With the ongoing energy crisis happening in Europe, Anton Howes has some interesting ideas on how the Euro nations could convert the short-term pains of fossil fuel shortfall into a long-term surplus based on a mix of renewables and non. In the article he explores why energy commodities globalized, some extremely quickly, creating a global-scale marketplace for resources (Egyptian oil is competing with Venezuelan, for example), but renewables like solar and wind have not. Most energy from, say, solar is consumed very close to where it’s produced, due in large part to the lack of infrastructure for transport. Renewable energy can’t be transported in a fixed and stable form without much cheaper batteries, running up against the limits of chemistry and physics, rather than the ability to build pipelines and terminals.
With a globalized market, producers are “price takers” — the competitive space is so wide that it’s a race to the bottom. Maintaining margins is a function of your production efficiency and infrastructure to move resources around. In more local or regional markets, like how renewables are consumed today, producers can actually be “price makers”. Because of the lack of accessible competition, producers get to set prices (to a degree):
But the un-globalisable nature of renewable energy may even be an opportunity, even if right now it’s a problem. In a globalised market, exporters of a commodity face competition the world over, and are thus unable to affect global prices themselves. They are what economists call price takers, rather than price makers. Even when lots of producers band together in a cartel, like the oil-producing countries of OPEC, in the medium-term they can struggle to influence world prices. They must still compete with alternatives like coal, renewables and natural gas, as well as with non-OPEC oil producers, which have been on the rise. In a globalised market, no single country or company has enough power to influence global prices. It’s when markets are merely regional that some countries can have the opportunity to have enough market share to influence prices themselves — thus Russia was able to be an energy price maker for Europe this year, because its withdrawn natural gas supplies were so large and could not immediately or cheaply be replaced by alternatives or from further afield.
Today’s crisis situation could serve as a wake-up call to the EU to embrace an opportunity:
And it looks like Europe has one of the clearest opportunities to be the region to get there first — because of its current problems. As the supply of natural gas is still not quite globalised and the current shortages hurt Europe the most, its uniquely high natural gas prices provide especially sharp incentive for all countries in the region to invest in renewable capacity. This is, of course, already happening within each country, as Italy for example installs many more solar panels, and France looks at expanding its nuclear capacity. But I don’t just mean the incentive for individual countries to invest in themselves. I also mean each country’s incentive to invest in the rest of the region as well — much like the Netherlands in the sixteenth century invested in the agriculture of Poland, Scandinavia, Germany and England in order to feed both itself and Renaissance Italy. Grain at the time was still only traded regionally, so it made perfect sense to expand the entire continent’s supply wherever there was plenty of land to spare.