The current energy scenario is the closest thing to a war we have experienced for a very long time. And what’s worse: the consequences of what happens in that war are far more important to everyone than those of any other kind of conflict we are currently experiencing — assuming nuclear weapons don’t come into play.
What is going on, and why can we label it as anything less than “war”? What we are experiencing is a balance of power between energy generating and distributing companies that want to make as much money as possible, countries that are willing to sacrifice the planet’s environmental objectives in exchange for brief temporary relief, and others who want to modify the entire system so as to address our real problems.
Let’s start at the beginning: Europe’s energy problem is a global one. In Europe we tend to blame the unjustifiable invasion of Ukraine by Russia and the blackmail that an autocrat like Putin intends to exercise with gas prices, but the reality is that we are living through the forced transition of the entire energy system from one based on fossil fuels, and that we now know for sure (except for a noisy minority of stupid deniers) was unsustainable, to one based entirely on renewable energies, something scientifically demonstrated to be completely feasible.
Nobody should doubt that this transition must take place as soon as possible. The evidence is increasingly clear: we are heading towards climate instability that is already threatening the survival of millions of people, and will soon make life impossible on this planet. The problem is, obviously, how to carry out this transition, and above all, on what timescale. During the last few years, the strategy was clear: an auction system that sets energy prices at the highest production cost. The reason? Because companies, faced with such a system, would choose to produce as much energy as possible at the cheapest rate, with the incentive of being able to charge it at the most expensive prices. Essentially a carrot approach: “behave yourself, invest in renewables, and I will pay you what you produce at a much more expensive price”.
Problems? A pretty obvious one: greed. Energy is a very special industry: there are few players, they’ve sold everything they produce, and consumers do not have the option of not consuming. With few exceptions, electricity companies have made efforts to lower their costs by investing in renewables, but without killing the goose that lays the golden eggs, the gas and coal-fired plants that really set the price. These generation costs make no sense to anyone… except for the electricity companies, which use them to set the price of the total energy produced and make a lot of money.
The system is a failure, and needs replacing, urgently. But then, of course, a war broke out. The price of gas went through the roof, and the speculators in the energy market made a fortune. For the shareholders of the electricity companies, the best of all possible scenarios. But for the rest of us, a nightmare. And for the planet, if we try to fix the problem with short-term solutions, another nail in the coffin.
The response has been to return to coal, subsidizing prices, easing gas taxes, or even lowering the price of carbon dioxide emissions, as Poland is demanding. These short-term solutions may lower our electricity bills… but they go in exactly the opposite direction of what we need: they lead us, precisely, to consume more of what is destroying our planet, at an increasingly evident speed. But as we know, human beings, and especially politicians, are bad at seeing cause and effect and tend to worry only about what happens during their term of office.
Is there another way to prevent millions of households from falling into energy poverty this winter? Yes. Implementing a strategic vision: if the energy market is broken, and condemns us to energy poverty while boosting the profits of electricity companies that are in no hurry to decarbonize, the evidence is that we are doing everything backwards, and that we have to change it as quickly as possible, even retroactively if possible.
How? Very simple: if the carrot has not worked, let’s move on to the stick. From now on, the price of energy will be determined by the average price of the most efficient production systems, i.e.: hydroelectric, solar and wind. Suppliers who provide gas, coal or nuclear power will be paid at the price of renewable energy. And if these companies continue to run expensive power plants, they will eventually go out of business. All this, moreover, taking into account that it will not be enough to invest in renewables: suppliers will also have to invest in storage systems — batteries, reversible power plants, green hydrogen, etc..
The immediate result will be cheaper electricity prices. Much cheaper. Electricity companies will see their profits reduced, but that’s the way it is: they had time to prepare, and decided not to: a strategic mistake they will have to pay the price for. And in the medium and long term, there will be a huge increase in investment in renewables and storage, which governments will be able to encourage, as the United States and some other countries are doing.
Will the electricity companies protest? Of course they will. They will file complaints, threaten to stop investing or cut off supply, and who knows what else. All of them will do so. However, some, particularly those that have invested most heavily in renewables, will become leaders, and will have a strategic opportunity: in sectors in which there are rapid regulatory changes of this type, opportunities arise in very interesting ways. For those that don’t, governments will have to decide whether to force those who produce such a basic necessity as energy to work for the good of all and of the planet, or to decide that, since they are not up to the task, they should opt for nationalization, a last resort. Let’s remember: we are not facing “global warming”, we’re facing a CLIMATE EMERGENCY. And emergencies require emergency solutions, not hot air and short-termism.
This is war: one of the most important and powerful lobbies in the world, the electricity industry, against the world. Against the whole world, even against themselves, but they don’t care about that: all they want is to close the quarter with profits and take their bonus. If we choose to lower carbon dioxide prices, subsidize gas or other short-term solutions, we will be destroying any chance of saving the planet in time. If, on the other hand, we change from carrot to stick, we still have a chance.
The option is there, what are we going to do with it?
This article is also published on the author's blog. Illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.
Enrique Dans is Professor of Innovation at IE Business School in Madrid, and Senior Advisor for Innovation and Digital Transformation at IE University. He writes daily in Spanish on enriquedans.com, and in English on Medium. He has written two books: “Todo va a cambiar” (2010) and “Living in the Future” (2019).