Christoph Reuel, senior researcher at Columbia University
09:00 | September 2, 2022
How successful would this EU strategy be, because it will probably reduce the enthusiasm for RES if they are not paid as much as for natural gas?
This is complicated, several things need to be considered.
First, to understand well, we need to know that electricity is not the source of energy. This is a product made on the basis of other fuels. Primary sources.
Second, it can be produced from anything. Wind, solar, but also coal, nuclear, gas and what not.
So the mix of energy sources determines the price of electricity.
If we take out RES, it won’t lower the price, it will make the average price higher.
It’s just a suggestion. In the long term, this energy mix needs to change anyway.
The second big problem that people are starting to realize is the way energy prices are set. Why are energy prices escalating more than the price of natural gas in a situation where gas is only part of the mix, the rest being cheaper renewables?
The answer is that energy prices are set at a pan-European level, at auctions. When you have an auction with higher demand, the more expensive energy suppliers, the more expensive plants come into it. This increases prices in the system.
We are dealing with what economists call “short-run marginal electricity prices,” or marginal unit cost, not average cost.
This leads to a situation where cheaper energy producers, including many RES producers, are currently reaping disproportionately large profits.
If you look at it from the point of view of a politician worried about his electorate, who probably doesn’t understand these complex issues, you have only two choices. Or cap the price, which is risky. Or tax the energy companies and transfer the proceeds as relief to the population.