As the Arctic Blast hit in early December 2022, followed by drastic and inclement balmy weather by the middle of the month, Europe went through a geostrategic roller coaster of sorts. The unusually warm climatic conditions in mid-December did bring some respite and reprieve. Of course it was a let off which was deceiving and an illusion.
As per the Exacta Weather forecaster, James Madden, predicted that the United Kingdom will see a “snowy and extremely chilly weather with below-average temperatures and numerous wintry blasts” till January 2023. The Met Office too echoed that. Some forecasters are now warning that the UK will witness the “snowiest January, 2023 in 12 years.” Immediate measures to save energy in the interregnum of this period, huge scarcity of energy substitutes options is pushing the governments in wealthy European countries to the edge, to resort to usher in unprecedented measures. Germany’s workplaces are now being mandated to keep their temperatures at 19 degrees Celsius, France at 18 Celsius. The British have seen the costs of electricity, gas and other fuels skyrocket by close to 90 per cent in just one year.
That is not enough and ultimate. European cities are gearing up for drastic load sheddings and power cuts. France is working on planned rolling power outages in the month of January 2023. In Britain, the households may confront blackouts from 4 pm to 7 pm daily, going forward this winter. In Germany, candles and lantern sales are mushrooming in as much as of the wood, charcoal and coal.
Price caps and subsidies
With a view to obviating the onslaughts of high energy price hikes for consumers, Germany’s Bundestag, backed by deputies allied to Chancellor Olaf Scholz, approved 100 billion euros (106.14 billion dollars) to cap electricity and gas bills for households and industry from January’ 23 beginning itself and onwards.
From January 2023 to April 2023, end, the gas prices will be capped at 12 Euros per kilowatt hour (kWh) and electricity at 40 cents for a limit of 80 per cent usage based on previous year’s consumption. The top 25,000 industrial customers will get a cap for 70 per cent consumption of the previous year’s average consumption at 7 Euro for gas and 13 cents for electricity for this period. The price caps also come with a restriction on the bonuses and dividends that the managers and executives of these companies can be extended.
By the third quarter of 2022, UK’s economy had entered the phase of recession, which is envisaged to last to the end of 2023 minimum and may extend beyond. KPMG’s UK Economic Outlook is predicting that the UK economy will shrink by 1.3 per cent in 2023.
Europe foresees a recessionary economic outcome in 2023. The Economist Intelligence Unit analysis projects a contraction of 0.2 per cent in 2023 due to higher energy prices inputs. Energy shortages will hit Italy, Austria and Germany the most. Meanwhile UK, France and Spain will experience high inflation, low consumer confidence and negative.
Impact on the external trade
Goldman Sachs predicts a 0.7 per cent contraction in the EU from Q4-2022 through Q2-2023. The bill that Europe is looking at to wade through the energy crisis and the actions to cushion its industry and customers with the subsidies and bailouts will be gigantic, approx., $1 trillion huge, as per a calculation by Bloomberg. IMF independently computed the same numbers as well.
When the Economists modelled the impact of resultant deaths due to tough winters during the energy crisis, they estimated that if this were a mild winter, the deaths would be 32,000 more than the historical average. If it were harsh, the guessed estimate might shoot up to 335,000!
It is in the light of these drastic eventualities that one can foresee how the industry and consequently, the society are likely to be impacted. Industrial production is down as factories are closing. About 45 per cent of the Oil Refining capacity in France is offline now. Not only are factories shutting down and industrial production down and blasted, but even food-related enterprises have been hit badly.
From 2020, Germany’s pig population has dropped by a whopping 20 per cent. The pig farms (3500 drop in farms since 2020) and their pig stock have fallen due to rising input costs. Another casualty of the energy crisis.
Industrial production is down as factories are closing. 45 per cent Oil Refining capacity in France is offline now. Not only are factories shutting down and industrial production impacted, but even food-related enterprises have been hit badly
This economic scenario is translating into a disillusionment for the European Union citizens, specifically the youth, with respect to the EU’s future. As per a survey by European Council on Foreign Relations (ECFR) and YouGov, not only do the majority of EU voters now warn that the EU will fall apart, but they even speculate that EU states will go to war against one another in the ensuing 10 years!
Even though many of those who foresee a holocaust of war is protruding among EU members across mainstream parties, the percentage is perceived higher among supporters of right-wing parties like Rassemblement National in France, the Freedom Party of Austria, the Party for Freedom in the Netherlands, Jobbik in Hungary, and Golden Dawn in Greece.
That is why it is no surprise that in the last few years, the far right-wing parties are now becoming mainstream ruling parties in most European countries.
Rising Civil Unrest
Cynicism, lack of future options, politics of corruption, avarice, chauvinism, and greed, and falling economies have led to a situation of passe where France, Germany, Norway, Britain, the Netherlands, and Switzerland are facing major threats of civil unrest and upheavals within the next ensuing year itself or so. Verisk Maplecroft, a risk consultancy firm, has projected this risk going forward. Emotions amongst the workers and public are at a boil as the entire continent is seeing major strikes and protests that are plaguing almost all the services and institutions.
The UK and Europe are being gripped by a wave of industrial action as spiralling inflation and sky-high energy prices hit workers’ pockets. In the UK, staff at Border Forces have already become the latest workers to announce walk-outs in December’2022. They have joined a growing list of staff preparing to take strike action in some of the country’s most vital sectors, including NHS staff, teachers, postal and rail workers.
In the UK, strikes have been since hitting hard in Royal Mail, Eurostar and Public and Commercial Services (PCS). In Germany, Lufthansa and Audi have been deeply impacted. France, Belgium, and Greece have also faced strikes and protests over mounting costs of food, living and energy crises. So what is the way out of this? What are the alternatives for Energy?
Europe’s predicament is quite clear. EU nations depend on natural gas for 25 per cent of its energy needs. While it produces only 10 per cent of its own core needs, it imports the rest. Russia accounts for 41 per cent and Norway provides 24 per cent of its natural gas.
The alternate options that could be used are Wind, Solar or Nuclear. Let us see how they stack up for Europe as of now.
In December, 2022 itself the wind speeds in Europe had fallen. In the second week, they were down to almost zero. The speeds into January, 2023 are also predicted to be at the lower end of the spectrum.
This underscores the vulnerability of Europe’s energy situation to the rapidly changing weather conditions, especifically in the winter months.
Solar raw materials
The scenario on the Solar energy front is quite bleak in the medium to long term. Europe has lost about half of its zinc and aluminum smelting capacity within the past year itself!
Why is this critical?
Base metals like Aluminum, Zinc and Copper are critical components of solar power systems. While Aluminum is needed for the front frame, aluminum, and galvanised steel (utilising zinc) are needed for the structural parts. With Aluminum and Zinc capacities falling so rapidly in Europe and energy situation making the situation even worse for the existing metal plants, Europe’s plans to create renewable energy options are in doldrums.
Solar equipment market is dominated by China. So if Europe wants to end its dependence on Russian fossil fuel and go the solar renewable energy way, then it will have to enhance its dependence on Chinese solar equipment. Caught between a rock and a hard place! And what about the nuclear energy options?
In March 2022, the International Energy Agency (IEA), and the European Commission, both shared their plans on how Europe can get away from its dependence on Russian fossil fuel. Their narratives were very similar in terms of recommending renewable energy options for the future.
The IEA recommended keeping the current nuclear plants going as such. The European Union plan, however, had no mention of the nuclear options at all.
Quite clearly, Europe’s leadership lacks the political will to go in the direction of the nuclear option. Part of it is because the nuclear plants are ageing and are vulnerable to terrorist and cyber-attacks. The other issue is the availability of uranium. Switzerland’s Leibstadt plant, country’s largest and the most recent and modern, currently procures half of its uranium supplies from Russia. For their own future, they will need to change their suppliers for that as well.
In the short and medium term, renewables are not really viable. Here is a quick takeaway.
■ Russia squeezing gas and oil into Europe
■ Lack of fossil fuel is closing industries and plants. Specifically, Aluminum and Zinc.
■ Dwindling Aluminum and Zinc capacity leads a devastating blow to Solar power with as the fallback
■ Lack of Political will and security limitations for the nuclear power alternative
Europe is confronting a very difficult period for its industry and economy, where lack of energy options in the short term is likely to not just devastate its current industrial base, but close the doors on future renewable energy options as well. How it handles its geostrategic situation with pressure from the US on the one hand and antagonism of Russia on the other, while stabilising its economy, will decide Europe’s future and its course of action.