Energy prices are skyrocketing, owing mostly to a significant increase in the price of natural gas. Few regions experience this more severely than Europe, which relies largely on gas imports for both heat and power. Natural gas currently costs up to €150 per megawatt-hour (MWh) in Europe, up from an average of €49/MWh last year.
One approach to weather the storm is to expedite the transition to renewable energy, but is there any indication that this is occurring in the short term, Energymonitor.ai analyses?
The good news, according to a recent analysis by climate think tank Ember, is that gas power generation is being phased out in favor of renewable energy, which has become the cheapest type of electricity by far. The EU’s proportion of power generation from fossil fuels fell from 39 percent in 2019 to 37 percent in 2021 last year. Over the last two years, renewable electricity has grown at a rate of 44 terawatt-hours per year, with wind and solar power accounting for more than half of that growth.
The bad news is that renewables were supposed to replace coal rather than gas until now. According to the Ember research, from 2011 to 2019, more than 80% of new renewables came at the expense of coal. Because there aren’t currently enough renewables to replace both, the drop in coal is stalling because there aren’t enough renewables to replace it — they’re too busy replacing gas – and yet coal emits far more pollution than gas.
Meanwhile, the surge in gas costs has not yet resulted in a mass shift to renewable heat sources like as heat pumps, though their proportion is expanding. Because most homes find it difficult or impossible to change their heating source, price signals are insufficient to convince them to do so.
Gas prices in Europe are at all-time highs, while renewable energy prices are at all-time lows. However, this is not causing a significant rise in renewables; it is simply shifting renewables from replacing coal to replacing gas. Experts blame the “merit order,” in which the most costly power plants set the total price.
This is a perilous period for people who advocate for collective climate action. Eastern European countries have already begun to inform their citizens that EU climate policy is to blame for rising energy rates. Further price rises are also likely to diminish public support for climate policies in Western Europe if it is seen that they would result in higher prices. This has irritated experts because the move to cheaper renewables is what will address the pricing dilemma.
There is also a risk that the flagship instruments for combating climate change would be thrown off track as a result of the excessive price volatility. Too much government aid, particularly for businesses, would undermine the pricing signals intended by the EU ETS to encourage investment in renewable energy, Energymonitor.ai says. Smaller effects can be apparent as well, such as when high power prices make the benefits of driving an electric car less visible.