An energy crisis in Europe

Surging gas and electricity prices have hit much of Europe, including the UK. Since July 2020, gas prices have soared due to supply shocks, rendering a Winter energy crisis imminent. Such inflation in the energy sector greatly threatens the post-pandemic recovery, as consumers are faced with reduced disposable income. As a result, it is unsurprising that governments globally have started to take action. Last week, the Spanish government announced a tax raid of €3 billion on energy company profits. Similarly, the Italian government has subsidised energy bills to the tune of €1.2 billion thus far. An over-reliance on renewable energy sources is one of the clear causes of this predicament, with its negative effects resulting in what is to be a bleak winter for regular citizens.

Background

There is no doubt that the sharp turn away from reliable energy sources and towards renewables has contributed greatly to the current energy crisis. Following the cold winter of 2020-21, gas storages were left depleted due to an overconfidence in the ability of renewable sources such as wind and tidal to pick up the slack. With this said, wind energy failed to compensate for this, with the UK experiencing one of the least windy summers since 1961. At the same time, a series of nuclear power outages have hit the country in recent months, leading to a greater reliance on electrical and gas sources. Most recently, a major power cable, responsible for bringing power in from France was shut down. All of these factors have culminated in the energy crisis we see today.

Effects

The effects of this energy crisis will be borne largely by consumers. At the start of 2021, there were seventy energy suppliers in the UK; by the end of March, there were only forty-nine, with analysts at Barina Partners anticipating that the number of energy suppliers will fall to ten by the end of the year. This represents a catastrophe for consumers, as the individual energy firms have more leverage and monopoly power over the market. The reduced competition in the energy marketplace will enable these remaining energy firms to arbitrarily raise prices without needing to fear being undercut by other competitors, leaving consumers paying higher energy bills.

The food industry has also been heavily affected by the energy crisis, with consumers likely to feel the ripple effects of the incoming shortfall. Fertilisers plants are known for using gas in the production of ammonium nitrate, thereby producing carbon as a by-product. Carbon is used in many staple consumer foods, such as beer, fizzy drinks and dry ice. However, due to the rising energy costs, fertiliser plants have been struggling. CF Industries announced earlier this week that it will shut down two operations in the United Kingdom owing to rising energy expenses. Yara, a Norwegian fertiliser company, announced on Friday that it will reduce around 40% of its European ammonia output capacity by next week as a result of record-high gas costs. A reduced supply of carbon will lead to higher costs for consumers, due to the cost-push inflation that occurs when the demand for carbon greatly exceeds the falling demand

Government Intervention

Many business leaders across all industries are calling on the government to intervene in the current energy crisis. The government has held talks with representatives from the food and beverage industry, with the government’s business secretary, Kwasi Kwarteng, holding meetings with energy suppliers and operators of energy infrastructure to determine how serious the situation could become in the near future. Greece and France have considering subsidising energy costs, while the UK government is likely to rely on the 2017 energy price ceiling to protect people.

However, it seems that government intervention was one of the main causes of the current predicament. The introduction of clean energy subsidies has resulted in an over-reliance on renewables due to the lower costs of renewable technologies. Renewable sources failed to produce enough energy during the summer that would’ve allowed the UK to easily weather the winter power surge. Had subsidies not been implemented, it is unlikely that British energy would be so reliant on renewables, thus avoiding the current energy crisis that we find ourselves in.

Ultimately, the European energy crisis is the result of an over-reliance on renewables, combined with the failure of a number of energy facilities. The effects will be widespread across all industries with consumers inevitably bearing the burden of noticeably higher costs at the supermarket and in other regular activities