Europe’s energy crisis was created by political intervention

An energy policy that bans investment in some technologies based on ideological views and ignores security of supply is doomed to a strepitous failure.

The energy crisis in the European Union was not created by market failures or lack of alternatives. It was created by political nudging and imposition.

Renewable energies are a positive force within a balanced energy mix, not on their own, due to the volatile and intermittent nature of the technology. Politicians have imposed an unstable energy mix banning base technologies that work almost 100 per cent of the time and this has made prices soar for consumers and threatened security of supply.

Recently Ursula Von Der Leyen, President of the European Commission, gave two messages that have grabbed many headlines. First, she announced a strong intervention in the electricity market, and then she stated at the Baltic Sea Energy Security Summit the proposal to increase renewables to 45 per cent of the total generation mix by 2030. She considers that this is not an energy crisis but “a fossil fuel crisis.”

However, Von Der Leyen’s messages have two problems. Europe’s energy crisis is due to intervention at a massive scale. Furthermore, massively increasing renewables does not eliminate the risk of dependence on Russia or other commodity suppliers.

The European electricity market is probably the most intervened in the world. More intervention is not going to solve the problems created by a political design that has made most countries’ energy mix expensive, volatile, and intermittent.

Ideology is a bad partner in energy.

Between 70 and 75 per cent of the electricity tariff in most European countries are regulated costs, subsidies and taxes set by governments and, in the remaining part, the so-called “liberalized” generation, the cost of CO2 allowances has skyrocketed due to those same governments that limit supply of permits and the energy mix is imposed by political decisions.

In Germany, only 24 per cent of all costs in a household bill are “supplier costs”, according to the BDEW 2021. The vast majority of costs are taxes and costs set by the government: Grid charges (24 per cent), renewable energy surcharge (20 per cent), sales tax (VAT) (16 per cent), electricity tax (6 per cent), concession levy (5 per cent), offshore liability levy (0.03 per cent), surcharge for combined heat and power plants (0.08 per cent), levy for industry rebate on grid fees (1.3 per cent). However, the “problem”, according to the messages of the President of the European Commission, is the market. Go figure.

It is surprising to read that Europe’s power markets are “free markets”, when governments impose the technologies within the energy mix, monopolize and limit licenses, prohibit investment in some technologies or close others, as well as forcing a rising cost of CO2 permits limiting their supply.

Intervention was to shut down nuclear power and rely massively on natural gas and lignite as Germany did. Intervention was to prohibit the development of domestic unconventional natural gas in Europe. Intervention is to shut down reservoirs when hydro power is key to lower household bills. Intervention is increasing subsidies at the wrong time and then raising taxes on efficient technologies. Intervention is to stop the gas pipeline that would double interconnections with France. Intervention is to prohibit lithium mining while talking of defending renewables, which need this commodity.

Eurasia Review