Europe Energy Crisis: Varied Impacts Across Countries
The global energy market has been in upheaval for years, and Europe is facing a crisis. After coming out of a global pandemic, some power generators that had been shut down couldn’t ramp up in time for increased demand, according to Jonathan Stern, who studies natural gas at the Oxford Institute for Energy Studies. That situation, coupled with the war in Ukraine and underwater pipeline explosions or leaks, and the effects of one of the hottest, driest summers on record in Europe, has led to an energy crisis not seen before.
This crisis has left many countries wondering where to get their energy, how to diversify their energy sources, and to start to look into more renewable sources such as solar panels, wind farms, and hydrogen transportation. In fact, Germany recently launched a brand-new fleet of hydrogen passenger trains to replace 15 diesel trains. Due to the energy crisis, countries are being forced to look for new ways to move, produce goods, heat and cool homes, and keep rising energy costs down for citizens. Many governments are prioritizing the individual to safeguard people and families against the enormously rising price of energy impacting everyday living.
Europe Energy Crisis Business Impacts
The governments of these countries aren’t the only ones scrambling in this crisis. Multinational businesses now have to think about where their energy is coming from, how to diversify it to avoid shortages, and how to cut costs all at the same time to keep the lights on. Just like the governments in Europe, many businesses are being forced to evaluate their energy plans and look toward a more sustainable future for their company.
To get more insight on how different countries are feeling the effects of this crisis and trying to solve it, we asked Associates from Inogen Alliance in the following countries to give their thoughts from HPC Italy, HPC Germany, HPC France, denkstatt Austria, and Delta-Simons in the UK. Let’s dive in.
Country Specific Perspectives on the Energy Crisis:
Due to the ongoing conflict in the Ukraine, countries like Italy are now realizing how dependent they are on Russia for energy. Russia exports a significant amount of oil and natural gas to the European Union.
The crisis caused energy prices, including oil, methane gas, and electricity (mainly generated by methane gas) to soar. With inflation already at an all-time high, this is hurting citizen’s wallets across Italy. This also led to an increase in the cost of production and transportation of goods across the global market, including European production facilities, agriculture, and other sectors. All of that may lead to production plants shutting down in the future due to the higher costs.
While ESG sensitive clients were already increasing their use of sustainable energy, the current crisis won’t be fixed in such a short time frame by private initiative. Most clients already implemented Energy Management Systems and installed solar panels. Other clients could consider assessing their assets to understand the real impact of energy costs on their businesses and look to install solar panels to cut costs.
Unfortunately, renewable energy isn’t running on a large enough scale in Europe yet, so we can’t rely on it. Another issue is mainly associated with the way people live their lives currently. It’s hard to satisfy the current population’s habits, lifestyles, and expectations using only renewable energy. Things like people’s air conditioning needs, heating, meat production, transportation, general production, data centers, and even tourism can’t be covered by renewable energy alone at this point.
Current production practices for renewable energy still have a significant impact on the planet. For example, mining, construction, and transportation of the required metals and elements for things like electric car batteries, exhaust solar panels, windmills, and more still have a negative impact on the environment. On top of that, many of these materials can’t be easily recycled or reused right now, so waste management is another problem.
The silver lining in this crisis is that the European governments are currently supporting the creation of more renewable energies including solar panels, wind farms, and hydrogen transportation. However, this process will take years to ramp up. Governments are also signing contracts with alternative methane gas producers, which is a good sign.
Thanks to the ongoing crisis in the Ukraine, there is already a gas shortage in Germany. This will most likely accelerate the transformation to green energy. In fact, companies in Europe that rely on energy and/or water are pushing for more conservation options in the future. For example, in the context of ESG/sustainability and geotechnical infrastructure related services, demand is expected to increase because of this energy crisis.
This crisis is also accelerating many clients’ sustainability plans, but it is also increasing uncertainties. Despite the intention to save energy and identify potential renewable energy options, companies are unsettled because of the uncertain situation in Europe (recession/inflation, supply chain problems, energy supply, water shortages, etc.). This leads to a reluctance to make investment decisions, which then leads to a potential decline in orders. In fact, HPC, one of the leading engineering enterprises in the environmental sector worldwide, is already seeing in real estate projects.
HPC specifically is taking a hands-on approach to try to lessen this crisis. For example, we are involved in pipeline construction to bring green wind power from the North Sea to Bavaria in the south. We are taking on environmental, geotechnical, and other planning tasks. HPC also intends to participate in the planning services for the newly planned liquid gas terminals. However, these do not relate to the production of the energy. Right now, we are specifically looking for professionals with a geotechnical and engineering background to strengthen the team and expand our impact.
Due to this energy crisis, the energy basis in Germany will be broadened, coal or gas fracking will be reanimated if necessary, and green energy will be strongly expanded, which could be seen as a silver lining in this situation.
As with other areas in Europe, France is staring down a potential risk of gas shortage this winter. While it may be moderate, with some estimates that they have 90% of the stock they need, they are still lacking some. On top of that, there is a risk for an electricity shortage this winter. Electricity in France is mostly nuclear, which does give the country more energy independence. However, 32 of the 56 reactors in the country are currently off for maintenance due to corrosion and other issues.
Both of these potential shortages will most likely lead to an associated rise in energy costs. The government has enforced a “price shield,” where they contribute to limit the price increase for citizens. So, citizens could see a rise of 20-30% in energy costs, but not double or triple as it should be. In the same vein, companies and public bodies have seen their energy costs rising, sometimes by a factor two to 10.
This governmental “price shield” strongly limits the impact for individuals. The government evoked the possibility for energy restrictions for companies this winter as a last measure; but continue to focus on creating no foreseen shortage for individuals. So, the impact stays limited for employees as individuals. However, temperature in offices may have to stay at a lower level this winter.
In the production world in France, the larger production facilities with the highest energy consumption will see the greatest impacts. Some of them already have their production costs exploding. Their business model and viability may be questioned and challenged in case the situation becomes a long-term problem.
Combined with the Ukraine crisis and its impact on energy prices and availability, Europe had an exceptionally hot summer with record temperatures, dryness, and duration. This combined effect with the Ukraine war is causing clients to accelerate their interest in adopting sustainability plans and ESG business methods. Due to the high media coverage over these events and the impacts on energy, global warming, and more, sustainability is now a topic for all companies.
The future is uncertain for France, just like in other European countries. A lot of it depends on the evolution of the war and relationship with Russia and tensions there. Right now, stakeholders are struggling to get nuclear plants back to function, but if they do, that may decrease some of the pressure.
Austria’s energy system is still heavily dependent on Natural Gas for heating and industry purposes with a post war ratio of 70-80% of this gas sourced from Russia. Energy prices for all energy types have gone up from diesel (+66%), electricity (10%), biofuel e.g. wood (+50%), natural gas (+72%), and light oil (110%). On top of that, the Austrian Refinery OMV, which supplies the local market with fossil products, had an accident in June reducing the capacity of the plant to 20%. This influences the supply of light oil for heating purposes in the Austrian market.
All of this has led the typical costs for energy to have gone up 50% on a year-to-year basis on average. Depending on contracts and the kind of energy uses for heating, this can go up to 200% more. Some heating material is already hard to get by (e.g. wood, light oil). The government has launched a price stop package to support families. A strategy has been developed at the moment for how to distribute gas first to private use and then to the industry sector. The higher energy prices also have an impact on many industries, which drives up consumer prices and inflation.
To alleviate these issues, the government has created a plan to become independent from Russian gas by 2027. An initiative “Mission 11” was launched to support people and help them save 11% on energy without investments. With energy prices going up, private homes and the commercial market have increased their investment activities for things like solar energy solutions or heat pumps. Additionally, a political discussion started (also on the EU level) to reorganize the electricity production away from natural gas.
The Office of National Statistics (ONS) released figures in June 2022 that show all sectors of the economy are struggling under rising prices and inflation, particularly relating to the rise in the cost of energy. Over 77% of large UK businesses report that energy costs are a ‘broad-level’ concern.
Because of this, addressing ESG, notably around Net Zero commitments in the property development and construction sector, represents an enormous challenge for policymakers, advisory, and commercial organizations alike.
The first and most fundamental step is to recognize that ESG is good business and that it should be at the heart of every project, not an afterthought or an add on. The vast majority of global businesses, and many regional businesses, have Net Zero targets and a range of other commitments.
Understanding the impacts of what we are undertaking is key. Under initiatives such as the EU Taxonomy (expected to be reflected in the UK Green Taxonomy) and through others such as TCFD and TCND, there are a range of drivers for sustainable construction and development. In addition, at this time in particular, there has never been more focus on energy efficiency and local energy generation.
In a poll (Business Energy Tracker) of over 200 businesses, 50% of these believe that the energy crisis will have an effect on achieving Net-Zero. But there is no getting away from the climate crisis. Human activity is overloading the natural carbon cycle, which is unequivocal and unsustainable (IPCC 2021).
As the number of climate related disasters increase, so does the economic cost to businesses. Small and medium-sized enterprises (SMEs) make up 99% of businesses in the UK, however many do not have the resources to implement ESG or sustainability teams and/or initiatives effectively into their businesses. The government needs to provide initiatives and business leaders, and larger corporations need to set the pace and lead by example. Companies need to adapt to be climate resilient and mitigate and adapt to extreme weather events. Despite the energy crisis, we need to act quickly.
Many companies, including the Lucion Group, are no longer waiting for policy makers to make positive changes within their business. There’s a mutual benefit to taking climate action now. Committing to climate action, installing ESG policies, and setting targets appeals to the client, the employee, and the modern investor.
Investors are increasingly focused on ESG (Environmental, Social and Governance) factors as green or sustainable investment influences the investment market. Green business is increasingly seen as good business, and, after all, who wants to be unsustainable?
For more regional and country-specific perspectives and updates continue to follow our blog as we curate content across our 78 global Associate companies giving a true local lens on the current environment.
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