How EC policy could lead to power shortages

How EC policy could lead to power shortages
How EC policy could lead to power shortages

The European Commission made a proposal for a serious “intervention” in the energy markets of the Union. This should have been leading news in Bulgaria (but it probably isn’t). Now I will explain why.

A ceiling of EUR 180/mwh is proposed for the income of low-cost electricity producers (so-called inframarginal producers). According to the EC, this includes all nuclear power plants, lignite-fired thermal power plants and all renewable energy sources (including hydropower plants). That is, practically the entire Bulgarian energy industry – both private and state, both small and large. The difference in price above this ceiling is proposed to go to the budget of the member state, so that this money can be used to help with the electricity bills of households and small and medium-sized businesses. Ah, yes – and to subsidize the producers of electricity from (until recently Russian) natural gas, because they couldn’t make ends meet at these high gas prices. However, if the Member State has a large export of electricity – as is Bulgaria – it is proposed that these budget revenues be shared with the Member States that are importers of electricity, as their citizens pay them.

This is an insane policy that, instead of leading to lower prices in the long term, will lead to permanently higher electricity prices in the EU, reduced generation and eventually even a potential power shortage crisis. This is because instead of stimulating private investment in local power generation and increasing supply (thereby reducing the price), the exact opposite is done – private investors are punished and driven out of the sector, taking away much of the revenue them

Energy investments are by definition long-term. Investors rely on “good” high price years – like 2022 – because they offset the “bad” low price years that will inevitably occur over the long life of their investment. If their politicians limit the possibility of profits in good years, without covering their losses in bad years, this completely changes the financial mathematics and we can witness a huge outflow of capital from the sector. This applies, by the way, to any other sector of the economy where governments begin to interfere.

With today’s proposals, the EC sets a dangerous precedent and significantly raises the so-called “political risk” throughout the EU – a part of the world considered by international investors to be extremely stable economically, legally and politically. Higher political risk will mean less investment in European energy for years to come. Which will mean permanently high prices and electricity shortages. Which will mean limited economic growth and a lower standard of living. And – if anyone still cares about it with these electricity prices – there will be no “green economy” and no electric cars in Europe, because there simply won’t be enough electricity. Neither expensive nor cheap. So the EC’s proposal from today goes directly against the declared political goals of “greening”.

The political leadership of the EU at the moment clearly consists mostly of people who have never done business and never invested money. The long-term effects of their decisions will be dire for all citizens of the Union. These are short-term populist measures aimed at the next few months, without a strategic analysis of the medium- and long-term effects on the Union’s economy. It’s just unbelievable.

I strongly hope that Bulgarian MEPs – especially those on the right side of the spectrum, such as Radan Kanev – will oppose these proposals. The right policy is exactly the opposite – to urgently stimulate more private investments in precisely this type of plants that the EC wants to punish. And which – as I have already indicated – include all Bulgarian electricity producers. It is they who will ensure the low prices and the energy independence of Europe. And for all others who relied on making electricity with Russian gas, a “species day” came. But there is no need for all of us to cover their losses.

* The author is an entrepreneur, managing partner at Expat Capital. The text is from his Facebook profile.


The article is in bulgaria

Tags: policy lead power shortages

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