The signs of the autumn of 2021 were an unprecedented rise in the price of gas, coal that broke price records, dramatically increased quotations of emission certificates and, as a result, electricity that is striving beyond the established tariff boundaries in many regions of the world.

In the summer of 2021, a historical event took place – the cross-border carbon tax (CBCT) was introduced. Contrary to some expectations, CBCT did not affect gas, oil and petroleum products. The collection affected metals, fertilizers, cement and electricity imported into the European Union.

In general, this approach was quite logical both from an environmental and economic point of view. Firstly, in all the listed goods, a significant part of the cost is electricity (except, of course, electricity itself). That is, by imposing a carbon tax on these categories of goods, the EU seems to encourage the «greening» of the electricity generation of importing countries. Secondly, the European Union protects its production facilities by increasing their competitiveness, reduces incentives for transferring enterprises abroad and receives an additional income item.
Like many things that the European Union has done in the field of energy, CBCT was good on paper, but it turned out to be adopted at the wrong time. It created an additional point of tension in relations between the EU countries against the background of the escalating energy crisis.

Wind under the impact of coal

The nature of the coming crisis was revealed in the first quarter of this year. Its comparison with the same period of 2020 can be considered relatively clean, since in the period from January to March, the pandemic did not have time to have a significant (in this situation) impact on the European economy, although, of course, it cannot be said that there was no impact at all. For example, gas prices fell due to the influx of additional volumes that did not find demand in China, which imposed strict restrictions at that time.

The essence of the problems that arose in the first quarter of 2021 is perfectly illustrated by data on German electricity generation in comparison with data for the same period in 2020.
In the period from January to March 2020, 137.2 terawatt/hours were produced in Germany. The wind provided 51.12 terawatt/hours, the sun — 7.72 terawatt/hours, coal — 29.35 terawatt/hours, gas — 14.67 terawatt/hours. We will ignore the other types of generation, since they will add little to this topic. Therefore, let’s go straight to the data for the first quarter of 2021: 132.8 terawatt/hours, of which the wind gave 34.63 terawatt/hours, the sun — 7.56 terawatt/hours, coal — 37.92 terawatt/hours, gas — 18.79 terawatt/hours.

Obviously, the problem has arisen in the renewable energy sector. If the sun shone at about the level of last year, then wind power plants (wind farms) with increased installed capacity clearly sank in production. This already happened a few years ago: if in January 2016 the wind farm produced 9.63 terawatt/hours, then in January 2017 — 8.1 terawatt/hours. But then the decline was relatively small and the period of low productivity lasted only a week and a half. Here we also saw how the energy system of the largest economy of the European Union missed 16.49 terawatt/hours during the quarter. Even taking into account the difference in demand from last year, the dropped volumes will amount to more than a noticeable 12.09 terawatt/hours, which had to be compensated somehow. And, as can be seen from the above data, gas and coal came to the aid of German consumers.

Of course, no one can say that the situation of the first quarter would inevitably entail long-term consequences. Moreover, in April and May wind generation showed more outstanding results than a year earlier (19.88 terawatt/hours versus 16.59 terawatt/hours). But, firstly, the demand for electricity in the second quarter of this year was significantly higher than in the same period of 2020. And secondly, a hot summer has come in every sense, although the results of the first half of the year still inspired optimism in the European «greens».

Clean from coal

The first half of the year was a period of recovery for Europe’s electricity generation. The demand for electricity has almost returned to the pre-pandemic level. So, it turned out to be only 0.6% lower than in the first half of 2019.

According to the analytical company Ember, production at EU coal-fired power plants in the first six months of this year was 16% (36 terawatt/hours) lower than in the first half of 2019. Coal accounted for 14% of all European electricity production, while in the same period of 2019 this figure was 16%.
Natural gas sank significantly more modestly – by 4% only. And in general, the production of electricity from fossil fuels was 10% lower than in the first six months of 2019. Nevertheless, fossil fuels have recouped 45% of the losses of 2020.

Ember specialists separately noted that during the same period, «clean» electricity provided 66% of electricity production in the EU. That is, it increased by 3 percentage points or by 24 have recouped compared to the first half of 2019.

Here, of course, it is not necessary to mention at all that the installed capacity of coal-fired power plants has noticeably decreased in recent years. For example, in Germany, this indicator decreased from 48.71 GW (in 2016) to 43.96 GW. And Austria, Belgium and Sweden have completely closed down the last power plants running on this type of fuel. All this is a consequence of the European principle «coal power must cease to exist so that global warming does not exceed 1.5 °C».

According to Ember, in the period from January to June, wind and solar electricity provided an additional 22 terawatt/hours, compared to the same period in 2019. Hydropower generation increased by 29 terawatt/hours. In this case, it would be fair to compare not with the period before the pandemic but with the indicators of 2020.

The logic here is quite simple: renewable energy sources (RES) have a maximum-favored-nation regime in Europe, that is, nothing held them back last year. Moreover, record volumes of electricity production from wind and solar have significantly squeezed the demand for coal and gas in the shrinking market. In other words, no lockdowns in the least affected the production of solar and wind power plants. As much electricity was produced as weather conditions allowed.

Without this kind of data, only against the background of bravura comparisons with 2019, the sudden absolute growth rates of coal generation sound very strange. Coal increased by 34 terawatt/hours compared to the first half of 2020. And this is slightly less than half of the growth in electricity demand in the region, which amounted to 74 terawatt/hours.

Hot summer of the 2021st

In some aspects this summer resembled winter. After all, what do heat and cold have in common? Both in the heat and in the cold, you need to spend a lot of energy resources – in one case, to cool apartments, in the other, to warm them.

High summer temperatures required more and more electricity to be produced. For example, in Russia for the first time the record of electricity consumption was set not in winter but in summer.
Against the background of the heat in some regions of the world hydrogenation began to sink and in some – wind. Europe was one of the second. In the same Germany, with an increase in demand in June 2021 compared to June 2020 by 3.7 terawatt/hours, wind farms sank by almost 2 terawatt/hours. But in this situation, this drop was partially offset by solar power plants, which increased production by 1.58 terawatt/hours.

It is worth mentioning here that carbon dioxide emissions in the global electric power industry in the first half of 2021 exceeded the pre-pandemic level. When comparing the indicators of the first six months of 2021 with the same period of 2020, it is necessary to keep in mind a simple fact: last year, a significant part of the «achievements» in greenhouse gas emissions and the growth of the share of RES in the energy balance of individual regions was associated with a general drop in energy demand, first of all, from the side of industrial production. Therefore, the fact of increase in emissions (as well as their decrease a year ago) does not mean much. We need context.

Let’s quote on this occasion the dean of the Columbia University Climate School Jason Bordoff (from an article in The Washington Post): «The only thing that surprises about increase in emissions as the economy recovers after the pandemic lockdowns is that it surprises someone. Emissions are the result of a complex, massive and capital-intensive energy system, and the basic infrastructure for generating electricity, steel and much more has not changed in the last 12 months. Therefore, it is not surprising that emissions increased as the economy began to recover and the energy infrastructure began to load up again.» It is extremely adequate assessment of the situation.

The economic recovery was the main, but not the only factor that led to an increase in emissions. In 2020 Europe was lucky with the weather and in 2021, as we have already found out, it failed.
At first, the winter is cold and longer than usual. And then came a hotter than usual summer.

This happened against the background of ever-increasing prices for traditional energy carriers. In recent years the European gas market has been directly dependent on the gas market of the Asia-Pacific region. When the quotations for blue fuel in the Asia-Pacific region fall, they fall in Europe. And when the demand in Asia cannot be met by the global supply and prices at local sites begin to break records, then they break records in the EU. The only difference is that the East has not abandoned the oil binding on gas contracts, so the spot quotes rushing into the sky do not hit it as much as in market, liberal, modern Europe.

Without solving energy problems in the Asia-Pacific region, it is impossible to solve the problems of the EU even if individual major players start selling all their gas to European consumers three times cheaper than current stock quotes.

By the summer, almost one hundred percent spot gas pricing in the European Union began to put pressure on the prospects of blue fuel in local electricity generation. The more expensive gas became, the more attractive coal became. The more attractive coal became, the higher the price of this energy carrier became.

In the first half of the year, prices for natural gas in Europe almost doubled, and imported coal rose in price for 70%. Sometime this situation pleased «green». They saw the evidence of non-competitiveness of traditional power in comparison with RES in it. So, according to Ember, electricity generation at the operating gas and coal power plants in the large European Union countries to the middle of year became twice more expensive than on new wind and solar power stations. It was promoted also by growth of cost of the carbon emissions which set a record — 50 euros for ton (then this record was several times broken).

We will not even argue concerning expenses on electricity generation as it is counterproductive. Let’s ask only one question: why did not consumers pass in large quantities to the sun and a wind why did not provide the growing requirements at the expense of RES? And skillfully we will answer this question: nobody can force the sun to shine 24 hours per day and cannot force a wind to blow with the necessary speed. And if it is so, demand had to be satisfied with traditional power.

There is a cloudless sky over the whole of Spain

According to Bloomberg consumption of coal in the European electric generation at the beginning of summer jumped up from 10% to 15%. Demand for the electric power in such countries as Germany, Spain and the Czech Republic exceeded an average value for the last five years. In Italy and France it reached the level before the pandemic.

Against a 30-degree heat the quotation on the Netherlands TTF jumped up to 363 dollars for one thousand CBM. Of course, it is insignificant a little in comparison with the indicators simplifying calculations about 1 thousand dollars for 1 thousand CBM which gas reached in the fall. But that these quotations were record for the last three years is important here, and the prices did not fall since winter that induced a number of players to reduce demand. And it in turn also influenced electric generation.

It is necessary to consider once again that increase in prices for energy carriers occurred against just begun restoration of Europe after a coronacrisis. Many EU countries appeared in the hardest situation in 2020 and could not be restored fully to the middle of 2021. Among them it is possible to call Spain, which appeared the leader in scales of economic damage among 37 developed states of the world entering into the Organization for Economic Cooperation and Development.

At the beginning of summer electric power in this country started breaking records. From the second half of June the price in Spain were 28% higher than in Germany, France or Italy. Plans for transition to new system of calculation within which it would be possible to choose more favorable tariffs did not yield desirable result.
The electric power in this country is taxed a row: for example, on electricity generation and on a value added (21% of the final sum). In attempt to minimize damage from an increase in prices the government of Spain decided to lower the VAT for electricity from 21% to 10%.

By fall the electric power rose in price for 250% in relation to the similar period of 2020. It is possible to tell that last year it simply was very cheap (46 euros for megawatt/hour). But it will be fair only partly. In July 2021 megawatt-hour updated a price record which kept since January 11, 2002 (103 euros for megawatt/hour), and reached 106 euros. And in the middle of September the electricity overcame a mark of 154,16 euros for megawatt/hour. It was the highest rate for all history.
The government of the country decided to lower a tax on electricity generation on 7%, and also to reduce a special tax on electricity generation — from 5,1% to 0,5%.

Foggy Albion

Another bright star of price crisis in the European power industry, though left the European Union, became Great Britain.

At the beginning of summer the British retailer PlumbNation published the report in which noted that utility payments grow in the kingdom the last ten years on average for 4,7% annually. Proceeding from it by 2030 British should pay for electricity about 1115 pounds sterling a year; besides, utility payments occupied about 6% of average revenue. But forecasts ruined all for a two-three months.

Several problems struck at once on the kingdom except the risen in price energy carriers. Restrictions of deliveries because of deficiency in the import countries began and also there was an accident on IFA interconnector (2 GW). Additional pressure upon the local market was put by the low speed of a wind. So, at the beginning of September the available power of wind farms had to make 1,5 GW, but in reality it reached 400-600 MW.

On this bewitching background the N2EX index in Great Britain reached 219,46 pounds (about 300 dollars) for megawatt/hour, having exceeded the previous maximum in 198,79 pounds (January, 2021). And the hourly prices reached maximum in 722,94 pounds.

Certainly, the similar situation did not do well not only to consumers but also producers. Therefore the head of E.On UK Michael Lewis declared that the forthcoming winter will be very pipe for clients and suppliers of the electric power in Great Britain. According to him, about a quarter of electricity bills are formed by green fees. He recommended to cancel these fees and to pay subsidies at the expense of general taxation.

But instead Great Britain began negotiations with the power regulator Ofgem, finding out, whether it will be required additional increase of limit gas prices and the electric power for consumers. The limit price established by Ofgem limits energy cost approximately for 11 million consumers. It is reconsidered two times a year. Since October 1 this indicator increased to 1277 pounds for the household consuming average amount of energy.

The market works like clockwork

You should not consider that Great Britain with Spain appeared some especially unlucky countries in the current situation. All states of Europe had similar problems (adjusted for local specifics). So, already in an early autumn base price of the electric power in France for delivery next year grew to record 99,5 euros per megawatt/hour and record 96,1 euros in Germany.
Looking at the events, Brussels actually washed hands, having suggested the European Union countries to solve arisen problems independently. Thus it was declared that the market works perfectly and there are no mistakes in power strategy. It is certainly beautiful: the central authorities of the EU do not interfere with the sovereign rights of the states of Europe, and those are free to solve arisen problems independently. For example, they can spend additional income from an increase in prices for carbon quotas.

By the way, the last in process of increase in demand for coal continued to rise in price, as well as coal. It set some records, having exceeded in Europe a mark of 300 dollars per ton.
And as the market works regularly, there were no mistakes in power policy of Europe for the last 12 years, and crisis after all is a fact of objective reality, the authorities still had to find the guilty.

«Do not revive coal»

The well-known London analysts from Carbon Tracker at the end of June made the following report on refusal of coal generation which they called out of time but loud: «Do not revive coal». The report in itself is not of the special value as in the semantic plan it became outdated before the publication: it is senseless to prove once again economic helplessness and hopelessness of coal power plants when their development grows despite a multiple increase in prices for fuel. Especially, it is senseless to do it in the country, which because of deficiency of the electric power considers an opportunity to prolong operation of coal capacities.

Here we can say that such reports are focused on a more distant perspective, and the current crisis of European electricity generation is just a temporary difficulty that will be dealt with one way or another. And it will be true in its own way. But any system can be considered viable only if it maintains crises. As the events of the summer-autumn of 2021 show, renewable energy sources are not capable of adequately facing any serious challenge at this stage. However, it does not mean that hundreds of billions dollars will stop pouring into renewable energy. Cash flows in general are difficult to, let’s say, change the channel. But coal is coal, renewable sources are renewable sources, and in the fall, just at the height of the British energy crisis and on the eve of the climate summit in Glasgow, Carbon Tracker decided to take a swing at gas generation, publishing a study «Put gas on standby».

The wise analysts of Carbon Tracker courageously, and most importantly extremely timely, questioned the need for long-term investments in gas power plants around the worldwide. In their opinion, more than a fifth of European gas-fired power plants and almost a third of power units in the United States are suffering losses. The increase in fuel prices is fraught with the fact that many stations will be in the red. But what can replace them? Wind and solar power plants! Apparently, if the wind is not blowing, then you just need to put more wind turbines. Ignoring objective reality behind the windows of the London office, Carbon Tracker draws conclusions that the electricity generation economy on gas fuel in Europe and the USA becomes more and more fragile. And the existing gas capacities already cost more expensive in operation than new, powered by renewables. Problems with the lack of wind and sun can solve batteries. They will be surely cheaper in operation than gas installations according to British analysts but not now and by the end of decade. However, lithium started rising in price. But this regrettable fact can be ignored.

Conclusions of Carbon Tracker are drawn from analysis of financial performance of 835 operating gas power plants in Europe (189 GW), as well as 2200 power plants in the USA (513 GW). For some reason in the analysis of financial prospects of traditional generation the British analysts forget that it is influenced negatively by the rights of priority access to networks which wind and solar power stations have.

The main thing that the first guilty is found. More precisely there are two guilty at once: coal and gas. Now, if there were only RES and batteries, then, apparently, there would be no current problems in European electricity generation at all. It is correct if to paraphrase the writer Rybakov, there is no generation — there are no problems.

Jokes are jokes, but no one is going to cancel the course on greening the EU energy sector. But this is a matter of perspective, and there should be a specific culprit for the current problems.

Main responsible

At the end of September, the International Energy Agency (IEA) published a note «Statement on the latest events in the natural gas and electricity markets.» IEA noted in it that the European prices of electricity grew to the highest level more than in ten years. It was especially stipulated that in many markets they exceeded a mark of 100 euros for megawatt/hour. In Germany and Spain the electric power in September was about three-four times more expensive than an average value not only for 2020 but also for 2019.

IEA noted an obvious thing: the electricity grows in the price after gas, coal and emissions of carbon. According to the agency’s Executive Director Fatikh Birol, increase of the world prices for natural gas is the result of a set of factors. That is absolutely fair. But a keynote of the note is the following thought: RES are not guilty in the current situation in any way, and here Russia though fulfills the contractual obligations, but it could make more for increase in availability of gas in Europe. For some reason, the International Energy Agency has not made such a claim to any other supplier of blue fuel and I wonder why.

As for the innocence of «clean energy», which the IEA experts mention several times (or maybe someone will miss this idea), we agree. Renewable energy sources are not to blame. More precisely, they are not the only ones to blame. The situation really consisted of a complex of reasons. Among them are great demand on energy carriers in Asia, sharp increase in prices for gas and coal.
But it is impossible to ignore simply the fact of reduction of power generation by wind power stations during the growing consumption. These volumes needed to be replaced with something. Besides, because of concern in «clean energy» the European Union did not pay attention to modernization of traditional generation and only created conditions under which the number of gas, coal and nuclear power plants was reduced. If there were no thoughtless green race, a country like Sweden would have an opportunity to use coal for electricity generation during the crisis. But it does not have this opportunity. And it has needs for electricity therefore it has to restart a standing idle a lot of time black oil power plant.

But instead of a responsible analysis of the problems accumulated in the European energy system, respected organizations slide into broadcasting mantras: «A well-managed transition to clean energy is the solution to the problems that we are seeing today in the gas and electricity markets and not their cause.» Does anyone really think that the current crisis is the last one and it can be simply ignored? And after all, the IEA article is only one of a whole series in which they are trying to prove that RES is not to blame, but Russia could try to give more gas. For example, quite authoritative Politico edition is terrified to the prices in Spain, Portugal and Great Britain then does quite reasonable remarks that it is too easy to explain the European prices of electricity only with the rising price of natural gas. The edition notes that the cause of the current crisis is complex, and that it is connected with questions of design of the market of electric power, long-term climatic strategy and a small amount of bad luck. But the story immediately follows that gas has risen in price due to «Moscow’s decision to reduce gas supplies through Ukraine».
Generally, the main responsible is found. The fact that Gazprom has provided a third of the increased demand for natural gas on a global scale is of no interest to anyone.

Without leaving the general route

As follows from the statements of European officials, as well as statesmen, made within the framework of the climate summit in Glasgow, no reasonable conclusions (at least publicly) were made from the energy crisis. And the summit in Glasgow was met with criticism in Europe itself and grins over the fact that participants are driven by Tesla electric cars that are charged from diesel generators — a wonderful symbol of the entire European energy system.

Thus the question of granting NPP the official status of carbon-free generation began to sound with a new force. France and nine more countries of Europe (Bulgaria, Hungary, Poland, Romania, Slovakia, Slovenia, Finland, Croatia and the Czech Republic) insist on it. Perhaps it would not hurt Russia to take their side, since the real share of carbon-free energy in our country is not 1-1.5%, as they say, but 33.4% (counting 12% of the rated capacity occupied by nuclear power plants). But in the same Germany, they loudly declare that there can be no talk of any renaissance of nuclear energy. So disputes will be long and hot. After all, they directly affect the amount of payment of the cross-border carbon tax, and, therefore, the competitiveness of the industry of entire countries. Also, a number of EU states are trying to delay the date of the final rejection of coal. But it is unlikely that they will be able to achieve this.

That is all disputes have rather strategic character and belong to specification of some points without revision of a general route on which it is offered to European power industry to move.
And the problems of the present day did not disappear anywhere. The European states try to choose among three ineffective ways: to reduce taxes, to raise limit prices of electricity or to freeze the prices. In fact, the governments should make a difficult choice between wellbeing of consumers and economic capacity of producers.

In the current conditions the hope for rather safe passing of the winter period for EU countries is connected with Russia as a reliable supplier of energy resources and China. China, having faced a sharp increase in prices for coal, took a number of steps after which the prices went down in October. If this is a new trend and not a correction then the energy markets of the European Union in a month or two will also experience the beneficial impact of the efforts of the People’s Republic of China. Europe itself has signed in complete helplessness in the current situation.