Energy Transition Under Fire As Power Bills Soar

For a long period of time, the energy transition was primarily a technical topic concerning the transformation of the energy grid. Technological developments and the decreasing costs of renewables have made it a viable alternative to fossil fuels. The integration, however, of these new systems requires considerable investments meaning money that directly or indirectly will be provided by ordinary citizens through taxes or their energy bill.

In most parts of Europe, the energy transition is in full swing for a carbon neutral future. The EU has set itself the goal of fulfilling at least 20 percent of its total energy needs with renewables in 2020. Currently, the percentage of renewables in the overall energy production differs between member states such as 10 percent in Malta and 49 percent in Sweden.

Denmark was one of the first countries in the EU to seriously start planning for the energy transition. Early planning, broad societal support, and political will have fostered a strong domestic energy industry. Danish company Vestas is the largest wind turbine producer in the world with approximately 16 percent of the global market share. The energy transition is not cheap which requires the allocation of precious resources that could be spent otherwise. The rising energy bill, however, threatens to derail the process in several countries.

In recent weeks, France was shaken up by major demonstrations led by the so-called ‘yellow vests’ movement which was triggered by the rising costs of living. The French government intended to raise taxes for transportation fuels in order to discourage car usage and pay for the energy transition. The protests escalated into a nationwide movement that eventually forced the government to backtrack on the intended tax hikes.

The German public opinion has shifted dramatically after the nuclear disaster at Fukushima Japan. The Energie Wende policy was born out of the necessity to produce clean electricity which is safe at the same time.  Despite the enormous costs totaling an estimated $181 billion to build the foundations of a carbon-neutral economy, Germans still overwhelmingly back the energy transition. However, Germany is facing difficulties as it’s not on track in reaching its self-imposed goals despite massive investments. This could erode the public’s support for additional costs. Also, the ambitious goals of Berlin and Copenhagen have created the two most expensive electricity markets of the EU. Related: Oil Prices Rise On Small Crude Draw

In most European countries the energy transition is just starting to take off while prices are already very high compared to historic averages. When rising costs start to influence voting behavior, politicians could also backtrack on their self-imposed goals. In most Western European countries populist parties have become a real threat to the establishment. Besides anti-globalist and anti-immigration views, these contenders also share skepticism on global warming and their country’s intention to decarbonize the economy. In the Netherlands the PVV and FVD parties oppose mass investments in the renewable sector, in France Marine Le Pen of the Front National has called the Paris agreement “flawed”, and the AfD is against Germany’s energy transition. The electoral success of these parties is a threat to the energy transition.

In the Netherlands, the energy bill is expected to increase by an average of €327 next year. Taxes and subsidies to stimulate electric car usage, install solar panels on rooftops of household and additional costs to discourage natural gas consumption are triggering a public debate on the fairness of the energy transition. The wealth gap between high- and low-income households risks becoming even wider as policies favor those with excess resources to invest in financially beneficial arrangements in order to decarbonize the economy.

Despite the impressive drop in costs concerning wind turbines and especially solar panels, the public’s support for the energy transition is being shaken up by higher electricity prices and ethical issues. Eventually, the bill for the energy transition will be paid by ordinary citizens. Ensuring that everybody benefits from this transformation without leaving certain groups behind, will determine the speed and eventually success of the transition.

By Vanand Meliksetian for Oilprice.com

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