With the energy crisis now threatening economic instability, it’s understandable that governments must step in with urgent measures. Short-term market interventions like the EU’s proposed ‘crisis contribution’, however, will only address the symptoms of the energy shock, not the underlying cause.
Consumer energy bills are skyrocketing because of our over-dependence on fossil fuels, and our vulnerability to the volatility that comes with them. A truly resilient energy system requires long-term interventions that accelerate the build-out of renewables. And if we don’t sow the seeds now, we risk being back here next year.
In an effort to contain the spread of potential financial distress caused by Europe’s energy shock, European Commission President Ursula von der Leyen has proposed to recoup money from companies turning a high profit from the conditions of the energy crisis.
It’s a reaction that solidifies a trend that has been growing since the start of Russia’s invasion: the sphere of energy politics has now expanded beyond climate security or energy security to include defence against recession and widespread financial instability.
The ripple effects of Russia’s actions are becoming a contagion for the European economy, and bolstering energy security is an important tool for containing it.
With energy prices soaring, the rush to act quickly from policy makers is justifiable. However, if long-term energy security is the goal, it’s critical that these interventions consider long-term consequences. For example, changes to electricity market design or profit caps should be approached with caution. We have to avoid triggering market distortions that dampen investor appetite for renewable energy in the long run.
This year’s energy shock could instead mark a turning point, where improved government policy finally kickstarts the journey to a stronger, more sustainable energy system. But getting there requires a harmonised approach. It’s crucial to trigger the investment needed for an energy system that not only ensures we have heat during the winter, it also safeguards us against the uncertainties of the future.
Fossil fuel ramp-up no answer
Ramping up fossil-fuel projects has been hailed as a quick solution. Whether it is exploring licenses to drill for oil and gas in the North Sea, or opening up more LNG pipeline imports to replace Russian gas, the pressure is on to prevent energy poverty across Europe this winter. But such measures do little to offer a defence against the now constantly shifting geopolitical tectonic plates.
Growing geopolitical uncertainty has led to a vicious cycle of fossil-fuel volatility whereby supply is hampered, EU markets must respond, only to have the stakes escalated at the next juncture, sparking more extensive measures. As the EU’s executive vice president Frans Timmermans put it at the start of this journey: “It is not a free market if there is a state actor willing to manipulate it”.
Across Europe, we seem to understand the benefits of renewable energy in theory, but not in practice.
The only solution is to prioritise long-term resilience. Resilience means energy independence, the ability to rely on an energy system that is decarbonised, low-cost, and resistant to the tampering of supply.
Across Europe, we seem to understand the benefits of renewable energy in theory, but not in practice. While ambitions to accelerate renewable installed capacity were stepped up earlier this year in response to the burgeoning energy crisis, at present, the EU has approximately four times more wind capacity in permitting than under construction. Permitting bottlenecks persist in spite of constant talk about expediting them from policy makers.
There are some key adjustments that would help. More digitalised processes, more resources, and a clear streamlining of responsibilities amongst different authorities can build more efficiency and speed into the permitting process. We must also acknowledge that bio-diversity considerations hinder the progress of projects.
While the impact on local environments must of course be respected, we now have an urgent need to focus on the issues that most greatly impact public interest, and energy security must be prioritised. With these adjustments in place, the overall permitting process should run for a maximum of two years.
Grid buildout is moving even slower. Where governments should be improving the reach, storage capability and capacity of their grid networks, they are instead trapped in energy mechanisms of the past. And these are the mechanisms that led us straight into today’s crisis. Fossil fuels will only appear to be the shortest pathway to energy security as long our energy infrastructure relies on them. As soon as we have smarter, more flexible grid capabilities, renewables quickly become the safest, most effective source of energy.
Slow progress a self fulfilling prophecy
Finally, slow progress on the renewables front is a self-fulfilling prophecy. To limit carbon emissions in line with global climate goals, annual energy investment needs to double. However, the longer we allow ourselves to remain in the cycle of fossil-fuel volatility and growing economic disaster, the less attractive we make energy as a prospect for investors.
Inviting in renewables, and allowing them to smooth out the peaks and troughs of the current crisis is the only way to build a more stable and predictable energy industry that would warrant further investment.
We are already facing a deeply treacherous winter, but there is still time to ensure that this situation is not repeated a year from now. Unlocking the tens of gigawatts of wind capacity that is currently waiting in the wings across Europe is the first step. Strengthening our energy infrastructure to ensure we can add more is the next.
Without removing the bottlenecks for renewable energy, we can’t end the vicious cycle of fossil fuel volatility, and we have no hope of limiting its destructive effects.
Henrik Andersen is CEO of global wind power group Vestas