The European Commission has named the price of abandoning Russian gas and equipping all residential and commercial buildings with solar panels. This will require more than half a trillion euros. However, the real cost of such a move would be much higher. Europe is in danger of losing industry and becoming an agrarian union. There will be winners in this story
The European Commission has estimated at 565 billion euros the rejection of Russian gas and the transition to renewable energy sources, Bloomberg reports. According to the plan, by 2027 the EU will install solar panels on all commercial and public buildings, and from 2029 they will begin installation on new residential buildings.
Will the European Union succeed in such a maneuver and why does Europe risk losing its industry and turning into an agrarian union?
The EC plan leaves much to be desired.
“What we have been seeing in the EU since the beginning of the summer, in my opinion, is already a shock situation for the European energy sector. Apparently, Europe needs to replace Russian gas earlier than it plans, because the flow of gas from Russia has already seriously reduced,” says Sergey Kondratiev, deputy head of the economic department of the Institute of Energy and Finance.
The second problem is that this plan relies entirely on unscheduled generation, the expert adds.
“The European economy needs gas primarily in winter for the production of heat and electricity. Leaving this task to solar panels in winter is an exotic idea, because in winter there are often cloudy weather and short daylight hours. This means that it will be necessary to build a lot of such solar panels, which may require significantly more investments than the announced half a trillion euros”, explains Kondratiev. In the summer, he says, the opposite situation will arise, when solar panels will generate too much electricity, and it is very difficult to store it for the winter.
“Wind energy operates largely in antiphase with the sun and historically produces higher output in winter and lower output in summer. But what’s the problem with windmills? Firstly, all attractive locations are already occupied by wind farms. There aren’t many good spots left. As a result, as the wind park grows, the overall installed capacity utilization factor does not increase, but decreases. At first it averaged 25%, but now it is less than 10%. That is, the more windmills are built, the less their efficiency. With solar panels, the situation is approximately the same”, explains the deputy head of the economic department of the Institute of Energy and Finance.
The second problem is the unpredictability due to the weather. In 2020, 2021 and 2022, Europe experienced very long periods (months) of no wind, which creates risks, the expert adds.
Another problem is the warming climate in Europe, which may affect the efficiency of renewable energy.
“At the end of spring and this summer in Europe, there was a record drop in production at many hydroelectric power plants due to drought. In France, in the past few years, a drought has been observed almost every two years. Although 30-40 years ago, a dry summer was once every 10-15 years. As a result, Europe in the short term may need to replace not only Russian gas, but also hydropower,” says Kondratiev.
According to him, over the past ten years, Iran had to go through such a path. Previously, hydropower was the backbone of the energy system here, but constant drought has reduced the capacity of hydroelectric power plants. At the same time, more energy was required, including for the normal water supply of the country.
“This means that from an economic point of view, the new energy system will be inefficient. On the one hand, its construction will require much more investment than announced. On the other hand, energy companies will receive significantly less income than during the traditional market. A new energy system based on renewable energy will not be able to exist without subsidies,” says Kondratiev.
The EC is missing from its assessment of the energy transition one of the most serious consequences of moving away from gas and switching to renewable energy, which the Europeans are unlikely to like. This is the de-industrialization of the European economy and its transformation into an agrarian one, as happened in Ukraine after two Maidans.
“Now the European economy is at the very beginning of this process, and it still has the opportunity to change something, that is, for the time being this process is reversible. But if this mechanism is launched, then it will not be easy to stop it,” said the deputy head of the economic department of the Institute of Energy and Finance.
In fact, Europe’s largest carmaker, Volkswagen, has already warned it will move production out of Germany if the gas shortage lasts longer than this winter. The concern has production facilities in China and the USA, where energy prices are much cheaper than in Germany. One year VW may suffer losses in Germany, but then it may gradually increase production outside the EU, while reducing output within the EU.
That is, if gas prices in Europe remain high for several years, then European companies will begin to transfer their production to where energy is cheaper. This will affect not only automakers, but also much more energy-intensive industries – chemical, non-ferrous metallurgy, etc. Large multinational companies are already declaring that they are reducing investments in Europe and increasing them in America, where the cost of energy is several times lower.
“At first glance, it may seem that deindustrialization is good, because Europe will reduce energy consumption. On the other hand, large-scale industry allows the creation of high-paying jobs, including in the service sector, logistics, consulting, etc. The economic well-being of Europe is based on this industry – German, French, and so on. If we see the degeneration of industry, then Europeans will face a serious decline in living standards. Moreover, there will be difficulty in financing the green energy that the EC wants to switch to. A renewable energy system is less efficient than a traditional one and needs subsidies to operate. Where will the EU find the money if there is no industry,” notes Sergey Kondratiev.
Of course, this will not happen overnight, the process will be long. But the main thing is that Europe will not only harm itself economically, it will also play along with its own economic competitors. Because while the capacities of factories in Europe will lose weight, in the same America and Asia they will increase.
“During the energy crisis of the 1970s and 1980s, the United States was in the same serious energy crisis as Europe, but China did not yet exist as a world economic power. Now we see that in the US energy prices are several times lower than in Europe, and a strong economy has emerged in the face of China, where energy prices are also significantly lower than in Europe. This creates opportunities for the flow of economic activity from Europe to the United States and China, which was not the case in the 70s,” the source concludes.
The main beneficiaries of this whole situation in Europe and its rejection of Russian gas are the United States and China. Russia, on the other hand, must understand that even if after some time political relations with Europe improve, the European sales market will seriously shrink due to deindustrialization, says Kondratiev. Therefore, the tilt towards the search and conquest of alternative sales markets, which Russia is doing now, is even more justified.
Olga Samofalova, VIEW
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