Why are energy bills so high now and what can be done about it? | Daily News Byte

Energy bills across Europe have soared in 2022, meaning many will face a cold and unaffordable winter. Our lawyer Thomas Burman is an expert in energy systems. We sat down with him to discuss the current situation and what can be done in the short and long term to resolve the situation.

Why are gas and electricity so expensive in Europe now?

There are many reasons, but almost all of them lead to one single cause – ours excessive reliance on fossil fuelsand especially fossil gas.

Much of the increase in fossil gas prices we’ve seen can be attributed to simple supply and demand – we depend heavily on fossil gas to meet our energy needs, but there is hardly enough available. As Europe began to recover from the COVID-19 pandemic in the summer of 2021, this led to a huge increase in gas demand and supply could not keep up. Then Russia – until recently Europe’s largest supplier of fossil gas – began to use gas as a political tool. After the invasion of Ukraine, Russia completely cut off most supplies to European markets. Speculation about deeper Russian gas cuts and strong competition for global LNG shipments to fill European storage have further boosted prices. Although prices have eased slightly from the extremes of a few months ago, we are likely looking at sustained high prices in the long term.

The extraordinary increase in fossil gas prices also had a major impact on electricity prices. Like any other good, the price of electricity mostly depends on how much it costs to produce it. We rely heavily on expensive fossil gas to generate electricity, especially during periods of high demand. Since it costs a lot to buy the fossil gas needed for this electricity, the production of this electricity also costs a lot.

And since electricity is a uniform good (the end product is the same whether it is produced by gas, coal, or renewables), it also has a uniform price. In other words, the high costs required to produce electricity with fossil gas set the price for all other electricity produced at the same time. While this may seem strange, it works the same way for all other uniform goods. Take milk, for example. Although different farmers have different costs to produce milk, you generally see the same price in the supermarket. This is because all farmers will sell their milk at a price equal to the cost of the most expensive producer – until supply meets demand.

What do you expect to happen this winter?

Unfortunately, it remains what will be this winter uncertain. Europe has so far struggled to find fossil gas elsewhere to meet demand and fill storage, but supplies from these sources are largely maxed out and remain uncertain. So this winter, a lot will depend on how well we can keep our fossil gas demand under control. If it’s us reduce and adjust our energy consumption (especially fossil gas). where possible, while at the same time doing what we can in the short term to improve efficiency and source energy from cleaner and cheaper alternatives, then we can avoid deepening the crisis. These efforts become even more important if we have a cold winter or if Russian fossil gas supplies are completely cut off.

Of course, many households and businesses are already doing everything they can to reduce energy consumption, and it is simply not possible in most cases to switch from fossil gas to cleaner alternatives or to make significant efficiency improvements in the short term. Therefore, much will depend on how well governments respond to the crisis by providing urgent help is necessarywhich is primarily aimed at those who suffer the most.

What needs to be changed to reduce the burden on households in the short term?

People are struggling to pay their energy bills, this is the reality across Europe. The most important thing governments can do in the short term is to provide targeted assistance to the most vulnerable – realizing that this group includes many more people than before the crisis. Vulnerable households, which spend proportionally more of their income on energy, suffer the most. They are also less able to insulate their homes or make investments that could help protect them from higher prices in the long term.

Lump sum payments, vouchers to cover energy bills and funding specifically related to energy efficiency or heat pump upgrades are good examples of targeted income support that should be implemented. Some of these interventions are easier to implement in time for this winter than others. Governments can also provide price support, which is aimed at reducing the price of gas and electricity (through, for example, tax cuts and network charges or freezing retail tariffs). However, governments should be cautious about providing this type of support, as it is more likely to increase our consumption of fossil gas.

Strangely, some governments want to expand fossil gas extraction and build new major fossil fuel infrastructure in response to the immediate crisis. Certainly, we must do everything we can to ensure that fossil gas supplies are used as efficiently as possible, but more fossil fuels is not the answer. Opening up new areas for fossil gas development and building new fossil fuel infrastructure will generally take years and further lock us into the energy source that got us into this mess in the first place. These actions do not solve the immediate crisis and divert funds and attention from measures that would really help this winter.

Many governments also propose different methods gas and electricity price limit, i.e. revenues generated from the sale of gas and electricity. These measures can do a lot to mitigate the impact of the crisis, especially if countries use this money to help pay their energy bills or to accelerate the introduction of renewable energy sources and energy efficiency measures to lower prices in the long term. However, they must be time-limited and protected from manipulation, as they can have major unintended structural consequences, such as energy shortages.

Unadvanced income taxes they also apply to fossil fuel companies that have made extraordinary sums of money due to high fossil fuel prices. It is critical that the revenue governments collect from these taxes does not go towards further increasing our dependence on fossil fuels (for example, by spending more money on even more fossil fuel infrastructure), but is instead spent on efforts to support households and businesses through the crisis and accelerate the clean energy transition.

What should happen in the long term to prevent it from happening again?

It is important to keep this in mind this is the fossil gas crisis. Electricity produced from fossil gas is expensive, while electricity produced from renewable sources is cheap. Of course, the cheapest energy is the one we don’t use. Therefore, all long-term interventions should have the ultimate goal of reducing (and eventually eliminating) our reliance on fossil gas.

This means a massive increase in the use of renewable sources without harming nature and the environment, and the electrification of end uses that depend on fossil gas, such as heating.

It also means focusing on energy sufficiency – reducing consumption to ensure that everyone has access to sufficient energy.

We also need to greatly increase our ambitions energetic efficiencyaccelerating the rate at which we rebuild our homes and industry.

And finally, our demand must become more flexible – we must be equipped with tools and incentives that will allow us to consume more energy when it is cheaper, and to reduce consumption when energy is more expensive.

What are we doing about it?

For years we worked for a cleaner, cheaper and fairer energy system. Our efforts are focused on reducing our reliance on fossil fuels, including fossil gas, in favor of creating clean, affordable and secure energy systems in line with the goals of the Paris Agreement.

For example, we challenge recent decisions by European institutions that will lead to more public and private funding being directed to the harmful expansion of fossil gas systems, when gas systems should instead be shrinking in favor of electrification. This includes the challenge to stop EU labeling fossil gas ‘sustainable’.

We also took legal action against the EU for supporting 30 gas projects across Europe. And we stand for fairer policies that remove the dominance of the fossil fuel industry in energy system planningensuring that people have a greater say in these processes.

Finally, we are taking legal action aimed at eliminating the dominance certain large companies have in our power systems, which will open up more opportunities for renewable energy communities and the public to take control of how their energy is produced and consumed.