Electricity Prices, Consumer | These are the real reasons for sky-high electricity prices

(The online newspaper)

The energy crisis in Europe has sounded the alarm. In England, they have had electricity prices above 30 (!) Kroner per kWh, coal prices have never been higher, critical industry such as fertilizer shuts down because gas has become too expensive – and experts will in no way rule out that there will be power rationing in the spring.

The situation is referred to as the “perfect storm”. Lack of gas, high CO prices, increasing consumption out of pandemic, little wind for wind power, little water for hydropower.

But these things are either wanted or expected. The whole point of CO₂ pricing is to make it expensive to emit CO₂. Gas is fossil and something you want to get rid of. The “Norwegian argument” that gas is important for Europe’s phasing out of coal has been ridiculed.

That the historic shutdown of society in the pandemic is over and getting the world back to normal is all everyone has been hoping for for a year and a half.

So what exactly is the cause of the crisis?

Hungarian Prime Minister Viktor Orban recently tried to place the responsibility, by point to the EU’s climate action as the root cause.

– Today’s gas prices are where they should be in 2035. Brussels is not the solution today, they are the problem, he said.

EU President Ursula von del Leyen completely rejects this. She believes the problem is that the EU uses too much fossil, and she believes instead that “It is important to invest in renewable energy that gives us stable prices and more energy dependence.”

– Europe has created this power crisis itself

The challenge for Europe is precisely that the renewable electricity production that one wants is not stable, and low wind has just been one of the main reasons for the extremely high prices. When it is not windy, the power must be produced in another way, otherwise it will be dark.

In Denmark, wind and solar power are the most important sources. When it blows a lot, they have enough production to cover their own consumption (black line in graph), but are completely dependent on imports when it does not blow enough.

– I believe that Europe has created this power crisis itself. They have cut back on their own stable production and made themselves dependent on unpredictable production, says Ketil Solvik-Olsen to Nettavisen.

Solvik-Olsen was previously an energy policy spokesperson for Frp, and has in recent years worked for a number of companies after he resigned as Minister of Transport. He is also deputy leader of Frp. He believes politicians have little understanding of the energy market.

– People have politically closed their eyes to the fact that increased prosperity means more energy use. And then they have been so preoccupied with counting co-units that they have almost compared a wind power plant with a coal power plant, and not included the energy volumes. It has been politically correct to talk up sun and wind. I’m not going to talk it down, but the downside of sun and wind is that it is not adjustable.

Missing something crucial for the transition

Replacing something stable with something unstable is very challenging. The mains must always be in balance:

When you start charging the electric car, production must be increased. When it is finished, production must be cut. With hydropower, it’s very simple. With coal power, it takes time.

With wind power it is impossible. Instead, there is a risk that electricity production will increase when you need less energy. It’s a huge problem.

– In the long run, when you have lots of hydrogen that you can use to produce electricity, then you do not have to worry about changing weather, then you have energy storage as we have in hydropower plants. But we are not there now! That is the problem.

– In the shift from oil and coal, to what you want in the future, you have removed production so quickly without the buffer being in order. Batteries are still too expensive, and hydrogen is still too expensive. Then we may well have visions of how things are in 20-30-40 years, but now we experience the consequence that the change is not in harmony.

– We have shut down too much of the bottom load production that was needed, we have become too weather dependent. Then it will not take much – just a little withholding of gas from Russia – before the whole system becomes unbalanced, says Solvik-Olsen.

Created a twice as big problem

In 2010, Europe’s most important industrialized country had decided to phase out coal power. Instead, they should let nuclear power play a key role in the green shift: Energiewende.

But in 2011, they panicked after the Fukushima accident. Thus, the policy was to shut down the CO₂-free nuclear power at a record pace, simultaneously as one should achieve the climate goals by removing coal power.

In 2010, Germany had 21 gigawatts of nuclear power. Now there are 8 GW left. Sweden has also reduced its capacity by around 1/3.

In comparison, the whole of Norway’s electricity consumption in the summer is 10–12 GW.

From enough to too little

Germany is today almost self-sufficient in electricity, but next year all nuclear power will disappear from Germany. Then they do not have enough power for themselves, and renewable construction does not go fast enough. The possibility of removing coal power is just a distant dream.

Nuclear power has largely been replaced by coal power. There has been no climate success.

The plan was to replace this with wind and sun, but the development has been slower than one had hoped for. The problem of under-investment is not just a German problem, according to a new report from the International Energy Agency:

Public spending on sustainable energy in economic recovery packages has only mobilised around one-third of the investment required to jolt the energy system onto a new set of rails, with the largest shortfall in developing economies that continue to face a pressing public health crisis. Progress towards universal energy access has stalled

IEA World Energy Outlook

They have not managed to either upgrade their power grid as much as necessary. The wind is still blowing in the north of Germany, while the industry is in the south. Monstermaster is unpopular there too.

So bad is the net that Germany would not guarantee that they received electricity from Norway, when a new power cable was built there.

– It’s about understanding the volumes. A nuclear power plant is 1200–1600 megawatts (1.2-1.6 GW), and then we talk perfectly even production all the way. If you want the same amount of power production from wind turbines, you must have three times as much installed capacity. This means that you have to build 4800 megawatts of capacity to cover it, says Solvik-Olsen.

A modern wind turbine for land, is around 6 megawatts. That means you have to build around 800 pieces to replace one nuclear power plants.

A huge problem

One argument for wind power is that it is cheap to build, but it entails a very expensive problem: What do you do if it does not blow when you need electricity?

In practice you must have an alternative. In Europe, the alternative is largely coal and gas-fired power plants, which are just waiting to be needed. It is extremely expensive, and means that these power plants must have a very high electricity price before they start up.

Imagine that you got a job where you had to buy a new car, be available 24 hours a day at very short notice and that you needed 1-20 hours a month. How high an hourly rate should you have then?

In the electricity market, the most expensive energy source used at any given time determines the price. If you only need a little extra pig electricity, all electricity producers will be paid equally well.

– I have no doubt that we are moving in the direction of renewables and that it makes sense, but it takes longer than you think. Nuclear power will probably be a sensible part of the energy mix to a far greater extent than today. First, it is not very space consuming, and it is very predictable.

The world is not investing enough to meet its future energy needs, and uncertainties over policies and demand trajectories create a strong risk of a volatile period ahead for energy markets.

IEA

He thinks it is closely related to the hydrogen investment:

– If you had nuclear power at the bottom of the renewable system, you could have used nuclear power to produce hydrogen when there is a lot of sun and wind. Then nuclear power can simmer and go all the way. Then you could put the hydrogen plant there, and in practice use nuclear power for storage capacity and transport.

– It would give a more robust system and far more predictable prices, rather than you having a bunch of oil, gas and coal power plants lying in mill bags, ready for production at short notice. It is an enormous amount of capital that you tie up in reserves that you would rather not use. It costs the shirt.

– Would like to be a fly on the wall

Solvik-Olsen believes that the decision to remove nuclear power in Germany must have been made against better knowledge.

– I would like to be a fly on the wall in the German Ministry of Energy when they discuss this professionally, because it is not connected to reality. The challenges are that energy prices are an important part of the input factor for industrial production and business.

– You survive periods of fluctuations, although it is not nice, but when you get such a price level as you have in parts of Europe and England – where you have that 20-30 kroner per kWh for short periods – how to operate business that way? Everything produced can be shipped. Then you can avoid the high prices by establishing yourself in other countries, he says.

For the industrial nation Germany, this is potentially catastrophic.

High electricity prices make everything more expensive

Solvik-Olsen says that he works daily in a company that works with foundations:

– We use a lot of steel and concrete. Only in the last week have we received letters from several suppliers about higher prices as a result of higher energy prices. Steel prices have more than doubled, and one supplier had to increase the prices of concrete by 30 per cent. What does this mean for Obos or the Norwegian Public Roads Administration? What does this mean for the prices of the product you are going to deliver? What does that not mean for the price per square meter of new apartments? Selvaag does not sell for the same price if prices go up by 30 percent.

– Many people talk about you seeing it on the electricity bill and the gas pump. But they do not think that you look at everything that has been produced in the industry. We are hitting ourselves to that degree, both directly through energy prices, but also indirectly through how it affects other links in the chain.

– The EU boss thinks more renewable will give more stable prices?

– The day you have so much hydrogen production and battery capacity that you can think of all wind power production in there when there is too much production – and get it out again when you need it – then she has a point. But my contention is it’s a long time until we’re there.

– Has nothing to do with Acer

At the same time as Solvik-Olsen believes that the EU has a long way to go to thank itself, he rejects the common theory that it is Acer that gives higher electricity prices:

– One must not let Acer remove the responsibility from those who have actually made the decisions. They have nothing to do with this. We would have had exactly the same exchange cables today even though we were not in Acer. The strategy that Åslaug Haga presented in 2008 that Norway should be Europe’s battery, it was a conscious strategy that Norwegian hydropower should help Germany get rid of coal power. We were going to sell electricity, and buy it cheap back when they had overproduction – and pump the water back up in the reservoirs. In practice, the strategy was to exploit Norwegian hydropower to help the Germans. It has nothing to do with Acer, but big man crazy politicians who were to save the world, says Solvik-Olsen.

Everything is connected to everything

But the energy crisis is not just about what is happening in our neighboring countries: what is happening in Europe now has a direct connection with what is happening on the other side of the globe:

– We have a globalized economy, where development has been faster than politics has been able to keep up with. There are now prices that apply all over the world, and you have flows of goods that go all over the world – and you have epidemics that go all over the world. A lot of this is good, but we have not really taken into account that there is a lot of uncertainty and risk in it, says Ole Gunnar Austvik, professor of political economy and petroleum economics at the Innlandet Business School.

Like Oppland Arbeiderblad on Facebook

–