Energy markets in Europe are experiencing an out of the ordinary shock, average electricity rates have never been higher as natural gas and coal shortages have raised the cost of generating electricity from fossil fuels. This may be a sign of things to come, as the European Union plans to put behind decades of heavy reliance on its main supplier, Russia.
Consumers and industry in the old continent are already suffering levels of inflation never reached given the rise in fuel, metals, food and other goods. Energy-intensive factories are cutting output, which could stifle growth if it continues long enough.
Support from the International Energy Agency
Within the framework of the first cooperation workshop of the European Union (EU) and the International Energy Agency (IEA), the main actors came together to mitigate the impact of the Russian invasion of Ukraine in the energy sector from the EU. The IEA offers support to the 17 countries that have joined the project. This support is in line with the REPowerEU Plan, which outlines how to phase out the EU’s dependence on Russian fossil fuels and speed up the clean energy transition.
The Seven Levers
Cooperation with the IEA covers seven areas: supply and diversification of liquefied natural gas; biomethane production; intensification of international hydrogen trade; accelerating the deployment of rooftop solar and heat pumps; demand-side measures and energy efficiency; faster permitting of renewable projects; innovative hydrogen and renewable energy solutions for industry.
- Liquefied Natural Gas: The United States, Algeria, and Qatar, among others, can supply gas to the EU, but in the form of liquefied natural gas. This type of gas is cooled in the country of origin, transported through ships and re-gasified in the country of destination. This option may be viable since it diversifies the origin of the gas in the medium term, but it implies a large investment in infrastructure for the regasification plants. In addition, since it has extra stages, it will always be more expensive than the gas brought through gas pipelines (such as the one from Russia).
- Biomethane production: The EU set a goal to produce 35 billion cubic meters (bcm) of biomethane by 2030. If the goal is reached, 20% of Russia’s natural gas imports would be replaced by a sustainable alternative, cheaper and locally produced. Biomethane can also potentially help reduce exposure to food price volatility because a byproduct of its production replaces currently expensive synthetic fertilizers.
- Hydrogen: The aim is to intensify international hydrogen trade. This fuel can be stored in a gaseous or liquid state and distributed through gas pipelines, and can be a substitute for natural gas, and it does not emit greenhouse gases during its combustion if the electrolysis is made from renewable sources. The problem lies in the current high production costs and low volumes, albeit with a tendency to change rapidly.
- Distributed energy: The acceleration of the deployment of heat pumps and solar energy on roofs is promoted. These technologies promote energy efficiency, eventually reducing the consumption of natural gas for electricity generation.
- Demand-side measures: Based on variable or dynamic electricity rates, electricity consumption can be promoted or discouraged at certain times of the day. For example, in countries with a large amount of solar energy, setting low prices during midday can encourage consumption at that time and discourage it during the afternoon.
- Renewable Energies: It is no secret that solar and wind energy have been key to the energy transition since they have exponentially reduced their cost in the last decade, dramatically increasing their contribution to electricity generation. The IEA supports management mechanisms that allow faster permitting for renewable projects.
- Solutions for Industries: Although most of the previously listed keys focus on residential and transportation sectors, the industrial sector has a consumption comparable to the latter. Therefore, the IEA supports innovative hydrogen and renewable energies for the industry, such as financing mechanisms especially focused on these agents.
By Francisco José Galtieri, Former Senior Manager of the World Energy Council. MPA ‘21 in Energy and Environment (Columbia University) & Industrial Engineer (Technological Institute of Buenos Aires)