in dealing with high prices on the energy market.

As a well-educated economist, I believe the ‘the market’ is a wonderful thing in general, spectacular in some respects and deeply misunderstood in others. One key misunderstanding is that there is no such thing as the ‘free’ market in the formal economy.
Markets are highly regulated social institutions which are set up to deliver particular societal goals. So it is with the market for electricity and gas.

Europe’s energy system faces unprecedented physical and institutional stress. The policy response so far has been excessively nationally focussed and could undermine the goals of calming energy markets over the next 18 months and achieving ambitious decarbonisation targets. At the basis of the crisis is a post-COVID-19 global energy imbalance. While demand bounced back quickly as economies re-opened, supply did not. A particular challenge is that the reducing supply of fossil fuels in line with climate targets has not been matched by a commensurate reduction of fossil-fuel demand.

As energy ministers meet in Brussels for an emergency meeting on Europe’s energy crisis, this article reviews potential measures to bring down electricity and gas prices and help Europeans face the winter. Zero Russian gas became Europe’s central scenario for this coming winter when Russia announced this week that it would halt Nord Stream 1 operations. Gas futures have reached €240 per megawatt-hour (MWh), and electricity prices have peaked close to €700 /MWh. Since records broke in late August, a political consensus has formed across Europe that the current price levels are untenable.

The European Union is once again at crossroads. Russia’s war on Ukraine and the energy crisis that ensured in its wake, the worst since 1973, are shaking the continent to its core. Coming on the heels of other recent disruptions – the 2008 financial and sovereign debt crisis, the so-called European migration crisis of 2015, Brexit and the rise of populist parties across the EU –, today’s crisis will have far reaching implications on the future of the European project.

The European Commission’s new plan aims to cut electricity use to reduce prices and possible blackouts; to extract some of the windfall profits of energy companies; and to curb Russia’s gas revenues.

This winter, Europe will face the most severe energy crisis in recent decades, putting the continent and beyond at risk of high inflation and a recession half a century after the concept of the “energy weapon” was first coined.

La stratégie « REPowerEU : une énergie abordable, sûre et durable pour l’Europe », présentée par la Commission européenne le 18 mai 2022, s’inscrit en réponse à l’invasion de l’Ukraine par la Russie et à ses conséquences sur les marchés énergétiques internationaux. Cette crise géopolitique a, en effet, mis en lumière la forte dépendance de l’Union européenne (UE) aux importations russes dans sa consommation d’énergie primaire de gaz (40 %), de charbon (30 %) et de pétrole brut et raffiné (25 %). L’UE a donc dévoilé une stratégie d’autonomie énergétique vis-à-vis des combustibles fossiles russes, d’ici 2027. La stratégie REPowerEU propose une palette d’outils mobilisables pour se dégager de ces dépendances.

Russia’s status as an energy superpower is waning. While Moscow is raking in short-term gains from record-high energy prices, it stands to bear long-term losses. Western sanctions, the European Union’s energy transition and Russia’s limited pivot to Asia will have profound implications for the country’s oil and gas industry. Since the Cold War, Russia’s energy sector has been tied to Europe. Moscow exported hydrocarbons to the West in exchange for Western capital and advanced technology. The war in Ukraine has forced Europe to wean itself off Russian fossil fuel and accelerate its energy transition.

Europe faces a tough winter as gas is indispensable in keeping homes warm. The only alternative to the loss of Russian gas is LNG. But LNG is only available at a higher price because it can only come to Europe if consumers in the rest of world use less gas. The LNG supply is thus very price-inelastic, at least in the short run. This implies that any measure to keep gas or electricity prices low in Europe risks a substantial increase in the LNG import price because lower prices in Europe would result in higher overall domestic consumption.

This HCCS paper aims to shed light on some of the structural issues that contributed to the current crisis, as well as look ahead into some important trends in the oil market up to 2050.

The Russian war on Ukraine is an unprecedented test for the EU and its leaders. On top of the security, humanitarian and refugee crises, they must manage its impact on our economy, and energy and food systems. With prices soaring and supply chains disrupted, they must respond to the cost-of-living crisis.

The Russian invasion of Ukraine has had a significant impact on energy prices in Europe, but the price of energy has been increasing for over a year, and pre-dates the conflict. This paper begins by examining the reasons behind the recent extreme energy price volatility in Europe.

The Russian invasion of Ukraine has pushed Europe to re-design its energy map at speed. Amid this unprecedented energy overhaul, the EU and the United States have flagged their commitment to reinforce their bilateral energy partnership, starting with short-term measures to boost US liquefied natural gas supplies to Europe to promptly replace part of Russian gas imports. This article develops five issues around which a stronger transatlantic energy and climate pact might be built.

Without Russian gas, the European Union would have to reduce demand by approximately 15%, with big differences between different parts of Europe.

The war in Ukraine is not about oil and gas, but the conflict has further disrupted an already volatile situation, in which energy prices were rising due to post-lockdown energy demand exceeding supply. The consequences of Russia’s attack on Ukraine will take years to play out, whatever happens next: the only credible forecast is of uncertainty and further price volatility. To give some idea of the range of that uncertainty, the following analysis considers what is happening now, what might happen in a year’s time, and what could things look like two to three years from now.

The paper aims to address and provide some initial answers to the below research questions:
- How well have European retail electricity markets been coping with the current energy crisis?
- How have governments responded to increasing prices?
- What short-term measures can governments take to soften the impact of high energy prices?
- What long-term measures can governments take to protect consumers from high energy prices?
- What should be the role of the EU vs. the Member States? What legal constraints are imposed by EU directives and regulations?
- Do we need to regulate the risk exposure of suppliers?

L’invasion de l’Ukraine par la Russie marque le retour de la guerre interétatique à grande échelle en Europe et plonge le Vieux Continent dans une multitude de crises qui se renforcent mutuellement. Cette guerre a des impacts globaux car la Russie est le premier exportateur mondial de gaz (pour l’essentiel par gazoducs) ; de liquides d’hydrocarbures (pétrole brut et produits raffinés) ; l’un des premiers exportateurs de charbon, d’uranium, de métaux et minerais ; et enfin de matières premières agricoles et d’engrais. La Russie était aussi sur le point de se hisser au tout premier rang des exportateurs de gaz naturel liquéfié (GNL), talonnant les États-Unis, le Qatar et l’Australie. L’inflation qui sévit désormais dans la plupart des économies et les tensions sans précédent sur les marchés agricoles et des hydrocarbures attestent l’impact du conflit, tout comme le ralentissement de la croissance économique mondiale ainsi que la multiplication des zones et foyers d’instabilité.

In response to Putin’s invasion of Ukraine and the global energy crisis that worsened in its wake, the EU has decided to end its dependence on Russian fossil fuels while firmly reinvigorating its climate leadership. European policymakers, alongside the private sector, are struggling with the complexity of energy systems and governance, facing difficult investment decisions that will affect our energy infrastructure for years to come.

Uncertainty about the supply of Russian natural gas is causing extremely high and volatile European gas and electricity prices. European Union countries may struggle to import sufficient volumes of natural gas at reasonable prices. During the summer, the imperatives are to fill storage sites sufficiently in a coordinated manner and to organise sufficient import volumes to replace a substantial share of gas that might no longer come from Russia. Coordination is essential to ensure that disruptions during difficult winter months do not lead to a break-up of the EU internal gas market with potentially serious political repercussions

Russia’s invasion of Ukraine puts EU economic policy making on the spot. At the beginning of the war, there was some uncertainty whether the combination of dampening growth, rising energy prices and new investment needs would warrant new common EU spending. However, in recent weeks the fog has cleared. It is now evident that without additional common expenditures the EU risks undermining its common position towards Russia and that new money is needed to finance necessary investments in energy independence.

A confluence of external and internal factors triggered the energy crisis that engulfed Europe in 2021. The crisis, which has led to a surge in energy prices and market turmoil, continues to be a major source of concern. The balance between the security, affordability and sustainability dimensions of the energy ‘trilemma’ has come under serious strain, with governments resorting to disparate measures to mitigate the impact on consumers. With soaring prices constraining post-Covid recovery objectives and worsening energy poverty for millions of Europeans, the crisis is proving to be a Rorschach test for the European Green Deal trajectory.