October 28, 2021

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Europe’s energy crisis queers the pitch horribly for COP26

The protests are getting louder. Poland’s premier Mateusz Morawiecki says Europe’s green deal is out of control and has ordered Polish utilities to itemise the exact cost of EU climate policies in household energy bills. 

Lawson Steele from Berenberg Bank says there is no obvious legal way for Brussels to relax the emissions trading scheme, and it would be fatal to try: “If they panic at the first real test they will destroy their credibility and kill the green deal instantly.”

It would not solve the core problem in any case, and would play to the perversely-false narrative that green policies are at the root of the current crunch. Logic compels to the opposite conclusion: the answer to spiralling gas and coal prices is to use less of the stuff.

In the case of Britain, where frequency problems caused baseload electricity prices to go berserk this week, the authorities are clearly struggling to manage renewable power in an old-fashioned grid built for a former world. What is not true, and cannot be true, is that a lull in offshore wind is today’s culprit. 

The energy nexus ought to cover UK power needs in the depths of winter during a doldrum, let alone in September when daily demand is peaking at barely 36 gigawatts, and gas home heating is minimal. What is missing is contingency back-up. 

“The capacity mechanisms should have been able to deliver but there are no penalties to enforce it and the system only exists in theory. Now we’ve been hit with a perfect storm,” said Adam Lewis from energy traders Hartree Solutions.

The assumption that LNG gas would always be there at tolerable prices was wishful-thinking. Planners neglected to keep enough coal capacity in reserve, and nuclear output is down to five gigawatts. 

It is a sorry state of affairs where the nation cannot endure a few days of calm in the North Sea at a time of low seasonal demand. The roots of this debacle go back a decade or more but the consequences have fallen to this Government. By twist of timing it could reach a crescendo just as the COP26 delegates arrive in Glasgow, and become conflated in the British public mind with net zero. 

But let us not muddle matters. This is a fossil fuel shock. Net zero is the solution and not the problem. It will happen because brown energy cannot compete with the rapidly descending cost-curve of green tech.

The process is by now unstoppable for pure cost reasons regardless of climate change imperatives. Any major country that resists this will play itself out of the global economic game. The Government must hold its nerve.

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