[EUROPEAN SUSTAINABLE DEVELOPMENT WEEK] Energy crisis: the winter challenge for European countries and the Real Estate sector

Two months after the European Union announced its plan to cope with the upcoming energy crisis, REPowerEU, the strategies of the different countries are getting clearer. Despite the importance of coherence and solidarity in such context, stressed out by the EU, some conflicts may be difficult to avoid. Here is an overview of the EU members’ strategies to face winter.

The energy crisis currently striking the European countries is reaching record levels. At the end of August, the megawatt-hour price in France skyrocketed above 1100 euros, whereas it was down to 85 euros a year ago. The EU is forced to reduce its gas consumption, to prepare for what should be a complicated winter season. In order to reduce or replace gas consumption, the EU members are coming up with various strategies.

The interruption of gas deliveries through the Nordstream gas pipeline, that was announced on September 1st, has called for back-up solutions. Among them renewable energies and energy savings seem to be essential, putting a heavy responsibility on the real estate sector, giving that it represents a large share of European energy demand.

 

The gas crisis

The current geopolitical situation has deeply affected the price of gas and has created uncertainty in its supplies. This has led the operational costs of gas-fired power plants to skyrocket, creating immediate consequences for the European electricity market. Indeed, the merit order principle applied on the European market determines the price of electricity to be equivalent to the marginal cost of the last produced unit used to answer energy demand.

The high price of gas has thus brought up the electricity price’s levels, and European countries are trying to find a way out of it. The European Commission has recently rejected the idea to cap the price of Russian gas (in 2021, 45% of EU gas imports were coming from Russia), as the member states feared it would restrain their ability to negotiate new gas contracts with other suppliers.

Instead, the European countries are limiting their imports from Russia, trying to find alternatives. In addition, some countries ask for a disconnection between gas and electricity prices. At the end of August, the Austrian chancellor even called to “end this madness that rules the European energy market”.

 

The debate over nuclear energy

In order to compensate the deficit in gas imports, a share of the EU members decided to extend their nuclear energy capacities. France has decided to lighten its security measures, to keep some nuclear power plants active, whereas they should have been stopped for maintenance.

In Slovakia, a new nuclear reactor has been announced at the Mochovce plant and should be launched in a few weeks. It should enhance in a considerable way the country’s energy independence, according to the local authorities. Its production should cover the tenth of Slovakia’s electricity consumption. This decision has been immediately criticized by the Austrian government since the plant is only 200km away from Vienna. Earlier this year, the Slovakian Nuclear Regulatory Authority was denounced by an Austrian association for skipping inspections, and it was discovered that some equipment was not up to the standards. For Austria, nuclear energy is no solution to this crisis, and is rather, as Leonore Gewessler, Austrian climate minister, put it “an outdated and dangerous technology”.

On the other hand, the German attitude is also raising conflicts, as the country refuses to delay the shutdown of three of its nuclear power plants, while being extremely dependent on gas. “If Germany does not take any responsibility for its energy security, I will propose to our government that we cut the Baltic cable” tweeted a representative of the Swedish Green Party.

Clearly the nuclear energy option does not appear as a solution to everybody, and all EU members are not decided to follow the same line on this aspect.

 

The coal and oil options

For many countries the challenge of getting through the winter will get in the way of the environmental measures. In the end of June, Olaf Scholz, the German chancellor and his government already decided to reactivate 27 coal-fired power plant until March 2024. France, Italy, Austria or the Netherlands have also announced similar measures.

The main example of this aspect of the crisis lies in Bulgaria where the high number of atmospheric pollution clusters is threatening the energy stability of the region. Thanks to a derogation from the EU,  Bulgaria can allow 24 high atmospheric pollution episodes per year, but is has just reached the 23rd in 2022. If the limit were to be broken, the derogation of the European Commission could be canceled, and it would force the closing of all coal-fired power plants. The country could lose 30% of its energy capacities, which would have deep consequences on the whole region, since Bulgaria is the main electricity exporter of the Balkans.

 

Energy savings: the key role of real estate

Despite all the efforts to juggle with the various factors of this energy crisis, all countries in the EU will have to reduce their energy consumptions. Following the State of the Union Speech of Ursula von der Leyen on September the 14th, the European Commission announced two objectives:

  • A non-binding objective calling for a 10% decrease in electricity demand until March the 31st ;
  • A mandatory objective of 5% reduction of electricity consumption during at least 10% of each week’s rush hours (approximately 3 to 4 hours a day).

In this regard the real estate sector will have a key role to play. Most of the European countries have, indeed, announced plans to reduce buildings’ energy consumption in order to reach their savings goal: Greece is asking for a maximum 19°C of heating this winter and has managed to dedicate an important budget to insulation, while Ireland is advocating for 15°C to 18°C in bedrooms and secondary part of the house. In Italy the country has been divided in six regions, and while the coldest one should not experience any cuts in its energy budget, the hottest one should only have access to heating for 5 hours a day from December the 8th to March the 7th.

Energy savings will also focus on lighting. In Spain, where energy savings measures were applied particularly quickly at national scale, the same policy regarding night lighting in shops and malls is being applied since last month. In France, one of the most emblematic measures was taken in Lille: the city stopped lighting public buildings at night in early September – except for two downtown squares. It hopes to save 170,000 kilowatt hours (kWh) per year.

The European countries have troubles aligning themselves on a political line, in terms of sources of energy for the upcoming winter. On the long term it could benefit to renewable energies, as is it a priority of the REPowerEU plan, but for the moment short term solution could harm the environment policies of the member state and have a deep impact on their carbon emission factor. Energy savings appear to be the common denominator of the European reaction and gives a great responsibility to the real estate sector.

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