Europe’s skyrocketing power prices underscore challenges with renewable sources
Europe is facing record-breaking surges in energy prices that threaten the post-pandemic recovery. As the federal and many provincial governments continue to promote and subsidize renewable energy (wind, solar, etc.), the lessons from Europe are another warning about the potential costs to Canadians from aggressive intervention in the country’s energy markets.
Governments across Europe are being pressured by the public to consider plans to shield consumers from soaring energy bills, with tensions increasing as the winter months approach. While increased energy demand, supply shortages, and higher carbon prices (up 81 per cent since January) have contributed to the current energy price crisis, greater reliance on wind and solar is exacerbating the situation.
Consider that average wholesale electricity prices in the UK have tripled to record levels since the beginning of the year. Other countries in continental Europe are experiencing similar increases. Germany’s daily average electricity prices, for example, have increased 41 per cent since the beginning of September. Likewise, Spain and Portugal are experiencing staggering price increases, with their electricity prices reaching just about $255/MWh. For reference, Alberta’s average daily price for September was $97/MWh.
So, why are European electricity prices soaring?
Part of the problem is the increasing reliance on renewables that have proven to be unreliable and insufficient to meet energy needs. Simply put, the wind doesn’t always blow and the sun doesn’t always shine, and technology for longer-term energy storage from renewables doesn’t exist yet. Consequently, September, for instance, saw reduced wind power generation across Europe. During the third week of September, for example, wind accounted for only 9 per cent of the UK’s total electricity generation –half its 2020 average of 18 per cent. Similarly, during the second week of September, wind produced a daily average of less than 10 per cent of Germany’s electricity generation when just a couple of weeks before it accounted for 20 per cent.
The reduced power from wind forced many European countries to purchase power from natural gas plants at a time when prices for natural gas were themselves skyrocketing due to shortages and increased demand.
So, what’s to blame? In recent years, many European countries, in particular Germany and the UK, have reduced their reliance on fossil fuels to generate electricity and have moved towards heavily subsidizing renewable energy such as wind and solar. These subsidies (which have tripled in the last ten years) are being financed mainly through surcharges imposed on electricity consumers. And, as a result, household electricity bills have been rising in countries like Germany, the UK, Spain, and Italy. Unfortunately, despite spending billions of euros in renewable electricity generation, Europe cannot get enough green power to meet its electricity demand.
While a number of factors affect the reliability and affordability of power systems, the current situation in Europe suggests that aggressive government intervention in energy markets by expanding renewables at the cost of conventional sources have made these jurisdictions vulnerable to price shocks. Simply put, government-mandated expansion of renewable power is negatively impacting the affordability and reliability of electricity systems.
Overall, Europe’s energy crunch should serve as a cautionary tale for governments across North America with regard to the challenges of abruptly changing our energy mix by subsidizing renewable energy while mothballing existing conventional energy sources and preventing, or at least discouraging, the development of additional new conventional energy. Constraining fossil fuels will inevitably result in increasing energy prices, like the ones seen in Europe, which will dampen the post-pandemic recovery.