Populists taking aim at energy markets

Nearly 40 years after the creation of the internal energy market, its founders must be shaking their heads in disbelief. They envisaged a competitive liberalised market with energy flowing freely across borders, where supply and demand set power and gas prices. Instead, we’ve seen a wave of populism on both sides of the Atlantic. Policymakers in Europe have responded with a myriad of proposals that raise doubts over the very essence of the internal energy market. A shared sense of solidarity, community and standing firm together against an unpredictable world of dictators and despots has been shaken. But it’s not just about severing power cables.

Germany’s far-right AfD party (currently polling as the country’s second-largest party and with close links to the Trump administration) plans to tear down wind turbines. Right-wing populists in France talk of stopping power exports to keep prices low for their own citizens. Even Scandinavia, the home of consensus, hygge and lagom, isn’t immune. Sweden is outraged by Norway’s plans to launch a fixed retail price. Some argue that while the Norwegian state subsidises jacuzzis, saunas and electric heating, freezing Swedes will have to put on an extra pair of woollen socks to stave off the cold. They fear having to reduce electricity use as power flows head west to Norway, where the state covers the bill. Denmark is also displeased by Norway’s intention not to renew a power cable contract between the two countries next year. The famous pan-Nordic harmony is crumbling as many in the region take a populist and inward turn. 

I understand that historically high energy prices have hit households and businesses hard. And I know the cost of living crisis has lasted much longer than anyone anticipated. And of course, we all want quick solutions. But setting a fixed retail price? Cutting interconnectors and stopping exports to neighbouring markets? These kinds of short-sighted policies could end up doing more harm than good in the long term, even if they succeed in winning more votes in the near future.

For those populist policymakers, I’ve put together five top tips on how to design a future-proof energy policy: 

Don’t set fixed retail prices 

A fixed retail price may appear elegantly simple, but it is a disaster in a market economy. Market signals – supply and demand – should be the best indicator of when, how and where to use and generate electricity. If the state subsidises my power bill, I can ignore price signals and freely use my jacuzzi in the Norwegian mountains (if I’m lucky enough to have one), charge my car in the middle of the day and bin my solar panels and heat pumps.

Don’t cut interconnectors

We’re stronger together. Electricity interconnectors are not the embodiment of a “dysfunctional” market, they increase security of supply and will level out prices. In an unpredictable world with increasing geopolitical risk, Europeans need to show solidarity with their neighbours and not threaten to cut ties as soon as power prices rise.  An interconnected grid will empower countries to export excess wind and solar power, and will increase security of supply, not diminish it. In an ever unpredictable world, we need each other.

Don’t fund white elephants

Spend money wisely. The costs of renewables and batteries have tumbled in recent years. While technologies like CCS, green hydrogen and even nuclear have potential, they also come with high costs and uncertainties. To maximise impact, policymakers should prioritise investments into electrification, renewables, grid infrastructure and interconnectors, as these are proven to drive a more efficient and sustainable energy transition.

Strengthen the grid 

Bit of a no-brainer. Build more grid infrastructure to secure supply and lessen dependence on unreliable and unpredictable countries. Recent events in Ukraine have shown it isn’t wise to rely on another nation for energy supply. Europe needs to secure a domestic energy system. For this we need more interconnectors with neighbouring countries, not less.

Don’t underestimate the risk of hybrid warfare 

Energy infrastructure is vulnerable. Ensuring it is properly protected is vital, as is making sure European citizens are prepared for any eventuality. Threats can be both physical aggressions, as demonstrated by Russia since its invasion of Ukraine. But also by way of physical sabotage to power cables, as exemplified by the attack on the Estlink 2 interconnector, linking Estonia to Finland. Cyberattacks are also a growing menace. Norway’s security service PST is certainly alarmed. “Over the past year, Russia has demonstrated its resolve and ability to carry out sabotage operations on European soil. It is likely that this may also affect Norway,” Beate Gangas, head of the PST, said in a recent report.  Power industry association Eurelectric recently warned that cyberattacks are the most urgent threat to the EU energy system. Governments and leaders should be more prepared for hybrid warfare.

As the cliché goes, prepare for the worst, hope for the best. 

This article originally appeared as a column on montelnews.com