LONDON (ICIS)--Soaring energy prices this autumn have faced politicians and the public with a question:
Are the tight clean energy transition targets compatible with security of supply?
And if not, who is to blame?
Always an easy culprit, fingers were pointed to Russia first.
But Russian producer Gazprom has been respecting all its long-term commitments to European customers, as assured by Russian president Vladimir Putin. According to a recent paper by the Oxford Institute for Energy Studies (OIES), Russia’s gas exports to Europe and Turkey increased by almost 20% year-on-year in the first eight months of 2021, and were also higher than in pre-Covid 2019.
International Energy Agency’s (IEA) World Energy Outlook (WEO) 2021 published on 13 October stated that the sharp price rises in gas, coal and electricity markets were caused by the rapid but uneven economic recovery from last year’s Covid-induced recession.
The IEA focused its attention on under-performing climate objectives.
Notwithstanding the massive political push for redirecting investment from the old fossil fuel based economy to renewables and electric transport, 2021 is seeing a large rebound in coal and oil use. As a result, this year is witnessing the second-largest annual increase in carbon dioxide emissions in history. The reality is falling way short of IEA’s net zero emissions by 2050 scenario, published in May 2021.
According to ICIS analysis in August, coal-fired power plants across continental Europe and the UK are set to ramp up at the expense of natural gas over the remainder of the year, with coal at its most profitable relative to gas since 2015. By 2030, European markets are expecting to phase out over 50GW of coal, 19GW of lignite and 21GW of nuclear capacity, likely leading to generation deficit.
ICIS analysts argued this summer that EU’s hard-line stance towards investment into natural gas projects may be setting a longer-term agenda for achieving net-zero by 2050, but it could be counterproductive for emissions reduction this decade that to a great extent relies on fuel-switching and phasing out coal and lignite.
The IEA report noted that public spending on sustainable energy in economic recovery packages has only mobilised around one-third of the investment required to shift the energy system onto a new direction.
The question remains, however, whether the rapid politically-driven steering of private and public funds into renewables has in fact destabilised the global energy industry without achieving the climate goals.
“These problems were with us long before Covid,” Global Head of Commodities Research at Goldman Sachs Jeff Currie said in a recent interview.
“Poor returns had capital redirected from the old economy to the new economy. The Covid surge in demand just exposed all these problems... People wanted a quick return and now we are paying the price for it,” he added.
While Currie argued that the current surge in energy prices is a logical consequence of poor returns and an economic reality necessary to attract investment into the old-world energy sector, the IEA called on governments to double down in their push for clean electrification. That would entail ploughing more money into solar PV and wind deployment and a rapid phase out of coal among other measures.
ICIS analysts indicated that a too-ambitious growth in 2030 renewables targets risks being counterproductive for decarbonisation during the next decade although it will become vital to emissions reduction in the long term.
Maybe the current political and public dilemma is that of pragmatism and ideology.