WHAT PUTIN IS DOING TO BOOST EUROPE'S ENERGY TRANSITION

Jill Junnola, London; Philippe Roos, Strasbourg; Jaime Concha, Copenhagen; Phil Chaffee, London; Jason Eden, London 
- Mar 4, 2022

Russia's invasion of Ukraine has shattered what remained of the post-Cold War consensus, with German Chancellor Olaf Scholz calling it a Zeitenwende — a change of an era — in Europe’s history. This has exposed vulnerabilities that had been previously neglected, forcing Europe to adopt a more assertive military posture and also address its dependence on Russia energy imports. European energy policy is being redefined by this, adding a strong focus on energy security and diversification to existing climate priorities — but not displacing them. In the near term, Europe will focus on replacing Russian gas imports with LNG and existing coal and nuclear assets, but longer term, the path is firmly low carbon. Indeed Europe seems intent on doubling down on the energy transition, emphasizing the energy security benefits of a faster move away from oil and gas to renewables.

For over a decade, Europe has trotted out the mantra of diversifying energy supplies. But Brussels’ policy aim didn’t quite match its liberalized market, which, even as LNG capacity was built out, continued to favor cheap Russian pipeline gas. Russia’s Feb. 24 invasion of Ukraine has shaken up this complacency and turbocharged EU energy policy. Energy security is now the No. 1 priority.

"The events of the past few days have shown us that responsible, forward-looking energy policy is decisive not only for our economy and the environment. It is also decisive for our security," Scholz said Sunday. European Energy Commissioner Kadri Simson echoed those remarks, describing the Ukraine war “as not only a watershed moment for the security architecture in Europe, but for our energy system as well. It has made our vulnerability painfully clear.” French President Emmanuel Macron in a television address Wednesday was also resolute: "Europe needs to invest more to depend less on other continents ... In other words, to become a power, more independent, more sovereign ... And an energy power."

So, what will this new era for European energy policy mean?

In large part, it looks like the “price crisis” on steroids. High gas prices have already been attracting more LNG to Europe and spurring greater reliance on existing coal or nuclear capacities. This will now get a strong, formal push from policy as a near-term fix to sky-high gas prices and worries over Russian supplies.

Longer term, Europe still wants to transition away from fossil fuels through wind and solar power, electric vehicles and other new technologies. There are few signs of these low-carbon priorities changing, especially as they fit the new security narrative: "Being able to choose also means, in case of doubt, saying goodbye to Russian gas, coal or oil,” said German Economy Minister Robert Habeck, of the Green Party. Simson made a similar point, saying: "In the shorter term we need to diversify away from Russia. But ultimately, long term, the only solution is the Green Deal, boosting renewables and energy efficiency as fast as technically possible." One twist is that countries seem likely to take a more tolerant attitude toward nuclear as a low-carbon option.

With the EU ramping up its military support for Ukraine, and Germany alone this week pledging to commit €100 billion ($111 billion) from the 2022 budget to its armed forces, this makes for a very crowded political and spending agenda. With this in mind, here’s how European energy policy looks set to unfold:

● Longer life for nuclear power: Germany is supposed to shut its 4 gigawatts of nuclear power by the end of this year but has ordered a review of whether the life of coal and nuclear plants could be extended. Belgium and the Netherlands are also considering extending existing nuclear plants beyond planned phaseouts, while French government plans to build six to 14 new reactors now look less controversial. The Ukraine crisis could also provide greater political license for envisaged post-2030 nuclear newbuilds in the Netherlands, Poland, the Czech Republic, Bulgaria, Romania and Slovenia — including government financial support. But costs remain high and it's not yet clear if nuclear's likely inclusion in the EU's sustainability taxonomy will attract private capital.

● Longer life for coal, but with limits: Europe’s climate targets rule out new unabated coal plants, but high gas prices meant coal-fired generation at existing plants was already on the rise. Germany had upped its coal burn and France turned to coal generation amid unplanned nuclear outages. Italy now says it will consider reopening some shuttered coal plants. But this is only a case of using existing capacity for longer. Germany’s plan to accelerate its deadline for exiting coal-fired power from 2038 to 2030 is supposed to be confirmed this year — an important test of how far the new flexibility goes.

● More diverse fossil fuel supplies: Germany has announced plans to accelerate at least two long-planned LNG terminals, Brunsbuttel and Wilhelmshaven, buy non-Russian LNG and increase gas storage. Both LNG projects had struggled to reach a final investment decision amid uncertainty over gas’ role as a transition fuel. The plants would offer an alternative to piped Russian gas rather than boost German gas consumption. Such plans are still discussed in the context of green gas and hydrogen-ready facilities, with Brunsbuttel designed to import green and blue hydrogen and Wilhelmshaven part of a larger hydrogen hub.

Tight LNG supplies and high prices mean this route may be bumpy, especially as some buyers seek to avoid Russian imports, tightening markets further. European buyers may also look to replace imports of Russian Urals with equivalent crude grades from the Mideast Gulf.

● A faster energy transition: At the start of Covid-19, climate was squeezed by other priorities in the political agenda, only for momentum to accelerate once the initial shock passed. In the current crisis, the energy transition has remained front and center in Europe’s debate. Moves to diversify fossil fuel supplies face some obvious hurdles: There is no Russia-sized resource sitting in Europe, ready to fill pipelines, power plants and refineries — so continued fossil fuel reliance points to continued high prices and import dependence. “It is our switch to renewables and hydrogen that will make us truly independent,” European Commission President Ursula von der Leyen said this week.

True, Germany’s big cash injection for the military was not matched by any spending boost on renewables. But the EU’s ambitious “Fit for 55” policy package aimed at accelerating the transition is still being finalized. The German government is now preparing an “Easter package” of legislation by end-April, defining how it will implement its renewables ambitions. A new draft paper, heading for possible cabinet approval next week, reportedly proposes bringing forward Germany’s target of 100% renewable power generation to 2035.

Some analysts predict “a step change” in European renewable plans as a result of the Ukraine crisis. UK Business and Energy Secretary Kwasi Kwarteng set out UK thinking this week: There will be no bonanza for gas, he said, but instead steps to reverse the UK’s drift away from nuclear and to accelerate renewables via annual auctions.

Jill Junnola is the editor of Energy Compass, Jaime Concha the deputy editor of World Gas Intelligence, Phil Chaffee the deputy editor of Nuclear Intelligence Weekly, Philippe Roos a senior reporter and Jason Eden a reporter for Energy Intelligence. A version of this article originally ran in Energy Compass.

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