Europe

State of the Canadian Electricity Industry 2022 Accelerate Net Zero

Theme 3 Regulating and Policymaking for Net Zero: Moving from Ambition to Transition

As international leaders met in Glasgow, Scotland to plan for the phase out of hydrocarbons, economies around the world began to lift pandemic measures, resulting in a global surge in demand for oil and gas. U.S. benchmark crude oil prices rose to over $80 USD per barrel for the first time since 2014,15 and natural gas prices reached levels not seen since 2009. European natural gas benchmarks increased even more, hitting all-time highs of over $80 EUR per MMBTu.16

Since fossil fuels and petroleum products are inputs for everything from transportation to fertilizer, they contributed to a global rise in inflation. The Eurozone saw inflation rise to a 25-year high of 4.9 percent17 in November, while Canadian inflation increased to 4.7 percent in October and November, an 18-year high.18 The power sector was also affected, especially in Europe, where weak production from the region’s significant wind power capacity left gas and coal storage levels in the region extremely low. For example, in 2020, United Kingdom wind generation accounted for 24 percent19 of total electricity generation. In September 2021, the country was producing only 7 percent.20 These shortfalls required an increased reliance on gas and coal for energy generation, which happened to coincide with surging demand in Asia, which was experiencing a colder than usual winter.

The unfortunate result was a surge in European power prices to an all-time high of $87.6 EUR per MWh on average in day-ahead markets.21 This rise sent European politicians rushing to protect citizens and industries from high power costs. Fear also spread regarding the possibility of blackouts and energy shortages in the region, as it entered winter with extremely low fossil fuel inventories.22 Shutdowns of French nuclear power plants for repairs, combined with continued low wind output and cold weather across Europe, pushed power prices even higher. This situation is leaving most analysts predicting a challenging winter for the continent in 2022.23