Europe’s Unspoken Energy Crisis
And will America learn from Europe’s mistakes?
By Guest Writer, Steven J Bolen, Professional Registered Parliamentarian
Europe’s on-going energy crisis screams from the headlines: “A Cold Winter Looms” or some variation on that theme. The term “Nord-Stream Pipeline” has entered the public lexicon, becoming synonymous with the crisis. It seems that as long as the European Union and Russia are at odds over the future of Ukraine, the supplies of natural gas coming from the pipelines will be at risk. However, there is another crisis that may be even larger which is brewing on the horizon of which we all should be aware.
With the reported gas shortages, it is no surprise when the spot price for electricity recently rose to €507 per Megawatt-hour in Germany and £590 per Megawatt-hour in the UK. While all the headlines are focused on Germany, you might be surprised to learn that on Monday, August 15, the cost of the same electricity in France exceeded €1000 per Megawatt-hour. In all markets, prices fluctuate up and down over time, but the price of a future megawatt-hour of electricity in France has been sustaining a level in excess of €750. Further, it is important to remember that, unlike its eastern neighbors, France is not a recipient of Russian energy, therefore there must be distinctly different causes to their exploding prices.
The media coverage of the natural gas shortages resulting from the Russian – Ukrainian conflict is largely centered on its impact on individual nations, namely Germany and its Eastern European neighbors, such as Poland. However, Europe is crisscrossed by electrical grids, a total of five of them, one each for Ireland, the UK, Scandinavia, and Sardinia. The final fifth grid, the Continental European Electrical Grid, brings power to the remaining 24 nations and nearly 450 million people from the Mediterranean to the Baltic seas and from the English Channel to the doorstep of Russia and even into North Africa. It is the energy backbone upon which all of Europe’s energy needs rely.
In the United States, roughly 19% of the electricity is provided by nuclear sources while in Europe that number is roughly 27%, the bulk of which comes from France’s 56 Nuclear Reactors, the largest single fuel source. It is those 56 reactors which have provided the baseload, the constant part of the demand, for the grid for many years making France the largest net exporter of electricity in Europe. Upwards of two-thirds of all electricity generated in France is done by nuclear power plants. Since 2015, France’s nuclear plant operator, EDF (Electricite de France), has shifted its investments from preventative maintenance on the existing facilities to installation of renewable sources, such as wind and solar. As a result, in the first quarter of 2022, they announced the need to shutdown or reduce the capacity of numerous reactors in the name of safety. As of August, the French reactors were operating at 40% of capacity and expected to remain below 70% for the remainder of the year, denying the grid of significant levels of power.
With the shutdown of these nuclear plants, France has slipped from being a net exporter of electricity to being a net importer, largely relying upon Spain to provide the power shortfall. In its place, Sweden and Germany are now the largest exporters of electricity. Electricity that is heavily dependent on Russian Gas for generation. On Dec. 31, 2021, Germany was scheduled to shutdown their three remaining reactors, shutdowns which have been delayed due to the gas shortages but the plan remains to comply with various signed treaties calling for the denuclearization of Europe.
The net result of the reactor shutdowns is to replace facilities that are good at one thing with facilities that are designed for a different purpose. Imagine an escalator at the local mall. During a Cowboys game, the escalator will keep turning, running empty and as a consequence draw a constant amount of power, called a baseload. After the game ends, the fans head to the mall riding the escalator up and down. Now, depending on the number and weight of the people on the escalator, a peak load is added on top of the baseload of power to keep the machine running. The peak load is constantly varying as people get on and off but that baseload is constant and represents the minimum power usage. The same behavior is true everywhere, whether a home, an apartment building, or a manufacturing facility. There is a required base level of power and then there is peak demand as dinner is cooked, air conditioning runs or the manufacturing process operates.
There are three kinds of energy generation processes: 1) slow to respond (Nuclear, Coal), 2) fast to respond (Natural Gas), 3) you don’t control (renewables). The sources that are slow to respond are the best solution to creation of that constant base load, while the fast to respond sources are needed to respond to those peaks and valleys. The uncontrollable renewables can only supply baseload, based on their projected outputs predicted some hours before which require the throttling of the slow responding sources. Without the nuclear reactors, Europe will be forced to use their natural gas facilities to create base load which is a more costly method and uses a lot of that which is in short supply.
One can easily quote things like €1000 ($980 US) per Megawatt-hour but it is not as easy to understand the implications of such expressions. In Texas, the price for the same Megawatt-hour of future power runs $40, up to $116 in periods of anticipated heavy demand. The typical Texan pays 12 cents per kilowatt-hour ($140 per month), while Germans have been paying a heavily subsidized 36 cents for that same kilowatt-hour, or $420 for the same 1,170 kilowatt-hour usage. Luckily, for the residential consumers in Europe, the nations have instituted rate caps to keep the price of energy under control for the voting public. If those rate caps were not in place, the recent explosion in electrical costs would raise those bills to over $900/mo. in Germany and $1200/mo. in France for the same typical usage. Roland Warner, the head of a German municipal power works, said “We must help average households and set an upper limit for energy costs. If we get social unrest the state won’t be able to cope.”
However, since the energy rates for residential customers are capped, those excessive costs must be made up somewhere and that somewhere is with the commercial customer, the retail and manufacturing operations of the country. Those customers will have no choice but to pass the higher costs onto their customers which will result in additional surges to the rate of inflation. Higher energy prices always lead to higher prices at the market whether food or manufactured products. Never forget that Europe is host to 4 of the top 10 manufacturing countries in the world (Germany, Italy, France, United Kingdom).
Funding for capital projects is always limited, requiring choices to be made between different alternatives. Europe is experiencing the consequences of their poor choices. Europe invested in renewables and dependence on other countries rather than maintain the clean, safe, and reliable sources upon which they were relying. Likewise, the so called “Inflation Reduction Act” directs funding towards tax credits for renewables to be built in locations that might be politically advantageous but lack the conditions to be effective. Wind turbines must be built where the wind blows and not where they result in the most votes. Likewise, since 2012, America has shutdown 12 nuclear power reactors and another 7 are schedule to shut down by 2025. With these shutdowns, America too will require the use of natural gas to provide our base load, but luckily America doesn’t get its natural gas from an enemy state.
The citizens of Europe face a crisis in the coming months, one that will increase prices of goods for everyone on the planet, whose hardship will drive migration and has the potential for civil unrest. This could foreshadow America’s energy future. The question is will America learn from Europe’s mistakes or will we go down the same road believing that this time it will be different?
Until next time…
Please share your thoughts in the comments. Or email me, and let’s have a problem-solving conversation. I welcome ‘letters to the editor’ type emails and may publish yours. I hope we can create a caucus with positive, back-to-the-founders’-dream-for-America results. Have a topic you want to know more about?
Some housekeeping…
Going forward, you may need to check your spam folder. And please mark this address as ‘not spam.’ If the newsletter isn’t in your spam folder either, you should look in the Promotions tab.
You can always see everything on the website, https://ellenleyrer.substack.com.
Thanks again for reading! I’m glad you’re here!