Replacing reliable electricity sources with unreliability wind and solar electricity does not only dramatically increase the electricity prices but also forces energy intensive industries to shut down its operation. Due to the unreliability of electricity from wind and solar these sources needs to have backup power such as natural gas when there is no wind and sun. This of course, increases the demand on natural gas and we can now see that natural gas prices are dramatically increasing which of course also increases electricity prices.
Europe’s energy crunch has forced a major fertilizer maker to shut down two U.K. plants, the first sign that a record rally in gas and power prices is threatening to slow the region’s economic recovery. CF Industries Holdings Inc. said Wednesday it’s halting operations at its Billingham and Ince manufacturing complexes due to high natural gas prices, with no estimate for when production will resume. European gas and power futures tumbled Thursday on signs energy-intensive industries are curbing consumption.
The move comes as Europe is facing an extreme squeeze for energy supplies, with gas and power prices breaking records day after day. The continent is running out of time to refill storage facilities before the start of the winter as flows from top suppliers Russia and Norway remain limited. There’s also a fight for shipments of liquefied natural gas, with Asia buying up cargoes to meet its own demand.
The crisis could have severe economic consequences. Soaring prices are exposing the risk of power outages this winter, according to Goldman Sachs Group Inc. Blackouts would likely send energy prices even higher, compounding concerns about inflation and adding to the rising costs businesses are already shouldering for raw materials.
CF has so far taken the most drastic move of companies operating in the region, but others are warning of the likely blow-back.
High energy prices are creating “inflationary pressure on every other cost” that will end up being passed on to customers, said Pascal Leroy, senior vice-president of core ingredients at Roquette Freres SA, a food processing company based in northern France. And France’s top sugar producer, Tereos, warned of surging natural gas prices raising production cost for the company “tremendously.”
Europe’s energy ambitions are clear: to shift to a low-carbon future by remaking its power generating and distribution systems reported Lars Paulsson at Bloomberg. But the present situation is an expensive mess. A global supply crunch for natural gas, bottlenecks for renewable energy and wind speeds in the North Sea among the slowest in 20 years, idling turbines, have contributed to soaring electricity prices.
Will Mathis, Rachel Morison, and Anna Shiryaevskaya reported that Gas and electricity prices surged as weak winds added stress to a market already faced with low fossil fuel inventories, see the two figurs below. Higher costs are hitting Britain just as the economy is recovering from the pandemic, fueling concerns about inflation as millions are set to face steeper bills this winter.
Sources: Why Europe’s Power Prices Are Skyrocketing – Bloomberg
CF Industries Shuts UK Plants After Fire Shuts Cable, Energy Prices Soar – Bloomberg
U.K.’s Record-Breaking Energy Crunch Explained in Five Charts – Bloomberg