The exponential growth of offshore wind farms in the North Sea has been a testament to the combined efforts of European countries’ investing time, effort, and money in the decarbonization of their electricity grids.
But just as Europe needs energy the most, the wind in the North Sea has stopped blowing, forcing regional energy markets to scramble for gas reserves to heat homes and power businesses.
This has had expensive consequences.
As the European energy market grows increasingly reliant on a renewable energy source that is cheap to harness and carbon-emission free—but is clearly unreliable when the wind isn’t blowing—surging electricity bills are an unintended consequence of the energy transition.
Heading into winter at a time when more energy is already needed to fuel economic recovery as the region emerges from the pandemic, European countries are setting aside quotas meant to cap carbon emissions and rethinking the shutdown of coal plants in order to fill the gap left by the missing wind.
And if turning to carbon-emitting energy sources wasn’t a bitter enough pill, natural gas supply across the continent is tied up in a geopolitical tangle. Supply from Russia has dropped as Russia builds its reserves—and perhaps to increase interest in the Nord Stream 2 gas pipeline—and China, Japan, and South Korea are outbidding Europe for liquefied natural gas (LNG).
“Definitely the strong growth in renewable power generation is affecting the prices and the power mix,” says Carlos Torres Diaz, head of gas and power markets at energy research firm Rystad Energy.
The situation is especially acute in the U.K., where wind is currently providing only 7% of the country’s energy makeup—a steep drop from the 25% it generated on average across 2020.
The U.K.’s offshore wind sector had been a success story of the energy transition, drastically cutting emissions by rolling out 24GW of wind power over the past decade—enough to power 7.2 million homes. But as wind slowed and the price of carbon credits rose to record highs, the electricity market has experienced extreme volatility.
“We have very steep targets for increased renewable energy penetration, and the growing problem alongside of that is this fluctuation in prices that we’re seeing,” says Finlay Clark, an offshore wind analyst from Wood Mackenzie.
As a result, gas- and coal-fired electricity plants have been brought online to fill the gap. Gas now makes up more than half of the electricity in the U.K., and while the U.K.’s offshore wind is covered by subsidies and operating at zero marginal cost, gas is not.
Even coal, the most carbon-emitting energy source, has returned to the stage; it now accounts for 3% of the British energy makeup after a record-breaking two coal-free months. Faced with the power crunch last week, the electricity market operator National Grid asked EDF to restart the West Burton A coal power station in Nottinghamshire. But with a looming deadline to close all coal plants in the U.K. by 2024, this may not be an option in the future.
The mix of windless air and competition for the world’s gas supply has caused power prices to skyrocket—the price of natural gas in Europe is up more than 500% over the past year, setting fresh daily records—and that jump will almost inevitably be passed on to consumers.
In the U.K., electricity prices have doubled in the month of September and are seven times as high as those a year ago. Prices for power to be dispatched the next day were at £424.61 ($588) per mwh on Tuesday—10 times as high as the average price in September 2020—causing two energy suppliers to go out of business. Electricity bills will go up for 11 million households from Oct. 1 after Ofgem increased its price cap on how much utilities can charge customers.
In the EU, the consumer impact of the power crunch has already had political reverberations.
Spanish Prime Minister Pedro Sánchez has announced a temporary tax cut to help out consumers in the country, which just saw a single-day 12.6% rise in its electricity prices. The French government is considering increasing the number of people who can qualify for direct subsidies for fuel payments, while Greece has launched a €150 million ($177 million) energy transition fund to compensate for the recent rise in electricity prices.
The question now is how long spiking energy prices will last—and how to plan the energy transition to avoid them.
As coal is phased out, and electrification of energy consumption increases, it will be even more important to have alternative fuel sources for power production to diversify the energy mix, notes Martine Juhl, head of power markets analysis at Danske Commodities.
The European Commission and the U.K. government have been investing in the rollout of new technologies, like energy-dense batteries and hydrogen, so countries won’t have to turn to gas or coal at times when renewable energy is unreliable.
Meanwhile, offshore wind capacity is improving. Offshore wind has seen 2% growth in its capacity factor each year, according to Wood Mackenzie, meaning that a wind farm on average in 2006 would operate at only 30% of its capacity but now with better technology and better placement, offshore wind farms can operate at a much higher level.
But first the wind has to start blowing again.