Thank you for your article, informatively sobering. I just wanted to point out a small flaw / misunderstanding concerning prices in the EU wholesale market. You state: "Shocking! Electricity prices rose when more expensive, intermittent renewables increased and cheaper coal power declined. Who would have thought? "
Your statement assumes:
1. Renewables are more expensive than coal: renewable are in fact cheaper than coal, at least in the day-ahead wholesale market which the Greek Prime Minister is talking about (generators are bidding at marginal cost in this market)
1. Electricity prices are proportional to the share of coal / renewables: the price only depends on the bid of the marginal power plant required to cover the demand. So irrespective of the amount of cheap renewable electricity Greece has produced, as long as it still needs to put some (more expensive) fossil fuel power plants on line to meet additional demand (from cooling+Ukraine), this will determine the overall electricity price.
And this is exactly the problem: as long as Greece needs to run its expensive peaker fossil plants to meet additional demand, prices will stay high, despite its decarbonisation efforts. As to the solution, a short-term political quick fix could be to compensate Greek consumers for the exceptionally high prices incurred. However, the real problem is not a design flaw of the market, as Mr. Mitsotakis underlines, but rather a more structural one: Europe is lagging behind in its grid development plans to redistribute cheap electricity across the continent. While many parts of northern Europe saw negative prices this summer due to excess production of renewables (particularly solar), Greeks had to pay a high price for turning on fossil fuel plants, as the cable interconnection capacity is not enough to efficiently ship cheap electricity across the continent.
If anything, this points to the negligence in infrastructure investment at EU level to integrate eastern countries of the EU community to achieve a real integrated EU electricity market. Sure, this won't be of much comfort to the Ukrainians in the short term, but should seriously be reconsidered in future energy security policies. In the meantime, western European countries should at least financially compensate the war effort of the eastern ones, paying back for their poor energy policies in the last decades (just to clarify, this statement is made by a french-german citizen, no hard feelings).
Thanks for the comment. I'd argue your proposition that renewables are cheaper. Doomberg and others have great substack articles that goes into detail why that is not the case. Fossil fuel plants will be needed for a long time as there is no other viable, affordable technology that can do what it does. Batteries is a non starter at a significant scale (otherwise it would be done already).
The negative polices you highlight are also not a good situation. At some point when renewables reach high penetrariom and proces go negative there is little incentive (outside of additional public subsidies) to invest in more renewables as the ROI is negligible or.non existent.
Totally agree on the lack of grid infrastructure investment. And maybe if Europe didn't import 95+% of its oil needs, 90%.of its natural gas, and more than 50% of its coal needs it would be in a different place.
I think a balanced approach to energy systems is a must. Renewables where economiic,fossil, hydro, and a lot of nuclear.
I unfortunately don't have access to Doomberg's articles, but I do agree (partly) with people underlining that we do not talk enough about "hidden" investment costs of renewables such as grid expansion or intermittency costs (although if we really are to electrify our energy consumption, grid expansion will have to be done anyways). Even so, the market prices mentioned in the article only consider operational costs, which for renewables are undeniably low. I suppose it all depends on whether we are talking about investment or operational costs. The discussion on suitable market mechanisms for funding the expansion of renewables is no where near over.
Either way, back to the main point: yes, I completely agree, we definitely shot ourselves in the foot investing in 1000s of kms of gas pipelines to Russia. However, the underlying reality doesn't change: Europe nowadays is a fossil fuel-scarce continent. As long as we haven't electrified properly, we'll have to import fossil fuels from somewhere. Germany has tried and failed market-based friendly diplomacy with Russia in the post-cold war era, now time to look elsewhere while planning next infrastructure investment ahead. How will we reconstruct Ukraine in a resilient way, and how integrated should it be to this European market? I guess we already need to start discussing these issues without waiting for the outcome of the war.
"I suppose it all depends on whether we are talking about investment or operational costs."
I need to be careful what I'm saying here, as I have zero expertise in the field of energy. However, if I'm reading your statement correctly, I'm seeing a classic flaw in much of the discussion/claims surrounding energy transition. You've framed the issue as an either/or proposition. That's not the way it works. You must consider both investment and operational costs.
I say this as a long time Berkshire Hathaway shareholder who has benefited (via increased earnings) from U. S. government tax credits, as Berkshire's utility subsidiary has pursued large scale wind power. All these credits, subsidies, etc. are nothing more than transfer payments from one group to another. In this case, a nationwide taxpaying public subsidizes cheaper (than should be) localized utility costs via reduced government tax receipts. It's that simple.
A similar fallacy occurs when people brag about "no tailpipe emissions" on an electric vehicle. That's not the whole story. I recently read a Wall Street Journal article discussing China's aggressive sourcing of nickel in Indonesia. That piece opened with an aerial view of one such mine. Anyone claiming EVs are "clean" after looking at that photo is delusional. Unsubsidized cradle to grave is the only correct approach, which admittedly is hard to accurately quantify given all the variables (including "cost" of environmental degradation).
I’m sorry but you’re willfully delusional. Germany benefited immensely from Russian gas imports, in both industrial and residential sectors. Because it is not a sovereign country, it lost this source and had to accept it without complaint. It is paying a premium now, losing competitiveness against both the US and China.
Thank you for your article, informatively sobering. I just wanted to point out a small flaw / misunderstanding concerning prices in the EU wholesale market. You state: "Shocking! Electricity prices rose when more expensive, intermittent renewables increased and cheaper coal power declined. Who would have thought? "
Your statement assumes:
1. Renewables are more expensive than coal: renewable are in fact cheaper than coal, at least in the day-ahead wholesale market which the Greek Prime Minister is talking about (generators are bidding at marginal cost in this market)
1. Electricity prices are proportional to the share of coal / renewables: the price only depends on the bid of the marginal power plant required to cover the demand. So irrespective of the amount of cheap renewable electricity Greece has produced, as long as it still needs to put some (more expensive) fossil fuel power plants on line to meet additional demand (from cooling+Ukraine), this will determine the overall electricity price.
And this is exactly the problem: as long as Greece needs to run its expensive peaker fossil plants to meet additional demand, prices will stay high, despite its decarbonisation efforts. As to the solution, a short-term political quick fix could be to compensate Greek consumers for the exceptionally high prices incurred. However, the real problem is not a design flaw of the market, as Mr. Mitsotakis underlines, but rather a more structural one: Europe is lagging behind in its grid development plans to redistribute cheap electricity across the continent. While many parts of northern Europe saw negative prices this summer due to excess production of renewables (particularly solar), Greeks had to pay a high price for turning on fossil fuel plants, as the cable interconnection capacity is not enough to efficiently ship cheap electricity across the continent.
If anything, this points to the negligence in infrastructure investment at EU level to integrate eastern countries of the EU community to achieve a real integrated EU electricity market. Sure, this won't be of much comfort to the Ukrainians in the short term, but should seriously be reconsidered in future energy security policies. In the meantime, western European countries should at least financially compensate the war effort of the eastern ones, paying back for their poor energy policies in the last decades (just to clarify, this statement is made by a french-german citizen, no hard feelings).
Thanks for the comment. I'd argue your proposition that renewables are cheaper. Doomberg and others have great substack articles that goes into detail why that is not the case. Fossil fuel plants will be needed for a long time as there is no other viable, affordable technology that can do what it does. Batteries is a non starter at a significant scale (otherwise it would be done already).
The negative polices you highlight are also not a good situation. At some point when renewables reach high penetrariom and proces go negative there is little incentive (outside of additional public subsidies) to invest in more renewables as the ROI is negligible or.non existent.
Totally agree on the lack of grid infrastructure investment. And maybe if Europe didn't import 95+% of its oil needs, 90%.of its natural gas, and more than 50% of its coal needs it would be in a different place.
I think a balanced approach to energy systems is a must. Renewables where economiic,fossil, hydro, and a lot of nuclear.
I unfortunately don't have access to Doomberg's articles, but I do agree (partly) with people underlining that we do not talk enough about "hidden" investment costs of renewables such as grid expansion or intermittency costs (although if we really are to electrify our energy consumption, grid expansion will have to be done anyways). Even so, the market prices mentioned in the article only consider operational costs, which for renewables are undeniably low. I suppose it all depends on whether we are talking about investment or operational costs. The discussion on suitable market mechanisms for funding the expansion of renewables is no where near over.
Either way, back to the main point: yes, I completely agree, we definitely shot ourselves in the foot investing in 1000s of kms of gas pipelines to Russia. However, the underlying reality doesn't change: Europe nowadays is a fossil fuel-scarce continent. As long as we haven't electrified properly, we'll have to import fossil fuels from somewhere. Germany has tried and failed market-based friendly diplomacy with Russia in the post-cold war era, now time to look elsewhere while planning next infrastructure investment ahead. How will we reconstruct Ukraine in a resilient way, and how integrated should it be to this European market? I guess we already need to start discussing these issues without waiting for the outcome of the war.
You wrote the following:
"I suppose it all depends on whether we are talking about investment or operational costs."
I need to be careful what I'm saying here, as I have zero expertise in the field of energy. However, if I'm reading your statement correctly, I'm seeing a classic flaw in much of the discussion/claims surrounding energy transition. You've framed the issue as an either/or proposition. That's not the way it works. You must consider both investment and operational costs.
I say this as a long time Berkshire Hathaway shareholder who has benefited (via increased earnings) from U. S. government tax credits, as Berkshire's utility subsidiary has pursued large scale wind power. All these credits, subsidies, etc. are nothing more than transfer payments from one group to another. In this case, a nationwide taxpaying public subsidizes cheaper (than should be) localized utility costs via reduced government tax receipts. It's that simple.
A similar fallacy occurs when people brag about "no tailpipe emissions" on an electric vehicle. That's not the whole story. I recently read a Wall Street Journal article discussing China's aggressive sourcing of nickel in Indonesia. That piece opened with an aerial view of one such mine. Anyone claiming EVs are "clean" after looking at that photo is delusional. Unsubsidized cradle to grave is the only correct approach, which admittedly is hard to accurately quantify given all the variables (including "cost" of environmental degradation).
I’m sorry but you’re willfully delusional. Germany benefited immensely from Russian gas imports, in both industrial and residential sectors. Because it is not a sovereign country, it lost this source and had to accept it without complaint. It is paying a premium now, losing competitiveness against both the US and China.
Great post thanks ED, also a salient message for the world on the importance of seemingly abundant and ever present energy.