To reduce Europe's dependency on Russian gas, we must let consumers be part of the solution

By Christopher Cederskog

Freiburg
Freiburg, Germany, my home town

The Russian invasion in Ukraine has shell-shocked me... us all. Peace suddenly feels fragile and life as we know it is under threat. Behind it all is Russian gas - the fuel of our comfortable living and the direct flow of USD 400 million a day back to Russia to finance the war machine that this very moment annihilates Ukraine.

The EU has rushed to put together plans for getting us off the hook of Russian gas by… 2030. Great! And until then we will just keep pumping money into Russia? Well, try telling it to the consumers, who are just like I outraged by the war! Instead, why not make consumers part of the solution and mobilize them to vote with their feet switches?! The residential sector makes up for ⅓ of energy consumption in Europe and involving consumers - reducing consumption and switching to renewables - can have an immediate impact on our gas consumption. For that, policymakers need to put their money where their mouths are and run awareness campaigns, subsidize (no, really subsidize!) rooftop solar, invest in storage, and drop red tape.

Russia’s unwarranted invasion of Ukraine three weeks ago has left us - as a European community - shocked by its brutality and the suffering inflicted upon millions of innocent people. In response, the European countries have rushed to introduce sanctions to hurt the top echelons of the Russian government and key oligarchs, and international companies have been suspending operations in Russia to put pressure on the Russian consumers. However, sanctions packages to date have been architectured carefully not to hurt Russia’s energy sector as Europe depends on Russian gas heavily.

According to the International Energy Agency:

  • In 2021, the European Union imported 155 billion cubic meters of natural gas from Russia, accounting for around 45% of EU gas imports and close to 40% of its total gas consumption.
  • Revenues from oil and gas-related taxes and export tariffs amounted to 45% of Russia’s federal budget in January 2022.
  • At current market prices, the export value of Russian piped gas to the EU amounts to nearly USD 400 million per day.

Triggered by growing energy concerns, on March 8 the European Union unveiled a strategy for eliminating the dependency on Russian gas as part of an ambitious energy plan that includes cutting overall fossil-fuel use by 2/3 by 2030. The strategy prioritizes switching to alternative sources and mandates national governments to implement the transition. This would not be that easy. While the EU has been investing in its renewables infrastructure in the past decade, in many countries the system has been built on supporting intermittency (i.e. filling the gaps from renewables) with gas.

The economic risks of the intermittency of the renewables were particularly felt last winter, which was tough all across Europe. With major disruptions in gas supplies, due to Russia’s refusal to sell outside of long-term contracts, gas prices more than tripled in the final three months of last year. Electricity prices spiked throughout the second half of 2021 and hit new records in early 2022.

The situation is staggering; yet, most of the proposed plans to date target long-term horizons. People are running for their lives from the Russian bombs in Ukraine while political and energy risks from Russia are running high in Europe. The situation calls for an immediate (weeks) and medium-term (months) response on top of a long-term strategy. The focus of these measures - unlike long-term infrastructure investments - is mainly on the residential sector. Households are responsible for ⅓ of energy consumption in Europe with inconsistent and hard to control usage patterns. This leads to demand and supply mismatches and subsequent gas dependency.

An immediate step calls for an urgent mental shift among the consumers and willingness to compromise on comfort in the short term in order to reduce Russian gas consumption forthwith. Such measures are nothing new, and practiced in other parts of the world:

  • (good old) Consumption reduction: Mobilising the population to consume less alone can have a significant impact. For example, encouraging a temporary thermostat reduction of 1 °C by consumers would reduce gas use by some 10 billion cubic meters within a year.
  • Ban on gas boilers: Speeding up the replacement of gas-based appliances, including boilers and ovens, would add up to the immediate reduction of gas use.

Medium-term measures, aimed at the next 3-18 months, should then focus on building out renewables quickly, switching to clean, and further adjusting consumption patterns:

  • Self-consumption incentives: Solar PV can help reduce consumer dependency and drive electricity prices down. If consumers are producing their own energy they are inevitably helping production. To further encourage production, excess electricity purchase prices must be set at the market rates. Meanwhile, efficient batteries and storage systems would solve the intermittency and further reduce electricity prices. Mass uptake of residential solar PV can be effectively driven up by subsidies and tax incentives, as we have seen in markets such as Spain.
  • Enhancing energy efficiency in building stock: Whether ​​it is building state-of-the-art sustainable housing or simply replacing an old heating system or single glazed windows with energy-saving alternatives, governments need to allocate sufficient and immediately available funds for energy-efficient buildings. Germany is already doing it via its Bundesförderung für effiziente Gebäude (“Federal Funding for Efficient Buildings”) program was launched in January 2021.
  • Reducing bureaucracy: Red tape has been one of the main factors that hinder the transition to renewable energy sources both for C&I as well as residential sectors. In Spain, receiving building permits and legalizations for a simple solar PV system can take up to 10 weeks. In Germany, the 10H rule in the state of Bavaria requires new turbines to be constructed at a distance from residential areas that equals at least 10 times their own height - bringing wind power development in the state to almost a standstill. Building out renewables infrastructure quickly is, therefore, forlorn without a significant reduction of administrative roadblocks and expedited approvals.
  • Boosting financial incentives is an immediate and decisive step to drive electricity prices down for consumers. Such measures need to include, but not be limited to, reducing the VAT on electricity - to match the essential goods rates; requiring utility companies to set feed-in-tariff on excess electricity to the market rather than fixed rates and enabling tax deduction on A++ energy appliances and investments.

None of the measures - long-term or immediate - would come without a price or controversy. But the risks around Europe’s gas supply - not to mention the suffering of Ukrainian people, the stolen future of the Russian people, and the threat of a world war - is the price that the world is already paying for the Russian gas… along with nearly USD 400 million in gas payments that European countries transfer to Russia every day.