“This is the moment to be bold”
While prices in various energy and electricity contracts have retreated from their highs, the energy back and forth in Europe continues once again this week. Whether it’s an Italian rebar manufacturer that restarted production a week ago to shut it down again due to cost issues, or the German government struggling to find solutions, things continue to be turbulent. (The Belgian PM warned that ongoing energy problems could cause the EU economy “go into a full stop”). However, all may not be lost, and it appears that policymakers may be warming up to some “novel” ideas…
In a speech earlier this week, the UK’s new Prime Minister Liz Truss laid out the broad strokes of her plan for dealing “with the soaring energy prices faced by families and businesses across the UK”. The contents of her plan include “a temporary suspension of green levies” and an “Energy Price Guarantee” that would mean “a typical household will pay no more than £2,500 per year”.
The plan also includes an equivalent guarantee for “all businesses, charities and public sector organisations” that will last for six months. However, while price caps may not exactly be groundbreaking, other parts of the plan, though not truly novel, run counter to the prevailing winds. Truss explicitly said that she would not be calling for funding her plan “through a windfall tax”, saying that such a move “would undermine the national interest by discouraging the very investment we need to secure home-grown energy supplies”. To the end of pursuing that last point, Truss announced “we will end the moratorium on extracting our huge reserves of shale” and announced the coming launch of “Great British Nuclear”, putting the country “on the path to deliver up to a quarter of our electricity generation with nuclear by 2050”. This second part, moving toward nuclear, is perhaps not that unexpected. As push has come to shove, the black sheep of nuclear energy has again come into favor, with Germany providing further clarification this week about how its nuclear phase-out would be modified given current exigencies. However, Truss’s plans regarding fossil fuels are likely to be more controversial. In addition to ending the moratorium on shale, the plan includes “a new licensing round” for oil and gas production. Here, things may become somewhat stickier as Truss still plans to take steps “to ensure we deliver net zero by 2050”. Though there may be some initial red tape, the inclusion of expanding hydrocarbon supply may indicate that policymakers are growing more realistic about some of the tradeoffs they may be facing down the road.
As an aside, China “plans to add 270 gigawatts of thermal [coal] capacity in the five years through 2025”. Cutting cleanly to the issue that appears to be facing many countries around the world, the article notes that “New Chinese coal plants have been expected to face restrictions after 2025 amid a green push, but priorities changed somewhat in the wake of a power crunch in major industrial hubs.”
