Europe's crisis shows we must accelerate our energy transition

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Europe's energy crisis

The war in Ukraine has hugely disrupted global energy supplies, starting an energy crisis in Europe that will be felt for years, and forcing the European Union to rethink its reliance on fossil fuels. Before the war began, ~40% of Europe’s gas and ~27% of its oil was supplied by Russia.

Europe has responded to Russia’s aggression by imposing a wide range of economic sanctions, resulting in large energy price increases and fueling inflation. The UK and German governments responded by subsidising energy bills for ~18 months, costing these countries an expected ~£40b and ~€100b respectively. To get Europe through the 2022/23 winter, other short term actions were taken such as energy conservation and increasing coal and nuclear electricity production where possible.

While these actions will provide short term relief to energy users, long term relief requires Europe to find more energy supplies and/or reduce demand permanently. As outlined in the REPower EU Plan, they are addressing this issue and accelerating their clean energy transition by, for example:

  • Demand-side: Reducing energy consumption through higher efficiency. E.g. deploy more electric heat pumps, develop and modernise district heating systems
  • Renewables: Intensifying the rollout of renewables and addressing permitting (resource consenting) processes that are too slow
  • Battery storage: Considering legislative changes to promote deployment
  • Green hydrogen: Creating an EU-wide hydrogen infrastructure for the production, import and transport of green hydrogen
  • Biomethane: Boosting sustainable biomethane (a clean form of biogas) production
  • Gas: Increasing gas supply from Liquified Natural Gas (LNG) to replace Russian gas

Europe’s energy crisis has highlighted the risk of being overly reliant on fossil fuels from unstable international sources, and the long timescales involved to shift sources of energy supplies. As Michael Liebreich recently said, “fossil fuels have… led us to war after war, crisis after crisis”

Lessons for New Zealand

The impact of the Ukraine war on energy has spread beyond Europe into global fossil fuel markets, and New Zealand is highly exposed. In 2019, greater than 55% of our final energy consumption was met by oil and coal products, most of which comes from international sources.

The increased coal prices have resulted in higher future electricity prices. Futures prices reflect the cost of the most expensive supplier required to meet expected demand, which is currently Huntly, a coal-fired power station.

The higher prices have contributed to inflation and severely hit New Zealand businesses who have energy-intensive operations. Some have experienced increases of between 50-100% on the energy component of their bill (energy makes up roughly half of the bill, the other half is mostly network charges).

The oil and coal price rises highlight the threat of being highly dependent on international markets for our energy supply. It’s easy to forget that energy is integral to our lives and has led to vast improvements in living standards.

At this moment it’s vitally important that we learn from Europe’s energy crisis. We can follow Europe’s lead by taking demand-side action, building low cost renewables, installing battery storage, investigating sustainable biofuel options, and securing (and perhaps growing) our internal gas supply and storage. The transition will take a long time so we must start now to create a sustainable, affordable and secure energy future.

Energy is a high-stakes issue. The decisions we make now will not only affect our emissions (and therefore climate action) but also the resilience of New Zealand’s economy and the energy-dependent living standards that we take for granted.