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European economic stability threatened by renewable energy subsidies 

Credit:  James Conca, Contributor | Forbes | 10/20/2013 | www.forbes.com ~~

The stability of Europe’s electricity generation is at risk from the warped market structure caused by skyrocketing renewable energy subsidies that have swarmed across the continent over the last decade.

This sentiment was echoed a week ago by the CEOs of Europe’s largest energy companies, who produce almost half of Europe’s electricity. This group joined voices calling for an end to subsidies for wind and solar power, saying the subsidies have led to unacceptably high utility bills for residences and businesses, and even risk causing continent-wide blackouts (Géraldine Amiel WSJ).

The group includes Germany’s E.ON AG, France’s GDF Suez SA and Italy’s Eni SpA, and they unanimously pointed the finger at European governments’ poorly thought-out decision at the turn of the millennium to promote renewable energy by any means.

The plan seemed like a good one in the late 1990s as a way to reverse Europe’s reliance on imported fossil fuels, particularly from Russia and the Middle East. But it seems the execution hasn’t matched the good intentions, and the authors of the legislations didn’t understand the markets.

“The importance of renewables has become a threat to the continent’s supply safety,” warned senior global energy analyst, Colette Lewiner, referring to a recent report by a Europe energy firm, Capgemini.

“We’ve failed on all accounts: Europe is threatened by a blackout like in New York a few years ago, prices are shooting up higher, and our carbon emissions keep increasing,” said GDF Suez CEO Gérard Mestrallet ahead of the news conference.

Under these subsidy programs, wind and solar power producers get priority access to the grid and are guaranteed high prices. In France, nuclear power wholesales for about €40/MWhr ($54/MWhr), but electricity generated from wind turbines is guaranteed at €83/MWhr ($112/MWhr), regardless of demand. Customers have to pick up the difference.

The subsidies enticed enough investors into wind and solar that Germany now has almost 60,000 MWs of wind and solar capacity, or about 25% of that nation’s total capacity. Sounds good for the Planet.

The problems began when the global economic meltdown occurred in 2008. Demand for electricity fell throughout Europe, as it did in America, which deflated wholesale electricity prices. However, investors kept plowing money into new wind and solar power because of the guaranteed prices for renewable energy.

Meanwhile, electricity prices have been rising in Europe since 2008, just under 20% for households and just over 20% for businesses, according to Eurostat.

Since renewable capacity kept rising and was forced to be taken, utilities across Europe began closing fossil-fuel power plants that were now less profitable because of the subsidies, including over 50 GWs of gas-fired plants, Mr. Mestrallet said.

I’m a little confused, isn’t gas supposed to be the savior along with renewables? You can’t have a lot of renewables without back-up gas to buffer the intermittency of renewables since gas is the only one you can turn on and off like a light switch.

I understand that Germany is building new coal plants that can ramp up and down faster than ever before, but the replacement of so much gas with renewables means Europe may not be able to respond to dramatic weather effects, like an unusually cold winter when wind and solar can’t produce much.

In a warped parody of free market economics, some countries are building gas-fired plants along their borders to fill this void in rapid-ramping capacity, and that scares the markets even more, since gas is so expensive in Europe, that the price for electricity will climb even higher (EDEM/ESGM).

As the European Commission meets this week to discuss the issue, a parallel threat looms in America as a result of a similarly well-intentioned maze of mandates and subsidies over the last decade. It has been kept at bay only by our much larger energy production and our newly abundant cheap natural gas.

Americans may not be aware that natural gas is not cheap in Europe like it is in America. America’s gas boom has occurred in the absence of a natural gas liquefying infrastructure, which is needed for import/export of natural gas to the world markets. Thus, the more expensive global prices do not affect the price in the U.S.

Yet.

But that will change. We’re building LNG infrastructure at an amazing pace to exploit the huge gas reserves laid bare by advances in fracking technologies. Within five years, the U.S. will be the major player in the world gas market. Of course, gas prices will double or triple in the U.S. because, like oil, the price will now be set by the global market, not by the U.S. market. And like oil, it doesn’t matter how much you produce in your own country, you pay the global price. Period. Just ask Norway.

So when natural gas prices double, what happens to the price of electricity since gas is so intimately married to renewables? State mandates and renewable production tax credits will still require us to buy renewable energy, even if it’s double the price. We’ve already seen this occur here in the Pacific Northwest in battle between expensive wind and inexpensive hydro (Hydro Takes A Dive For Wind). Hydro lost.

That’s fine when gas is cheap. It won’t be fine when gas is expensive.

Source:  James Conca, Contributor | Forbes | 10/20/2013 | www.forbes.com

This article is the work of the source indicated. Any opinions expressed in it are not necessarily those of National Wind Watch.

The copyright of this article resides with the author or publisher indicated. As part of its noncommercial educational effort to present the environmental, social, scientific, and economic issues of large-scale wind power development to a global audience seeking such information, National Wind Watch endeavors to observe “fair use” as provided for in section 107 of U.S. Copyright Law and similar “fair dealing” provisions of the copyright laws of other nations. Send requests to excerpt, general inquiries, and comments via e-mail.

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