John FitzGerald: Energy supply disruption promotes case for renewables

EU policy needs to ensure setback caused by current crisis does not become permanent

The most immediate impact of the war in Ukraine on the world economy is through energy markets and gas supply. Almost 40 per cent of the European gas supply comes from Russia, gas prices have risen sharply and there are real fears about security of supply.

Countries are switching back on coal-fired power plants that were due to close, including at Moneypoint in Ireland, to keep the lights on. Across Europe, and here in Ireland, dirty coal is replacing cleaner gas in electricity generation. So the short-term impact on the climate is negative.

Our main success in Ireland in tackling greenhouse emissions has been through the changing composition of electricity supply. We have closed most of our peat-fired generation, we plan to shut Moneypoint by 2025, and wind energy has become a big share of total electricity output.

A consequence of this progress has been that Ireland has become very dependent on gas-fired generation when the wind does not blow. Reversion to coal means that emissions this year from electricity generation are likely to be significantly up on 2021. We need these to fall substantially if we are to reach the legally binding 2030 target and stay within our carbon budget.


Bidding up

In an effort to address the supply squeeze, European consumers are raising the bidding to attract to Europe supplies of liquified gas that would otherwise go to Japan, China and Indonesia – and putting up LPG prices across Asia as a consequence.

To replace the gas diverted to Europe, Asian countries will also become more reliant on coal-fired generation. The impact on the US, where gas prices are much lower, is likely to be less dramatic, however, because they only have a limited capacity to export liquified natural gas at present.

However, the long-term effects of the current energy market turmoil could prove brighter for climate change. The situation highlights renewable electricity as being clearly the cheap and secure option for consumers. The exceptional rise in fossil fuel prices greatly strengthens the incentive to switch to greener electricity.

As highlighted last week in this paper by the Economic and Social Research Institute's Muireann Lynch, the extensive deployment of onshore wind generation over the past two decades has already kept electricity prices lower than would an alternative mix.

This year, the relative gain from using wind energy is likely to be even bigger. Thus the public service obligation charge on our electricity bills, which is there to support renewable electricity, is likely to disappear this autumn, saving consumers almost €10 a month.

Virtually all of the direct cost of renewable electricity is due to the cost of the equipment, with minimal operating costs. This means that the price of renewable electricity should not vary like the price of fossil fuels. So investment in renewables is not only essential in securing our energy supply, but is also an investment to protect against future spikes in electricity prices.

Grid investment

Provided that the planning system makes it possible, over the coming years we are likely to see very large investment in renewable electricity to replace coal and other fossil fuel generation. This investment must also include major expenditure on the electricity grid – the wires to get the renewable electricity to consumers.

While scrambling for coal or oil as short-term substitutes for Russian gas, other European countries are also likely to have a stronger focus on renewables in their future energy mix. So the longer-term impact on climate policy of the turmoil in energy markets may be more positive for the planet.

Because gas will remain essential to generate electricity when the wind does not blow, there remains a challenge to ensure an adequate and secure supply of gas, not only for Ireland, but particularly for EU countries like Germany, which are currently heavily reliant on Russian supplies.

To be secure, this supply will need to come from diverse sources, so that it is not susceptible to disruption by future wars, earthquakes or tsunamis. To ensure an adequate supply, producers of natural gas will need long-term fixed-price guarantees, set a bit higher than average rates in the past, but below the current European spot price.

The wider European regulatory framework may need to be reviewed, including rules around state aid, and the how the environmental impact of renewable energy projects should be assessed in the wider climate context. As Muireann Lynch pointed out, choosing the right energy mix involves trade-offs, and an appropriate electricity market design.

EU policy needs to strike the right balance so that the setback to the climate caused by the current energy crisis does not become a permanent blow.