REST OF THE WORLD WATCHING
EUROPE WITH DOUBTS Most countries outside the EU, which have started their own journeys towards decarbonisation, have probably been watching the recent market developments within the EU with a great deal of doubt and anxiety. Indeed, the very ambitious targets set by the EU for a very rapid energy transition have backfired badly.
The EU has lost significant chunks of its heavy industry since 2000, due to spiralling electricity costs, with steel and cement producers, for instance, migrating to Eastern Europe and Asia. The prompt quarter German electricity contract reached a new record at €550/MWh in March 2022 and prices are set to remain at historically high levels for the foreseeable future.
Governments have had to step in to cap the maximum price increase utilities could pass on to end users. Ultimately, though, end users will face rising electricity and gas bills and experience directly the real cost of this very rapid transition to green energy. In fact, some pockets of “electricity poverty” are already emerging in the EU, as low-income households struggle to pay their energy bills.
The fact that at the recent COP 26 in Glasgow most of the ambitious targets were already watered down, in some cases significantly, reflects the increasing scepticism of developing countries. After all, if the EU is already struggling, how could they manage, given their own additional challenges?
Just to put things into perspective, the market price for EU CO2 certificates peaked at €90/t in December 2021. This equates to a cost of €33.7/MWh for a 50% efficient gas power plant and €68/MWh for a 45% efficient coal power plants. Such levels exceed the cost of electricity generation on its own in most developing countries.
Emerging economies are not ready yet to trade short- term economic growth (10-30 years) for potential long-term progress against climate change. Instead, the message being sent by China and India, amongst others, is that they will achieve an energy transition, but at their own pace.
Meanwhile it doesn’t mean that no investment in renewables will be made, quite the opposite. In fact for the first time in 2021, Indian combined solar, wind and other renewables (162.5TWh) exceeded hydro generation (150TWh). We estimate that a similar scenario could develop in China by 2025.
Guillaume Perret E:
guillaume.perret@
perretassociates.com
13 | ADMISI - The Ghost In The Machine | Q1 Edition 2022
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