Energy crisis and price caps, time for the EU to make choices, now!

Uncategorized - October 18, 2022

Summer is now drawing to a close and mild temperatures are giving way to rain and the first signs of bad weather and cold.
Unfortunately, however, the normal cycle of the seasons this year brings with it anxieties and worries if we consider that the greatest energy crisis the world can remember since the post-war period was not in the midst of it.
And it is precisely a war, arising from the Russian invasion of Ukraine, that is at the origin of this new, devastating, crisis.
Devastating because it is likely that it will be those countries, Italy and Germany in the lead, which over the course of time have decided to entrust the supply of their gas needs to Russian hands, that will probably pay the price.
And even if Gazprom’s supply continues, this will not be enough to completely halt the insane price rise we are witnessing.
This means a huge impoverishment for families and above all the closure of numerous companies that are unable and will be able to meet the new costs. We are talking about increases of up to 10 times the price of the previous year, a truly unsustainable trend for everyone.
But is war really the cause of all this, or are the causes to be found in a system that was wrong to begin with anyway? If we look at the problem, it is a European one, and it does not only concern gas bought in Russia, but all gas.
If we look closely, in fact, the increase is the result of liberalisation policies, which have entrusted the price of gas to the Amsterdam gas exchange.
Basically, on a daily basis, operators set the expected cost of gas and sell it at that cost. Clearly in a time of war, with Gazprom threatening to cut off supply, which has already reduced the daily flow anyway, they cause the price to rise steadily. Even if the cost of producing gas remains the same, it is the market that sets the value, with the blessing of those who, of course, speculate and get rich in situations like this.
At a time like the present, it is therefore clear that the crisis, albeit generated by a war, is the natural consequence of policies that have entrusted almost 50% of energy needs to Russia.
And while tomorrow the problem could be solved through the use of alternative sources, from wind to solar, from hydroelectric to clean nuclear, today we have to come to terms with reality.
Currently in Italy, alternative energy sources cover about 20% of requirements, the second highest value of energy coverage from renewable energy sources compared to the main European Union states (Germany, Spain and France, which, however, has nuclear power) thanks mainly to hydroelectric power, the remainder being oil and gas.
Therefore, the conditions do not currently exist to do without fossil energy.
How to counter the announced and predicted crisis while maintaining sanctions against Russia?
One of the emergency solutions is certainly that of buying gas from the United States, which has already made this available, but this requires the use of degassifiers, power stations capable of returning liquid gas to a gaseous state. In Italy there are currently three in operation, which are not sufficient to meet demand. For this reason, the activation of two other plants, in Piombino and Ravenna, has been planned, but unfortunately, due to bureaucracy, construction and activation times continue to lengthen and there is a risk of not arriving in time.

In order to counter the emergency, therefore, many EU member states had put forward a series of measures, some of which everyone agrees with, others not.
Let us look at them in more detail
1. Reducing electricity consumption by limiting supply;
2. Cap on revenues from electricity not generated by gas (including renewables);
3. Solidarity contribution from fossil fuel companies;
4. Increased liquidity to energy companies;
5. Price cap on gas;
Five measures that were to mark a starting point on which to work at the Extraordinary Council of Energy Ministers on 10 September.
One of the key points, however, was to be a reference index for the price of liquefied natural gas (LNG) untied from the Amsterdam Ttf, which would most likely have made it safe from speculation and enabled the creation of a representative and widely usable LNG price benchmark for forward supplies in the Union.
At the moment, the most important proposals, i.e. the cap on the price of gas and the exit from the Tft, have been dashed by the sharp rejection of some countries, Holland and Germany in particular, which do not consider these choices appropriate because they would damage their national economies.
Yet another divisive situation on central issues for Europe, which shows how the EU is currently in a particularly critical phase and how it is excessively influenced by the northern European nations and Germany in particular.
The latest act by the German Chancellor in fact was the allocation of a 200 billion fund to compensate for the high energy price, a fund that would create a disastrous domino effect for other countries and for the EU.
Scholz’s choice in fact not only puts a strain on the already weak European solidarity, but also distorts the market, given that thanks to this fund German companies will be able to produce at lower costs than their European competitors and in particular the Italians, and that it could lead to a domino effect on the part of the other countries in an attempt to protect their national interests in turn.
Controversy also surrounds Ursula Von der Leyen, the German president of the European Commission, who is accused of having ignored the letter in which 15 countries asked for a formal proposal on the cap on gas prices.
October will therefore be the crucial month for political choices and for the solidity of the European Union and, as even the current Italian Prime Minister Mario Draghi, who will probably represent Italy for the last time at the 7 October summit, admits, forecasts are anything but optimistic about the real cohesion and unity of views of the various heads of government.
In any case, the game, albeit a difficult one, is certainly all to play for: on 30 September there was the first meeting of the ministers responsible for energy matters of the member countries, to try to outline an initial starting point for what should be the EU’s path in facing the crisis.
The meeting saw the price cap front united, and in any case the need for common and shared choices. In particular, the French minister Agnes Pannier-Runacher declared: ‘There is an intense diplomatic activity underway, I have spoken about it with my Belgian, German, Spanish, Italian, Polish, Romanian and Czech counterparts, we are all aware that we have a responsibility, that of defending our companies and our industry, and of creating European solidarity around these energy issues.
A statement that therefore contrasts with the choices of Germany, which has in any case reiterated its no to the Price Cap.
Italy’s next likely prime minister, Giorgia Meloni, also calls on the member states to show a greater sense of responsibility, because ‘not even the member states that appear least vulnerable financially can offer effective long-term solutions in the absence of a common strategy’, statements that mark continuity with the work carried out so far by Mario Draghi.
It will soon be Meloni’s turn to defend our country’s interests and to reiterate the need, now more than ever, for the common good not to prevail over the interests of individuals, and who knows, she may find her best allies in the French.
Let us only hope that it is not too late.

FEMO