Prof. ST Hsieh
Director, US-China Energy Industry Forum
September 13, 2022
Berlin’s temperature is about 53 Fahrenheit or 13 Celsius in the morning, homes need to be heated. So, it is understandable that Germany takes the lead the race to fix energy crisis. But energy crisis is faced by every country in Europe with various challenges, it will be difficult for the European Union leadership to get a good “deal” signed off by all her member nations. “Energy ministers will hold an emergency meeting on Sept. 30 to discuss them” reveals the challenges: it takes at least two weeks’ time to settle a meeting agenda for the “emergency meeting.” Energy crisis in Europe is a very hard nut to crack, all the proposals on the table do not address the fundamental question of balancing supply and demand. Because sanctions against Russian energy after the war in Ukraine started more than 200 days ago essentially give Putin fully control of European’s gas valve.
With uncertainty of natural gas supply from Russia, any emergency plan will only be short-term stop gap measures. Europe is also under the mercy of mother nature; the best hope is for a mild winter. The other unintended or unaddressed consequence of this energy crisis is the callosal economic downturn in Europe. It will spill over to the global economy and then recoils back to Europe; it is a downward spiral for the world. There is no winner.
Europe should be focused to end the war in Ukraine and rebuild an inclusive global order.
Germany, EU race to fix energy crisis
Christian Kraemer and Christoph Steitz Tue, September 13, 2022 at 5:08 AM
BERLIN/FRANKFURT (Reuters) -Germany will step up lending to energy firms at risk of being crushed by soaring gas prices, it said Tuesday, as Europe readied proposals to help households and industry cope with an energy crisis.
The European Commission will on Wednesday announce targets to cut electricity consumption and a revenue cap for non-gas fuelled plants. Energy ministers will hold an emergency meeting on Sept. 30 to discuss them.
Separately, the EU’s securities watchdog is considering measures to help energy firms struggling to meet rocketing collateral demands. Firms were caught out by surging prices after Russia cut gas supplies to Europe to counter Western sanctions following Moscow’s invasion of Ukraine.
The crisis is weighing heavily on Europe’s economy, even before winter when industrial users could face rationing if gas reserves prove inadequate. Industry sentiment in the bloc’s economic powerhouse, Germany, has tumbled.
“Of course we knew, and we know, that our solidarity with Ukraine will have consequences,” German Chancellor Olaf Scholz said on Tuesday. He urged Germans to brace for a tough winter as its energy supply shifts from Russian gas.
Under pressure utilities are in line for further state aid.
Germany’s finance ministry wants to boost state loans for energy firms using facilities set up to offer relief during the COVID-19 pandemic, it said. The German cabinet is expected to approve draft legislation on Wednesday. The loan guarantees could amount to 67 billion euros ($68 billion).
Last week, VNG, one of Germany’s biggest importers of Russian natural gas, became the latest energy firm to ask the government for aid.
Uniper, the country’s largest importer of Russian gas, was bailed out in July. It is weighing legal action in Sweden to claim billions of euros in compensation from Russia’s Gazprom, Reuters reported on Tuesday.
RAFT OF EU PROPOSALS
Companies may also benefit from an easing of regulations.
The European Securities and Markets Authority (ESMA) is “actively considering” whether any regulatory measures are necessary to help support energy firms, a spokesperson said on Monday.
ESMA regulates clearing houses in the EU, which in turn set minimum levels of collateral based on risks from markets and counterparties. Public intervention in this area is rare, especially after the global financial crisis over a decade ago led to tougher margin requirements. A draft of the European Commission’s proposals, seen by Reuters, would cap at 180 euros per megawatt hour the price at which wind, solar and nuclear plants could sell their power in the 27-nation bloc. It would also force fossil fuel firms to share excess profits.
Governments would be required to use the cash to help consumers and companies facing sky-high energy bills.
EU officials said, however, that plans for emergency liquidity support for power firms facing soaring collateral needs were still being drafted, and would likely be published later than Wednesday.
NO GAS PRICE CAP Diplomats say there is broad support for a revenue cap for non-gas generators, as well as plans to impose electricity demand cuts. But countries are split over other ideas – including a gas price cap.
The EU has also backed away from an earlier plan to impose a price cap on Russian gas. Countries including Hungary and Austria had opposed that idea in case Moscow retaliated by cutting off the supplies it still sends to the EU.
Meanwhile, investor sentiment in Germany deteriorated more than expected in September as concerns over its energy supply weighed on the outlook for Europe’s largest economy. “The prospect of energy shortages in winter has made expectations even more negative for large parts of the German industry,” said Achim Wambach, president of the ZEW economic research institute.