Russia-Ukraine conflict exacerbates European energy crisis
- Published by
11 Apr, 22
Energy prices in Europe have soared to record highs, and the Russia-Ukraine conflict is only serving to escalate the fundamental problems that are plaguing the market.
But what does the current European energy landscape look like, and what role can clean energy play in providing long-term solutions? Let’s take a closer look.
![null](https://assets.ratedpower.com/1694512913-how-20are-20energy-20prices-20set-20in-20europe-3f-20how-20is-20gas-20and-20russia-20related-20in-20this-3f-2.jpeg?auto=format&dpr=0.79&w=1600)
European gas prices soar to record highs
Natural gas prices in Europe have been driven to record highs in 2022, after a sharp increase in 2021 as the region’s economies began to recover from the COVID-19 pandemic.
In Germany, the average wholesale electricity price in 2021 tripled to €97/MWh, its highest level in 20 years, according to research by the Institute of Energy Economics at the University of Cologne. While this was in part due to a below-average demand experienced in 2020 due to the pandemic, there were also problems with structural supply on the market that exacerbated the dramatic increase.
Following a cold winter and spring last year, energy stores were used, and the gas supply in Germany was depleted. When combined with delays of necessary maintenance and repairs on gas pipelines and electricity plants, there has been a significant impact on the available gas supply.
Owing to their own harsh winter, Russia did not increase supply to refill the stores over the summer. While not confirmed, there were also suggestions that Russia withheld supplies to put pressure on Germany to approve the operation of the Nord Stream 2 gas pipeline, despite opposition from Ukraine and the US. There were concerns that the pipeline would increase Europe's dependence on Russian energy and deny transit fees which are paid to Ukraine for a pipeline that runs through the country to deliver Russian gas into Europe.
Exports of natural gas from Russia to Europe were below their pre-pandemic levels last year, leaving Europe undersupplied heading into the winter. Meanwhile unfavorable weather reduced power generation from renewables in 2021, especially wind farms. At the same time, rising demand for natural gas in Asia raised prices for liquified natural gas (LNG). With natural gas accounting for around 20% of European electricity generation, the jump in prices has sent power prices higher for households and businesses across the region.
The state of the market was already a concern before Russia’s invasion of Ukraine heightened the crisis. Energy suppliers are now attempting to reduce their reliance on Russian gas imports – but what is the impact on European energy supply?
Russia-Ukraine conflict prompts market restructuring
Natural gas prices have accelerated further still in response to the Russian invasion.
European governments have resisted calls for sanctions against Russia’s energy exports given their dependence. But prices have climbed as traders have become concerned about potential supply disruptions.
In early March, Britain blocked Russian vessels