Africa begins turning Europe Green

I have been waiting for this:

Twenty blue chip German companies are pooling their resources with the aim of harnessing solar power in the deserts of north Africa and transporting the clean electricity to Europe.

The businesses, which include some of the biggest names in European energy, finance and manufacturing, will form a consortium next month. If successful, the highly ambitious plan could see Europe fuelled by solar energy within a decade (link to news story).

This is an important project that may turn out with similar risks as buying gas from Russia, it may reduce Europe's security of supply rather than boost it. And in some ways importing primary electricity from so far away may threaten the ability for Europe to handle its peak load.

I don't want to be a party crasher on this, and I'm not even going to talk about the technical requirements for the project, but my assessment comes out of my research into Europe's energy security of supply. But I hope I'm wrong here, or at least there are ways to mitigate the risks involved.

The main risk that is inherit in this project is the production and transfer of electricity from outside the EU and through some politically or potentially politically unstable countries. It is reported that Morocco, Libya and Algeria will be used as production sites. First, will the electricity go around through the planned North Africa/Mediterranean electricity grid or will it go under the Mediterranean? Now what is interesting the consortium is being lead by Munich Re, a reinsurer. Therefore, you would think that the risk premium attached to this project would be low - or at least it is certainly being taken into account in the price of €400 billion. And interestingly enough, the company says it is taking this step because of the mounting cost of global warming. Therefore you have the convergence of two risk premiums coming together, with the distant energy source having a lower rating. This may become a case of low risk premiums being priced into the price of electricity UNTIL the electricity is turned off, then it increases. Think oil and gas -oil the risk premium fluctuates daily, while gas only changes when it is turned off.

The projection of the project is that this can provide 15% of Europe's electricity requirements. This is certainly a sizable amount, but what must be asked is what percentage will need to be kept in reserve in case some or all of this electricity is turned off? Just as gas storage is seen as a way to buffer against supply disruptions, so to does electricity that is being used daily from North Africa need to have some type of reserve requirement.

This very project of importing solar electricity from North Africa is actually part of a question I'm currently asking people for a project. Most have said, yes it would be a good thing to bring more green energy into the electricity mix, but most have express reservation based on the security of supply. They equate it to importing gas from Russia. It should work great when it does work, but prepare for those rainy days which even the Sahara receives.

Hungary Offers a Cannister of Gas to Freezing Serbia

Hungary has decided to send a little gas Serbia's way. While this is certainly a good thing, it can be seen as a reluctant step to help out a freezing neighbor. The question is should Hungary send more to a neighbor that has no reserves and is freezing its butt off now. That is since heating has been turned of for some residential customers? Also, how does contribute to CEE/SEE regional cooperation Hungary has called for?

The amount of gas that Hungary is sending to Serbia between 1 to 2 million cubic meters is just about the same amount that is being sent from Austria to Hungary (1.5 million cubic meters as of Weds. MTI-subscription only). While it is stated that amount being sent is also equal to the amount that Hungarians conserves (spongy estimates in a cold snap). So in reality the reluctance of the Hungarians to send gas and to make it seem that they are giving charity to Serbia is lame since they are only 'taking' Austrian reserves and sending those through to Serbia.

In crisis situations there should be a willingness to help out ones neighbor. And even then, there should be an attempt to make some sacrifice to ensure your neighbor is not freezing to death. For Hungary to offer the bare minimum, which only is equal to the amount not consumed in Hungary - and related to what is being sent from Austria, is similar to sending half a life jacket to your drowning friend while you sit in the boat.

The final point here is also, the idea of regional cooperation. The NETS project organized by MOL is being established which in a situation like this could help out by operating a regional gas reserve. There will no doubt still be national gas reserves, but under infrastructure improvements and greater coordination, reserve requirements and places for storage can be spread throughout the region. Moving gas between countries when external supplies are cut off is a key element for increasing the security of supply in the CEE and SEE region. NETS is being built with this partially in mind. But success can only come if mutual trust and a willingness to help out exist - Hungarian actions do not qualify.

Importing electricity free of CO2 standards

"Cheap electricity, want some cheap and dirty electricity." That's the possibility.

Over the past few days the same topic came up with a few people, importing electricity from outside the EU without a 'carbon tax.' The possibility exists that once Europe gets going on the European Emissions Trading System (ETS), that electricity produced further east could serve not only as a place to locate manufacturing (mentioned further below), but as a location to import cheap electricity from.

Importing electricity from Russia, the Ukraine, Belarus and from whoever else can manage to connect their power plants to the UCTE network, will offer the ability to undercut electricity producers in the EU. And more importantly, it will also undercut the very goal of reducing CO2 and other emissions to prevent the globe from really heating up (as compared to only slightly). Of course importing electricity into the union is dependent on the size of the interconnectors besides the use of existing ones, will we be seeing a huge building of newer interconnectors with the peripherial countries of the EU? Possibly, and here is why.

Poland is 96% dependent on coal and has not acted quickly enough to diversify. Now manufacturers and producers are freaking out about the looming implimentation of CO2 emmission quotas. There is a fear that manufacterers could easily pick up and move next door to the Eastern countries. However, wouldn't it be easier to build interconnectors to an external EU neighbor, which every country has the right to do, then ship this electricity into the country for manufacterers? While I would expect there are no big plans currently for this, particularly with Russia (excluding a merchant line from Russia to Sweden), the situation may arise if the price differential is great enough. Market forces of supply and demand may take over and make such projects feasible, even over current diplomatic relations.

Russia already has plans to not only build a nuclear power station in Kalingrad but to boosts its electricity producing capacity domestically to ship to the EU (as it already does to China). So the question that arises is 1) will the EU impliment a carbon tax on imports quickly, 2) accept imports for the short-term but not the long-term, 3) or do nothing in order not to sneak in some cheap electricity to help out those emerging economies that need a little support?

The last option is lame, and undermines the basis of EU actions, the second option may be the muddled policy response the EU puts together, however, just as there's been a history of EU opinion on the phasing out of long-term power purchase agreements, there also need to be excplicit statements that any infrastructure that is built is at risk for having a carbon tax imposed on imports. Thereby making it clear that power plants and transmission lines built must also be commericaly viable under a CO2 quota system. The first response could still happen quickly enough, but I think ambiguity will reign for a while.

Which ever way carbon taxing goes, it is clear that specific regional associations need to be linked by larger groupings which play by similar rules. But that is a topic for another day.

EU Strategic Energy Review

The EU came out last week with its latest Strategic Action Plan. On a quick read of the highlights I think this goes in the right direction. And while I still must actually read what is planned, it on the surface appears headed in the right direction, particularly since it points to a goal of a "high-efficiency, low-carbon energy system" by 2050. I think it is best if we take this end point and work backwards in the memo issued.

The key points of the memo list the following broad strategic areas:

- Infrastructure needs and the diversification of energy supplies
- External energy relations
- Oil and gas stocks and crisis response mechanisms
- Energy efficiency
- Making the best use of the EU’s indigenous energy resources.

Let me approach the list in reverse.

Making the best use of the EU’s indigenous energy resources.
I was at a conference a few weeks ago, and there was a large collection of policy makers, academics, usual-sorts-of-people, with a nice mix of Russians and people scared of Russia (including Georgians). After the first day I was convinced that a) the Nabucco was a pipe dream if the EU didn't step up to the plate and push the project like the Russian government has pushed South Stream. b) Everyone, but the Russians, were constantly whining about the Russians and how they can use gas as a weapon. Well, I thought, 'if Russian gas is such a problem then don't buy it.' As simple as that. Whatever the statistic say, I can imagine that the EU countries can come up with an energy solution that does not rely on Russian gas. There are other options.

While the Energy Plan describes a new push for Nabucco, it may be addressing my idea of put-up or shut-up. That is, boosting EU indigenous energy sources with energy efficiency these can play a large role in mitigating gas dependence. But the main thing is to move the former Soviet satellites away from their gas depedency, as they are the most dependent on their former ruler. There are other issues in this category, but I won't go into these at this time.

A new impetus on energy efficiency

This is it! I've never been more convinced about the need to put into place EE projects. This must be elevated at even a higher level than building generation and other big infrastructure projects. Why? Because these big infrastructure projects will certainly command the attention of politicians and those that are already are well placed to influence policy making and the where investment money goes. The hardest part is implimented policies and monitoring the progress on the smaller EE projects that need to be done. This is the largest challenge of the future, and how the EU tackles this and not only makes these requirements for governments to follow, but it is having the right programs that promote EE and ensuring governments tackle this in a constructive and the least wasteful way.

Improved oil and gas stocks and crisis response mechanisms

Not much to say on this topic. Fairly routine and boring, but just hope you are not a Baltic country which relies/relied on oil from Russia.

A greater focus on energy in the EU's international relations

Ah, this is it.

The EU needs to intensify its efforts in developing an effective external energy policy; speaking with one voice, identifying infrastructure of major importance to its energy security and then ensuring its construction, and acting coherently to deepen its partnerships with key energy suppliers, transit countries and consumers.

Acting together, like the EU should on external issues. I just read that Szarkozy was complaining that he was the one that had to take the lead on the Georgia conflict and also the financial crisis. Well, while I'm sure the leadership role works for him, apparently, he has become more convinced about the need for a full time EU President. I say this because it brings up the issue of coherency in the EU and not just a common energy policy, which everyone agrees with the broad and even some detail provisions. But there will need to be a common stance on Russia. This should be a possibility, since by the time that this document is adopted PM Gyurcsany will be out of power, allowing a stronger stance against Russia - at least for Hungary.

Coherency in policy and a strong driver for a specific Caspian Sea pipeline (i.e. Nabucco) can only be accomplished if the EU acts jointly and like Russia. In fact, the EU will have to work harder than Russia to get Russia's friends - the 'Stan countries' to commit to supply Europe with Gas. Of course they would prefer the higher prices paid by the Europeans than Russia but culturally and historically and geographically it is easier to do business with the Russians. So the EU must overcome this surmountable obsticals and put some money up and drive the companies forward through and dipolomatic channels.

I'll save the final point: Promoting infrastructure essential to the EU's energy needs
For the next blog post, as this is a great area to really talk indepth about.

Overall, the new impetus must be coming from both the ground up and from the top-out. That is the Member States must be conviced of the role that energy efficiency can play in their energy mix and boosting security of supply and the EU leadership itself must work coherently internatinoally to bring the energy resources to the whole union. Greater weight needs to be lent to Eastern European issues which still must restructure the historical infrastructural network with Russia.