Weekly Dose of ESG — A Self-Inflicted Pickle
A Self-Inflicted Pickle
Friday, 10th September 2021
What is going on?
A natural gas and electricity price rally has hit the European continent — with short-term UK spot market prices at an all-time high, the price of wholesale electricity in Germany having doubled since the start of 2021 and gas prices trading at a rare premium to crude oil. To top things up European gas reserves are below average due to prolonged winter and geo-political tension with Russia.
This is not a good sign, since it is still summer, and the impact of this price rally won’t be limited to a couple of commodity trading firms’ balance sheets — but will eventually reflect in our energy bill. Citigroup estimates that there will be a 20% increase in average European dual-fuel consumer’s utility bill. As many households are still recovering from the pandemic’s financial distress, this phenomenon begs the question: How did we even get here?
Why is this happening?
The answer to this question is an ironic wakeup call full of complexities. Apart from the expected seasonal price fluctuations we can point to a few reasons behind the price rally:
- Lower-than anticipated wind power generation (simply because…well…the wind didn’t blow) created a need for a short-term alternative energy supply — of course, oil and gas were readily available to help out.
- Simultaneously, many companies felt the “side effects” of carbon pricing — while, in the past, energy companies would switch between gas and coal to keep the prices at a certain level, a surge in carbon prices and coal phaseouts meant that this was no longer an option.
These two conditions hint at the challenging future for renewables, where many question their reliability in times of unprecedented weather patterns and increasing natural disasters.
- The usual geo-politics tensions, controversial projects like Nord Stream 2 and increased natural gas demand from China.
- Last but not least — inefficient policies around nuclear power. Nuclear provides a much “cleaner”, steadier source of energy to handle short-term demand and supply fluctuations… However, years of nuclear phase-out movements lead by emotions rather than scientific evidence has only yielded one solution for the replacement of nuclear energy: The opening of new coal power plants. The logic behind such choice escapes us too.
What is the message here?
So we’re in a bit of a self-inflicted pickle here — we demand for heavier carbon prices and root for renewable energy but fail to realise that those cannot meet the energy needs of entire nations. With the phase out of “dangerous” nuclear energy underway, energy companies have no choice but to revert to oil and gas, leading to price surges while perpetuating the cycle of environmental calamities.
In this fragile debate, where many different views, opinions and ideologies clash, we, once again, find refuge in the sphere of scientific evidence. As we find ourselves in a time of rapid technological progress, the latest energy usage and R&D numbers hint at a future where renewables and nuclear work hand in hand to meet the world’s energy needs. The recent advancements in thermonuclear technology, aiming to at replicate the fusion processes of the Sun to create energy, offer a promising glimpse on a safer way of harnessing power without generating any nuclear waste.
Ultimately, we’re faced with a choice between renewables and nuclear or oil and gas — not really a choice, though, is it?
Sending you positive energy,
Paula & Nicolas
