Failed Energy Policies and Impending Global Financial Crisis
It has been making noise on FinTweet the past couple of months, and finally starting to hit mainstream news as households and businesses are receiving their first electricity bill upgrades reflecting current trends in electricity prices. Energy is now more than ever a world wide concern as winter approaches amid growing international tensions between the West, Russia, and China.
Although the underlying issue was always present in the background, the inevitable energy crisis accelerated after the military conflict between Russia and Ukraine began earlier this year.
Europe decided to heavily sanction Russia following its violent military intervention in Ukraine. Whether righteous or not, Europe shot itself in the foot by showing its fellow Ukrainian friends compassion, all while willing to flex its muscles to Russia, as it quasi almost entirely depended on Russian gas exportation to properly function. Russia represents almost 30% of the world’s gas production, and a disturbing 45% of European Union’s imports. You simply cannot remove such an energy actor from the map and make up for this loss elsewhere. Sanction? Yes, maybe. But at least analyze whether you are prepared to assume the consequences beforehand. Because the first to get hit by the sanctions on Russia are the people. Now instead of assuming the consequences and reevaluating their decisions, they’re playing the cry babies. This just displays a lack of strategic preparedness.
And as winter approaches, the people will have to face severe headwinds thanks to a series of poor energy strategy decisions taken over the past 10 years, as climate change narratives grew more importantly amongst local, and national political campaigns, with very little educated arguments made along the debates.
One of the many resulting consequences in the coming months might be sky high energy costs, mass non payments of electricity bills, businesses going under, blackouts, and energy rationing debates getting mainstream with the climate change excuse as a back up for the argument. Europe is impoverishing itself at a fast pace. And that is getting reflected in the Euro’s purchasing power vs the US Dollar as it hit a 20 year low sub 99cents per dollar.
Europe has unintentionally entered a doom loop because of its failed energy policies. And the unpreparedness is causing panic amongst decision makers. If You Fail to Plan, You Are Planning to Fail. And panic brings new layers or irrational decision making. Europe is now shooting itself in the foot, with the head of the European commission at the front line.
Weaponized energy? Who sanctioned the world’s largest gas producer, and main energy supplier to Europe without any back up solution? But the answer to that is even better…
Let’s analyze the above tweet. Reduce electricity demand? This sounds like a hint at energy rationing. Let’s see how the people accept this. Help vulnerable consumers & businesses with revenue from the energy sector? Let’s see how companies will welcome a hijacking of their balance sheet from governments. This sounds like communism. Enable support to electricity producers facing liquidity challenges linked to volatility? In high inflation environment and upcoming recession, other dominos will have fallen before.
And I dedicate a paragraph to my favorite idiocity: Price Cap on Russian gas pipeline. How can you set a price cap on something that is non existent? Russia literally shut down the pipeline. This is impossible and simply a false claim to try to prove the general public that Europe is in position of power against Putin. In fact, the way a price cap would work, is that Europe will continue to purchase Russian gas at market price, while setting a “virtual cap” to be reflected on end users’ electricity bills. So the price cap consequence won’t be passed on to Russia, but to Europe itself, which will have to buy Russian gas at market price, and print the difference with the help of the European Central Bank. And the only way to achieve this plan, especially in times of high inflation fueled by higher sustained energy prices, is through the implementation of a yield curve control program which I discussed in a previous article here.
By the way, Europe implementing YCC without the US going for a similar type of policy would create a dollar wrecking ball on the global economy. An EU YCC would strengthen the US dollar as the Euro represents 58% of the dollar index, strongly impacting emerging markets currencies which are highly dependent on the USD, and forcing them to unload US Treasury bonds to defend their local currencies and not default on their sovereign debts. A 2022 Sri Lankan type of financial crisis could rapidly spread across other EM countries. This causes a systemic risk as a generalized unloading of US Treasury bonds would send yields much higher and force the Fed to intervene by in turn, having to go with YCC to cap bonds. The domino effect in full power.
Will Europe prevail? Unlikely. Europe will fold under pressure one way or another. The doom loop has begun and there are now 3 solutions. These are, rely on the US Federal Reserve to pivot back to lower interest rates as soon as possible to devalue the US dollar and help Europe afford its energy importation bills; do a 180 degrees collective turn around and successfully switch to a friendlier relationship with Russia, at the expense of their reputation and Ukraine’s friendship; or last solution, which will inevitably cause social unrest across the continent, energy rationing.
The game theory for Europe to play is: will Russia sustain in a myriad of economic sanctions, or will it fold and open the pipelines’ valves? The answer will come down to how much Russia was prepared and expecting to face a load of sanctions.
How did once glorious Europe get into such situation, and how to collectively respond to climate change challenges that undoubtedly have to get tackled through long term sustainable solutions, all while ensuring energy self sovereignty and independence. One of these answers I believe is nuclear energy. I will argue in favor of nuclear by discussing a case study that has entertained France for many years: the Fessenheim nuclear plant shut down.
The case study’s ultimate goal is to highlight how in-education and incompetence from certain political groups, mainly influenced by the growing green movement can have heavy long term consequences for the energy challenges stated above.
This case study is the work of @laydgeur on Twitter, from whom I translated a thread dated 2019 that I think is important to bring back to life in 2022.
Back in 2016 French President Hollande made it a presidential campaign priority to shut down the Fessenheim nuclear power plant. The plant officially shut down in 2020.
Fessenheim’s 2 nuclear reactors produced 12TWh / year. The 8,000 French wind turbines produce 28TWh. Fast forward some basic maths, we got that 3,400 wind turbines are needed to produce the same amount of electricity as the 2 reactors, assuming no intermittence (wind 365 days/year and no maintenance needed).
Now in order to correctly place 3,400 wind turbines, you would need to draw a 24km diameter circle and space each 120m high turbine by 500m.
This is how it would look like around the nuclear plant. It’s beautiful isn’t it?
So the Fessenheim plant used to produce 12TWh. That’s MASSIVE. To have a better idea, the 2 nuclear reactors alone used to produce 100% of Lithuania’s annual consumption, 1/3 of Danemark’s, and 20% of Portugal and Greece. These figures can be found on the International Energy Agency’s website.
Picking up on Denmark, it would take 3 Fessenheim nuclear plants, so 6 reactors to completely decarbonize their electricity production. Which is by the way, the exact specification of the Gravelines nuclear power plant in the North of France. The plant cost €2.3B at the time (about €7B adjusted for inflation) and was built within 10 years.
The rise of wind turbine energy in Denmark began in the late 90s. 20 years later, their CO2 emissions per capita from electricity are 3x that of France, although 12x the population and 15x bigger energy consumers.
If Denmark chose 6 nuclear reactors like those of Gravelines instead of going all in on wind power, their CO2 emissions from electricity would be at quasi zero long time ago, and they would have avoided 100M tons of emission since.
The legitimate question to ask when shutting down such a power plant like Fessenheim is what will provide and make up for the 12TWh loss? Despite the beautiful utopian green and renewable energy future preached by incompetent politicians seeking votes, the replacing electricity will come from gas & coal. Whether domestic or imported from Germany, CO2 emissions will rise regardless to replace electricity production that was once clean.
So now we ask ourselves, what was the RATIONAL reason to shut down Fessenheim’s nuclear power plant?
Too old? You don’t abandon a ship just because it’s too old. If it’s safe and working, it goes against all durability logic.
Unstable production? 12 billion kWh produced in 2018, averaging 10.9 billion kWh annually.
Too polluting? Regarding greenhouse gas emission, nuclear energy is the same as renewables. The entire life cycle is taken into account: uranium mines, construction, exploitation, dismantling, waste…)
And regarding other main atmospheric polluters, nuclear is also the cleanest:
Too much waste? You see the Louvre pyramid here? Just in front of it is a little 3x3 meter blue cube. This is all the nuclear waste produced by Fessenheim in 2018.
Too dangerous? The authority in charge of nuclear plant safety declared Fessenheim “very satisfying” and “in line with previous years, actually stands out positively relative to the nuclear fleet average”.
Not designed to sustain earthquakes? Nope. It was correctly designed, all good, even after the post Fukushima revaluation.
Too expensive? Fessenheim cost €7B adjusted for inflation. 3,400 wind turbines cost close to €10B, and their efficiency decreases with time.
So then, why on earth did perfectly working Fessenheim shut down, as it produced plenty of CO2 free electricity?
It all began with Hollande who sought to “greenfy” his image and go after the anti-nuclear and green party supporters to win precious votes for his 2012 presidential campaign.
Stuck in this “our votes against Fessenheim shut down” pressure maintained by the green political party EELV and co (now part of NUPES), no one had the courage and rationality to step back from this utterly stupid political decision.
We can thus say that the Fessenheim nuclear plant shut down was sacrificed in a big shit show of political incompetence in order to satisfy anti-nuclear and green party voters stupidity, or lack of eduction at best.
One would hope that this sacrifice would become a case study to portray the absurdity of irrational political decisions fueled by the chase for votes against all common sense, and the moronic influence of anti-nuclear groups on a country’s energy and climate change strategy.
Ultimately, it appears that there is hope and optimism coming out of this energy situation. But it will unfortunately take years to build the necessary infrastructures and make up for past mistakes. We had to get into such a crisis for the greens to finally understand (hopefully) the challenges.
