Wed.
Sep 22
2021

Energy prices in Europe hit new records as the wind in the North Sea stopped blowing.

Soaring prices may be more a function of scarcity in natural gas. Yet the concurrence of both wind and gas shortages brings back the most basic fears regarding renewables – they aren’t “dependable”.

In recent weeks, the slowdown in wind-driven electricity near the UK triggered a chain reaction across regional energy markets. As a result, gas and coal-fired electricity were called in to offset the shortfall from the wind, according to reports from Reuters and the Wall Street Journal.

The current situation resulted in the electricity price shock that was most acute in the UK, which, just like the US, has leaned on wind farms to eradicate net carbon emissions by 2050. During the past weeks, prices for carbon credits hit new records across the country.

UK electricity prices had more than doubled at their peak and were almost seven times higher than they were at the same time last year. The next day’s prices for power to be dispatched rocketed to GBP 285 a megawatt-hour in the UK last week. That is equivalent to USD 395 a megawatt-hour, and beat the record going back to 1999.

The cost of generation at the most expensive supplier defines the prices for the rest. Thus, when countries derive power from thermal plants with relatively high running costs, it boosts prices for the entire market, including the energy derived from fossil fuels. Hence, electricity, gas, coal, and carbon markets have a way of feeding on one another.

The situation also impacted the countries of continental Europe.  Immediately, power markets jumped in France, Germany, and the Netherlands. Meanwhile, Spain’s cabinet passed measures to cap increases in gas prices and limit profiteering by renewables producers on soaring prices.

Cool temperatures have put a draw on natural gas stores, which are also experiencing pressure as buyers replenish stores before the period of peak winter demand. The shortage has pushed coal back into generation, as utilities try to stretch gas supplies and hold off on buying until prices ebb. Coal may work for a quick fix, yet policy-wise it’s not the intention of the EU, or the direction in which it seeks to head.

The current situation could also ripple into the broader economy. This month the ECB referred to energy markets as one of the leading forces driving inflation higher.

Overall, this month, UK wind farms produced less than one gigawatt on certain days. Total capacity stands at 24 gigawatts. Additionally, maintenance work on subsea cables restricted electricity imports from France.

Wind accounted for about a quarter of the UK power last year. After the wind dropped, National Grid asked Électricité de France SA to restart West Burton, a coal power station in Nottinghamshire. However, this won’t be possible in the future as the government has previously announced that all coal plants must close by late 2024.

The situation highlights the long-identified limitations of wind power. It is variable, and there is no way to change that. So, inevitably there will come a time when a lack of wind coincides with tight supply in other fuels.

As more countries worldwide aim to expand their share of renewables in the energy mix, it will be critical for clean energy to address these moments. Wind and solar have long been deployed at a premium cost to traditional fuels for customers and taxpayers. This has been more or less bearable.

However, optics are very important to renewables, as state support is key. During price spikes, the consumer (who is also a voter) tends to shift attitudes towards the costliest of producers. And that would not be the optimal development for wind and solar producers.

By Dimitri Frolowsckii

Dimitri Frolowsckii is a political analyst and consultant.

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