Daily Energy Report
Cost of electricity in Europe, fossil-fuel financing, Europe’s climate policy, Eni’s LNG projects in the Republic of Congo, Russian oil discount, green hydrogen plans in Germany, and more
CHART OF THE DAY: OECD Countries with Highest Electricity Prices
Figure (1) above shows the average residential electricity prices in different OECD countries which are ranked from the highest to the lowest. Please note that the US is added only for comparison and is not included in the ranking.
EOA’s Main Takeaway:
Although the data in the chart covers 2023 so far, the ranking was almost the same in previous years, and prior to Russia’s invasion of Ukraine which destabilized the EU’s energy landscape. Europe’s energy crisis, however, existed before the invasion. In the UK for instance, when wind power generation plunged in 2021 due to weather conditions, it left regional markets unsettled with gas and electricity prices skyrocketing to record highs.
Going back to our Chart of the Day, it gives rise to two questions: Why are electricity prices high in Europe? And why do “greener” countries have higher electricity prices than others?
Germany does not only have the highest electricity prices, but they are also the highest in the world. Prices in Denmark are also similar. While Spain is not included in the chart; the price of electricity there is close to that of France and 80% higher than the price in the US. These very high prices are mainly the outcome of taxes on electricity and market design.
Taxes are needed to finance the transition to renewable energy. Eurostat 2021 reports that in 2020, the highest taxes on electricity were registered in Denmark where 66% of the price paid by consumers was taxed, followed by Germany at 53%, Spain at 47%, Portugal at 46%, Italy and Sweden both at 38%, Poland at 37%, Austria at 36%, and Belgium at 33%.
Meanwhile, the market design that is intended to promote renewable energy involves keeping fossil fuels to fill the gap when renewable energy fails to deliver, and therefore, setting the price for wholesale electricity. For this reason, the decision to cut cheap piped Russian natural gas supplies came at a very high price. In other words, the marginal supply sets the price, and the marginal supply used to be natural gas. Now Europe is more dependent than ever on spot markets, and the cost of natural gas is expected to climb to record highs again.
One may argue that electricity is costly due to high income. But that’s an unfounded argument. Relative to income, the price of electricity in Germany, Italy, and Spain is four times that of the US, and it is two and a half times in Denmark.
Many of these countries started giving direct subsidies to their populations to compensate for the higher cost of energy, including fossil fuels. The problem is that the cost of subsidies and the impact of higher prices and taxes on the economy are not included in the cost figures for wind and solar.
The bottom line here is that the cost of transition to a low-carbon economy is extremely high. Speeding up the process, like in the case of Germany, is making it even more expensive with no tangible results so far.
STORY OF THE DAY
BLOOMBERG: Eni Moves Forward With Congo LNG Plant That Will Supply Europe
Italy's oil giant, Eni SpA, has said it is aiming at first production this year from LNG projects in the Republic of Congo and which will seek to supply Europe.
The company said in a statement carried by Bloomberg that the first vessel is currently being converted into a floating LNG production facility with a capacity of 0.6 million tons a year. A second FLNG vessel (annual capacity of 2.4 million tons) will go into service in 2025, the statement said.
EOA’s Main Takeaway:
This proves three points:
The realization that natural gas is NOT a bridge fuel
Companies are willing to invest billions of dollars despite the lack of funding and ESG
LNG technology has proven to be one of the major advances in history as it is changing the lives of both producers and consumers.
NEWS OF THE DAY
1- REUTERS: Top US banks face calls to wind down fossil-fuel financing
Three US banks, Bank of America, Citigroup, and Wells Fargo & Co are facing pressure from opposing shareholders over the issue of fossil fuel financing, Reuters reported. While some have been calling for phasing out fossil fuel funding, others have been pushing to maintain support for the oil and gas industry.
"All three banks say the nonbinding measures calling for policies to phase out lending and underwriting for new fossil fuel exploration and development are not necessary given their other commitments to reaching net-zero emissions by 2050," Reuters wrote.
EOA’s Main Takeaway: