How Putin’s invasion of Ukraine could reshape Europe’s energy apparatus

Below, we look at some of the ways in which the war in Ukraine might impact Europe’s power market, European transmission systems and the role of renewables in reducing dependence of dirty fuels.

Energy Prices

In response to the invasion, Western nations instigated a series of economic sanctions on Russia that have seen imports from the country grind to a halt, blocked Russian vessels from shipping across EU waters and have put huge pressure on energy companies to stop doing business in Russia. Already, BP, Shell, Exxon, Equinor and TotalEnergies have cut ties with Russia or have said they will do so. Germany also declined to approve the Nord Stream 2 gas pipeline from Russia to the EU, sending the holding company into bankruptcy. 

The upshot of this will be increases in power prices. Europe currently gets 40% of its natural gas from Russia and yesterday saw gas prices surge by 50% to an all-time high of €185/MWh (US$205/MWh). This will clearly have a significant impact on power prices – Europe still derives around 20% of its electricity from natural gas – as well as plunging an already febrile power market into further uncertainty.

If more Russian gas is lost because of physical damage to pipeline infrastructure in Ukraine or stiffer sanctions, this will result in “extremely strained supply” for Western Europe, Werner Trabesinger, head of quantitative products at renewable advisory firm Pexapark told PV Tech Premium. “In this scenario, increased pipeline flows from Norway, Groningen, and the UK as well as LNG deliveries will not be sufficient to compensate lost volumes, forcing Europe to address the shortage via demand side measures.”

The International Energy Agency (IEA) today released a 10-point plan to reduce Europe’s reliance on Russia gas, part of which is to “replace Russia supplies with gas from alternative sources” and Kadri Simson, EU energy commissioner, said the continent “has already seen a steep increase of LNG to Europe in January and February, with LNG imports now around 10 billion cubic meters (bcm) per month, the highest level ever in the EU.”  

European powers have made attempts to mitigate the impact of the sanctions by looking to alternative sources of natural gas. The transmission capacity expansion of the Medgaz gas pipeline from Algeria to Spain is set to come online soon, Bulgaria is connecting its gas network to Romania and Serbia, Poland is linking up with Denmark and Bulgaria is also pushing for a connection with Greece.

Nonetheless, most of these projects won’t be completed before the end of the year and are regional, not EU-wide, in nature. And while gas imports from the US and elsewhere could ease the problem – Europe was the top importer of US gas for a third month in a row in February – it will not be enough to prevent substantial rises in energy prices, analysts have noted.

Europe has enough energy supplies to get through the winter but Russia’s invasion, and its subsequent exclusion from the international economy, has exposed the vulnerabilities of the European energy market, Simson said on Monday.

“We cannot let any third country destabilise our energy markets or influence our energy choices,” she added.

Closer European integration

Russia invaded Ukraine on the same day as the country was conducting an isolation mode test, which Simson said was “the first step in preparation for the future synchronisation with the EU”. Following the invasion, Ukraine’s energy minister Herman Galushchenko, said the country had decided not to reconnect its grid back to Russia.

Simson has spoken with the president and the chair of ENTSO-E – an organisation of Europe’s 42 different transmission system operators (TSO) spread across 35 countries – to express strong support for the emergency synchronisation of the network with Ukraine’s grid.

Ukraine’s synchronisation was planned for early next year, depending on the results of this month’s test that needed to show Ukraine could operate its system at 50 Hertz without support. Comments from Simson on Monday suggest this criterion for Ukraine’s entry will be dropped.

As discussed on Solar Media’s latest podcast, the Ukrainian energy apparatus can function without Russia, but it would require a concerted effort and financial support from Western countries. Moreover, Ukraine’s integration with ENTSO-E “would also link Moldova to the EU grid – another country that wants to be able to choose its energy future,” said Simson.  

PV Tech Premium has previously reported how grid systems across the world are set to expand significantly over the next decade because of the transmission, security and price advantages this brings. Ukraine’s integration within the EU’s power infrastructure should be seen within this context, albeit one hastened by the tragedy of war and the need to cut dependence on Russia.

“With a view to renewables deployment, buildout of interconnection capacity will drive down price elasticity – i.e. regions of large power consumption will be better connected to regions of large renewable production,” said Trabesinger. “All of the recent woes have pointed to the need of creating more integrated energy infrastructure with embedded flexibility, both on the supply- and demand-side.”

The role of renewables

“Ultimately, the best and the only lasting solution is the Green Deal – boosting renewables and energy efficiency as fast as technically possible,” Simson said in her address.  

Indeed, the IEA’s 10-point plan urged European countries to accelerate the deployment of both solar and wind technologies in order to reduce dependence on Russian gas imports. An additional 35TWh of generation from renewable projects above what’s predicted over the next year will bring down gas use by 6bcm, said the IEA.

“A concerted policy effort to fast-track further renewable capacity additions could deliver another 20TWh over the next year,” said the report. “Most of this would be utility-scale wind and solar PV projects for which completion dates could be brought forward by tackling delays with permitting.”  

“Renewables will certainly be a part of addressing the European energy problem, albeit with a less immediate impact,” said Trabesinger.

“The case for increased renewables deployment is helped by the overall higher energy price and the fact that near-term fuel switching will make Europe fall short of its carbon reduction ambitions,” he said, adding, however, that “merchant-market adoption of renewables will be hampered by high volatilities, as utilities struggle to manage PPA volumes via traded markets.”

Meanwhile, the IEA said the accelerated deployment of rooftop solar could reduce consumer bills and help dampen energy price hikes. “A short-term grant programme covering 20% of installation costs could double the pace of investment at a cost of around €3 billion (US$3.3 billion). This would increase annual output from rooftop solar PV systems by up to 15TWh.”

Already, European nations are redesigning their energy policies to reflect the current crisis. Earlier this week, Germany announced changes to some of its energy targets. Its economy minister, Robert Habeck, plans to speed up the passage of the country’s Renewable Energy Sources Act (EEG), which would see renewables account for 80% of Germany’s electricity needs by 2030 and 100% of them by 2035, by which time the country aims to have 200GW of deployed solar.

Meanwhile, the UK’s secretary of state for Business, Energy and Industrial Strategy (BEIS) Kwasi Kwarteng, in a tweet posted on Monday, laid out his thoughts on the country’s energy policy in which he noted the important role of renewables in the UK’s energy independence, as well as recognising the need to ensure gas supplies in the near term.

“Renewables are cheaper than gas,” tweeted Kwarteng, “the more cheap, clean power we generate at home, the less exposed we’ll be to global gas markets”. Expect more countries to follow suit and rethink their energy policies in the coming days and weeks.

The invasion of Ukraine is appalling, and our thoughts are first and foremost with those suffering. We hope that the conflict can end as soon as humanly possible and that those displaced can be given a chance to rebuild their lives in peace. Amid these incredibly worrying times, there are few certainties. One of them, however, is that Europe’s energy politics has shifted, with huge ramifications for the continent’s future.