“The end of the line”, by IRINA SLAV
“Europe Is Reaching a Limit to Its Wind Power Expansion, Bloomberg reported last week, in what was probably a case of impossibility to keep pretending that what’s happening with Europe’s transition….”
Send the gift of Irina Slav on energy this holiday season
The end of the line
In one of the most brilliantly hilarious episodes of “Coupling”, the British response to “Friends”, havoc is wreaked on the friend group by a series of Chinese Whispers-style misunderstandings. I was recently reminded of that series by one of you, dear readers (thanks, Jeff!) and of that particular episode by a number of recent reports about Europe’s energy situation. In bland summary, it’s not good. Now for the details.
Europe Is Reaching a Limit to Its Wind Power Expansion, Bloomberg reported last week, in what was probably a case of impossibility to keep pretending that what’s happening with Europe’s transition is not, in fact, happening. The overbuild of wind power capacity is eroding electricity prices during periods of high production, increasing overall price volatility to stunning levels and, ultimately, damaging the profitability of these installations.
The same appears to be happening in solar, with Reuters just today reporting that new capacity additions in the EU this year totalled just 4% over 2023, down from 50% last year, and 40% in the years 2021 and 2022 each. Investments in new solar fell as overcapacity did the same to solar investors’ profitability that wind overcapacity did to wind investors. This was the first investment decline in ten years.
The official reason is, of course, different. It’s “Grid bottlenecks”, per the industry association, meaning too much solar at certain times and too little at others. Also, the 2022 crisis prices are gone and solar is no longer as financially appealing as it was two years ago. Incidentally, governments can’t keep pumping subsidies into wind and solar because money appears to be a finite resource. Who knew.
One Danish researcher did. “We cannot have an electricity system that’s based solely on wind and solar,” Brian Vad Mathiesen from Denmark’s Aalborg University told Bloomberg and then continued with “There are stark technical and economic limits to how much we can integrate into the grid.” Well, what do you know, it’s not just limits but stark limits. And, of course, no one could have seen this coming, as fellow Energy Realities podcaster David Blackmon likes to say.
Another thing that no one could see coming is what’s currently happening in Germany, namely, a slow unravelling that is threatening to drag the whole of Europe with it. And threatening here means it will drag the whole of Europe with it, except perhaps Sweden and Hungary.
The German economy, you see, is doing badly. In fact, it is doing very, very badly. So badly, indeed, that Bloomberg again had to report that “Germany is reaching a point of no return.” It must be tough to be a Bloomberg reporter covering Europe these days. There is precious little good news to report — especially from Germany. But you know what Bloomberg has not reported? The root cause of Germany’s demise, namely, it’s energy policies.
Of course, high energy costs are mentioned in the report as is the loss of cheap Russian gas but not a single reference is made to the green push of the latest government that just lost a confidence vote and scheduled elections for next February. Not that one would expect such a reference — in mainstream media, the rule about reporting on the transition efforts of the EU is similar to the rule about speaking ill of the dead, and how fitting a rule it is. The reason I say similar rather than identical is that media do admit some shortcomings of the transition, simply because they have become too glaringly obvious to ignore or try to conceal.
The past few days alone have made a sizable contribution to the glaring obviousity of these problems. First, Norway threatened to stop exports of electricity to Germany and no, I’m not going to stop talking about this any time soon. But right on Norway’s heels came Sweden, whose energy minister directly called on Germany to reform its electricity market and stop hogging the juice that Sweden exports to it.
Picking a carrot instead of Norway’s choice of the stick, Sweden’s Ebba Busch said the government in Stockholm would reconsider a shelved interconnector project but only if Germany changes the way it sells electricity on the domestic market because the current way makes Swedish electricity too irresistibly cheap for Germans and too expensive for Swedes. She also slammed Germany for its decision to shut down its nuclear power plants, which I think the whole world now agrees was one of the top three stupidest decisions made by a European government in living memory.
So, to recap, Germany went on a building spree of wind and solar, and all it has to show for it is an energy cost crisis that is well on its way to break the Germany economy beyond repair and the EU economy with it. But there is a solution, at least according to Bloomberg, and that solution is — drumroll, please — demand response. But demand response with a twist.
“One easy solution would be to convince consumers to shift demand to better match the fluctuations of supply. With the electrification of transport, home heating and industry, there’s potential to shift power demand and lift average prices to a level that could underpin further investment in clean generation.”
Funny thing, that. First, demand response and “behavioural changes” were supposed to make wind and solar electricity affordable while increasing its availability by shifting demand to production peaks. But with overproduction plunging prices below zero and making profits a mirage, it’s time to add a nuance to the narrative and try to entice investors to keep throwing good money after bad by arguing people could be convinced to change their energy consumption habits in such a way as to pay more for electricity. I admit I had to take a short break after this paragraph.
After that break, let’s turn to gas and the EU’s increasingly exasperating efforts to convince itself it’s just fine and it won’t miss the last Russian supplies via the Ukraine once that notorious transit contract expires. “The EU has long argued that member countries still importing Russian gas via the Ukraine route — most notably Austria and Slovakia — can do without the supplies,” Bloomberg told us this week and this is, of course, correct, because the Brussels brain trust knows what Austria and Slovakia need much better than Austria and Slovakia.
The leading idea for replacing Russian gas seems to be Azeri gas. This will totally not swap one dependence for another and anyway Azerbaijan is a glowing example of a Western-style democracy and never mind Nagorny [sic and I want to get my hands on the first one who wrote it as Nagorno] Karabakh because, repeat after me, this is different. Problem is, Azerbaijan may not have enough gas to export to Europe, with its share in EU gas imports at a rather modest 7%.
The obvious question to ask is why haven’t imports of Azeri gas surged already because it sure has a lot to export, at a forecast 25 billion cu m this year. Yet only half of that is going to the EU because the rest is going to Turkey and Alyev and Erdogan are friends, and friends don’t stop gas deliveries to friends because friends might stop being friends, and basically it’s complicated.
Now, there are plans to boost Azeri gas deliveries to the EU to 20 billion cu m by 2027 and Azerbaijan seems only too happy to do it. The only problem with this is that the Azeris first need to boost production and this requires investments that Baku is not going to shoulder by itself. It really is complicated and there are also some pesky EMPs who have a problem with Azerbaijan’s track record in human rights and boring stuff like that, so it’s unlikely to stop being complicated any time soon, so U.S. LNG it is for the observable.
Incidentally, did you hear about that rumour that U.S. traders were buying Russian LNG from India and selling it on to Europe at a premium? The rumour is unsubstantiated and I personally believe U.S. LNG producers have plenty of their own to sell to Europe at a premium but the fact remains that however hard it tries to shake off gas dependences, the best that the EU can do is swap one dependence for another — and the argument that this should motivate more local wind and solar just died, courtesy of the data reported by Bloomberg on wind and by Reuters on solar.
In that “The end of the line” episode of “Coupling”, there is a character called Giselle, dubbed “the French bitch” by the characters, some of who try to assume her identity. The episode ends with the friend group slamming the door in the real Giselle’s face. In the EU’s version of “The end of the line”, the friend group is trying to slam the door in the face of unpleasant physical reality. Reality is the EU’s Giselle and it’s coming for the idiots who are trying to assume its identity.
Interesting commentary. I have yet to put all the pieces together to explain what’s happening in our world. This helps.