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Collapse of Europe's 'cheap energy' business model

by Kerem Alkin

Dec 23, 2022 - 12:05 am GMT+3
A model of a natural gas pipeline and a torn European Union flag are placed on a Russian flag in this illustration, Sept. 7, 2022. (Reuters Illustration)
A model of a natural gas pipeline and a torn European Union flag are placed on a Russian flag in this illustration, Sept. 7, 2022. (Reuters Illustration)
by Kerem Alkin Dec 23, 2022 12:05 am

The crisis perception being kept 'fresh' today is actually used to encourage households and the real sector to dramatically save energy throughout Europe

Europe has been facing its toughest challenges of the last 45-50 years. Difficult choices have come to the fore, such as whether to provide energy resources to industries or households in some European countries. Today, on the bright side, a severe energy and food crisis does not seem to be on the horizon as of yet.

However, the headlines and debates brought to the agenda by opinion leaders, European think tanks and nongovernmental organizations (NGOs) are highlighting the autumn of 2023 autumn and winter of 2024, pointing to a significant risk of crisis.

The crisis perception being kept “fresh” today is actually used to encourage households and the real sector to dramatically save energy throughout Europe. If the saving efforts are successful and the target of keeping gas tanks at least 30% full by the summer of 2023 is achieved, it will be easier to manage the fall of 2023 and winter of 2024.

The International Energy Agency (IEA), under the umbrella of the Organisation for Economic Co-operation and Development (OECD), recently proposed four important steps to manage the winter of 2024 in Europe during a meeting with the European Commission. The first step is to implement a range of measures to increase energy efficiency without delay. We are talking about the mobilization of all kinds of possibilities, from the insulation of the buildings to the commissioning of heat pumps. Heat pumps not only allow heating, cooling and hot water to be controlled from a single source but they also take energy not only from the air but also from the soil and water in a serious energy efficiency leap.

Renewable energy

The second IEA recommendation is to ramp up investments to increase renewable energy capacity and increase support for new renewable energy investments.

The third step is to spread a process that France started 15 years ago across all of Europe: Using electricity to heat buildings, in other words, drastically reducing or completely terminating the use of natural gas. Starting 15 years ago, France encouraged households to insulate their homes and switch to electric heaters, underfloor heating systems and air conditioning by offering serious incentives.

Today, with 15 years of insulation and relying on electricity for heating, France can manage the natural gas crisis with more space and flexibility – an ease that cannot be compared to Germany. The IEA now recommends this move for the whole of Europe, both to insulate and to heat buildings with electricity. This again prioritizes the fact that nuclear energy projects and renewable energy projects must be taken seriously.

The last step suggested by the IEA is for governments to establish accurate guidance that will encourage households, the real sector and energy consumers to make smarter, more effective and serious energy savings. European Commission head Ursula von der Leyen’s remarks on Wednesday that "the era of cheap energy for Europe is over," aim to trigger more ambitious steps in the field of energy efficiency and saving by confronting the European people with the facts.

Von der Leyen highlighted that Russian natural gas coming from pipelines has decreased by 80% in the last eight months, and the "cheap energy supply" business model for the European industry has ended thanks to this.

She also stressed that the only sustainable energy supply and cost model for European industries and small and medium-sized enterprises is to intensify the renewable energy and “green energy transition.” Faced with higher fossil fuel costs after Russian natural gas is phased out, the European industry will only be able to overcome this process through greater energy efficiency and savings.

About the author
Kerem Alkin is an economist, professor at Istanbul Medipol University. He currently serves as the Turkish Permanent Representative to the Organisation for Economic Co-operation and Development (OECD).
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