Risks exist, but we are prepared: energy situation in Europe

10/ 10/ 2022

Listen to online Stop   Energy is given special attention among a range of crises that are fuelling the instability in the world at the moment. How alarming the situation is, what preparations should be made and which challenges companies are facing now - we discussed this on October 6 during the expert meeting Energy Crisis: Is There Light at the End of the Tunnel? organized by the European Business Association and Global Business for Ukraine. Is it more than just the energy crisis? Wojciech Jakóbik. Editor in Chief of BiznesAlert, energy analyst. High energy prices are the harbingers of recession. So it can be that we are in the front of the Great Depression similar to the one from the 20s of the last century. It does not sound good, but it is still better than World War III. The prices are so huge that people and companies limit their consumption. In Poland, the amount of gas consumed has already decreased by 17%. And by provoking the energy crisis, russia wants not to freeze Europe, but to inflame discontent in European societies. So that the EU national governments would be toppled and substituted by the pro-russian forces. This should be understood both by European business, which can take an example of resilience from Ukrainians and by European authorities, which should act more decisively at all levels.  Bruno Gouverneur. Head of ENTSO-E. An example of such decisive action was the synchronization of Ukraines energy system with the ENTSO-E this March. Accession took place in an emergency, so at the beginning, there were restrictions on the commercial exchange of electricity between Ukraine and the EU as there was a risk of destabilizing the network. Later, at the request of the Ukrainian side, ENTSO-E increased the available transmission capacity to 300 MW for the electricity export from Ukraine and plans to increase it further. It should be noted that these technical possibilities also apply in the opposite direction if it happens that Ukraine needs to import electricity from the EU. (Bruno Gouverneur)  Will Europe plunge into darkness? Bruno Gouverneur. Head of ENTSO-E. The ENTSO-E does not see the high risks of blackouts, but the situation varies by country. Thus, France found itself at risk of blackout due to a complex of factors, starting from the summer drought to the vulnerability of its nuclear units, and not only the war. So there is a certain risk of power scarcity, but operators are preparing for it together with the authorities and regional coordination centers. Thus, ENTSO-E can provide technical advice to EU countries on redistributing electricity demand. Whether such measures will apply to companies or private individuals - that should be decided at the national level.  Arben Kllokoqi. Electricity Expert for the Energy Community Secretariat. The intervention of European institutions in the situation should be made with maximum prudence. The markets have their red lines that cannot be crossed. So when making decisions, it is necessary to take into account the costs for business and the economy, as excessive restrictions can deprive industries of incentives to develop.  What does business think? Branimir Beljan. Regional Relationship Manager, Power Markets, Danske Commodities AS. Energy companies expect more clear regulation from the EU countries, namely, regarding the revenue cap for energy companies. Thus, energy prices will stabilize when it is known what to expect from each of the governments. At the same time, EU members unanimously agree that the future of Europe cannot be built on russian gas. Therefore, appropriate policies are taken to strengthen the regions energy security.  Stefan Moritz. Secretary General of European Entrepreneurs CEA-PME. The energy price crisis has already hit the members of the European Entrepreneurs CEA-PME. There is a risk that not all companies will survive this winter, but still, we can see that gas prices have already slightly decreased over the past month. Europe can use this crisis as an opportunity to redesign its energy system. But first, it is necessary to find a balance in different markets, develop effective subsidization and basic energy guarantees, etc.  Tiberiu Dima. Managing director BASF. In the example of the chemical sector, which supplies the base products for almost all manufacturing industries (such as agriculture, food, automotive, cosmetics/hygiene, construction, packaging, pharmaceuticals, and electronics) we can see that the use of RES is a promising direction, but its implementation takes time. A continuous supply of natural gas is essential for chemical production. In Europe, BASF uses about 60% of the natural gas it purchases to generate energy (steam and electricity) needed in production. About 40% of natural gas is used as a raw material to produce important basic chemicals and, in the value chains that build on them, a wide range of products for almost all industrial sectors. In the current context, the company expects price volatility to continue at a persistently high price level. BASF is monitoring the situation and will decide, depending on the situation, which adjustments may have to be made in the production value chains. At the same time, it is worth noting that renewables accounted for 16% of BASF’s electricity supply in 2021. The energy situation is serious but manageable in Europe. Thus, the speakers agree that the crisis can be mitigated if national governments, international regulators, and businesses work together. Actually, the Global Business for Ukraine platform was launched to establish a partnership, coordinate joint efforts and unify global stakeholders around Ukraine. We sincerely thank the participants of the event for this important discussion!

Energy is given special attention among a range of crises that are fuelling the instability in the world at the moment. How alarming the situation is, what preparations should be made and which challenges companies are facing now – we discussed this on October 6 during the expert meeting “Energy Crisis: Is There Light at the End of the Tunnel?” organized by the European Business Association and Global Business for Ukraine.

Is it more than just the energy crisis?

Wojciech Jakóbik Editor in Chief of BiznesAlert, energy analyst

High energy prices are the harbingers of recession. So it can be that we are in the front of the Great Depression similar to the one from the 20s of the last century. It does not sound good, but it is still better than World War III. The prices are so huge that people and companies limit their consumption. In Poland, the amount of gas consumed has already decreased by 17%. And by provoking the energy crisis, russia wants not to freeze Europe, but to inflame discontent in European societies. So that the EU national governments would be toppled and substituted by the pro-russian forces. This should be understood both by European business, which can take an example of resilience from Ukrainians and by European authorities, which should act more decisively at all levels. 

Bruno Gouverneur Head of ENTSO-E

An example of such decisive action was the synchronization of Ukraine’s energy system with the ENTSO-E this March. Accession took place in an emergency, so at the beginning, there were restrictions on the commercial exchange of electricity between Ukraine and the EU as there was a risk of destabilizing the network. Later, at the request of the Ukrainian side, ENTSO-E increased the available transmission capacity to 300 MW for the electricity export from Ukraine and plans to increase it further. It should be noted that these technical possibilities also apply in the opposite direction if it happens that Ukraine needs to import electricity from the EU. (Bruno Gouverneur) 

Will Europe plunge into darkness?

Bruno Gouverneur Head of ENTSO-E

The ENTSO-E does not see the high risks of blackouts, but the situation varies by country. Thus, France found itself at risk of blackout due to a complex of factors, starting from the summer drought to the vulnerability of its nuclear units, and not only the war. So there is a certain risk of power scarcity, but operators are preparing for it together with the authorities and regional coordination centers. Thus, ENTSO-E can provide technical advice to EU countries on redistributing electricity demand. Whether such measures will apply to companies or private individuals – that should be decided at the national level. 

Arben Kllokoqi Electricity Expert for the Energy Community Secretariat

The intervention of European institutions in the situation should be made with maximum prudence. The markets have their red lines that cannot be crossed. So when making decisions, it is necessary to take into account the costs for business and the economy, as excessive restrictions can deprive industries of incentives to develop. 

What does business think?

Branimir Beljan Regional Relationship Manager, Power Markets, Danske Commodities AS

Energy companies expect more clear regulation from the EU countries, namely, regarding the revenue cap for energy companies. Thus, energy prices will stabilize when it is known what to expect from each of the governments. At the same time, EU members unanimously agree that the future of Europe cannot be built on russian gas. Therefore, appropriate policies are taken to strengthen the region’s energy security. 

Stefan Moritz Secretary General of European Entrepreneurs CEA-PME

The energy price crisis has already hit the members of the European Entrepreneurs CEA-PME. There is a risk that not all companies will survive this winter, but still, we can see that gas prices have already slightly decreased over the past month. Europe can use this crisis as an opportunity to redesign its energy system. But first, it is necessary to find a balance in different markets, develop effective subsidization and basic energy guarantees, etc. 

Tiberiu Dima Managing director BASF

In the example of the chemical sector, which supplies the base products for almost all manufacturing industries (such as agriculture, food, automotive, cosmetics/hygiene, construction, packaging, pharmaceuticals, and electronics) we can see that the use of RES is a promising direction, but its implementation takes time. A continuous supply of natural gas is essential for chemical production. In Europe, BASF uses about 60% of the natural gas it purchases to generate energy (steam and electricity) needed in production. About 40% of natural gas is used as a raw material to produce important basic chemicals and, in the value chains that build on them, a wide range of products for almost all industrial sectors. In the current context, the company expects price volatility to continue at a persistently high price level. BASF is monitoring the situation and will decide, depending on the situation, which adjustments may have to be made in the production value chains. At the same time, it is worth noting that renewables accounted for 16% of BASF’s electricity supply in 2021.

The energy situation is serious but manageable in Europe. Thus, the speakers agree that the crisis can be mitigated if national governments, international regulators, and businesses work together. Actually, the Global Business for Ukraine platform was launched to establish a partnership, coordinate joint efforts and unify global stakeholders around Ukraine.

We sincerely thank the participants of the event for this important discussion!