Hot-take on the EMD draft:

Given the discussions in 2022, the COM proposal is not a revolution. But it is not only window-dressing, either. Some provisions might kick-off structural shifts:

(some 20 tweets) Supporting PPAs 1/2
-the guarantee-system is described as a new form of subsidy
-text already hints at the risk of lowering liquidity of more standardised markets

A 🧵on the cover of the #MarketDesignConsultation. The bullet points are my summary of the text, and my comments are in brackets.

[The document seems to have had some last-minute changes, given some word duplications and reference to earlier parts that do not exist]

1/ Causes
•High gas prices due to Russian gas withholding
•increasing energy demand after Covid
[Lack of hydro and French nuclear not mentioned even though that shortfall represented 7% of EU power generation in 2022]

Problem Description
•high prices
•Risk to SoS

2/

2022 was a sad and dramatic year. Energy was a main battlefront in the economic war of attrition between Russia and the pro-Ukrainian coalition.

A (highly selective) month-by-month recap 🧵 PRELUDE - SUMMER 2021
Russian manipulation of European natural gas markets started in summer 2021. Gazprom’s withholding of supplies marked the beginning of an energy crisis with substantially rising prices.

The "Iberian exception" could be a substantial draw on scarce gas supplies!

German power plants would in specific situations use TWICE as much natural gas, if the gas price were subsidized from 150€/MWh to 50€/MWh!

1/3
[thx to @c_heussaff for calculations!] We use @ewi_koeln's cool merit order tool, adjust the fuel cost assumptions to be roughly in line with current numbers and assume a situation with a residual demand of 50 GW.

tool: ewi.uni-koeln.de/en/publication…
2/3

Cher Jean-Michel, I am afraid you are right. As energy gets much more expensive certain production will become uncompetitive in Europe without additional subsidies.

I see two political questions: …

1/5

https://twitter.com/JMGlachant/status/1582920633029038080

First, should we particularly support energy-and-trade-intensive sectors? This would keep their substantial energy demand high – resulting in much higher energy prices for all other industries.

2/5

Gute Diskussion.
Meine Hauptsorge ist, dass wir mit dem jetzigen Plan in der schlechtestmöglichen Situation landen. Keine kurzfristige Einnahmereduktion für Putin, hohe eigene Kosten und der langfristige Ausstieg ist nicht glaubwürdig.

https://twitter.com/jakluge/status/1558221062122381312

Beim Gas hat bisher nur Russland substantiell gehandelt. Die Taktik scheint gezielte Verknappung, aber gerade nicht vollkommener Stopp zu sein (würde ich auch bei Lebensmitteln so sehen).

NEW Study (in German):
We show that - if the right steps are taken to prepare - Germany can make it through next winter without Russian gas at manageable cost.
econtribute.de/RePEc/ajk/ajkp…
... only diversification will not be enough

Gas winter-outlook by @McwilliamsBen and myself:

If Russian supplies get fully cut, current demand reduction is insufficient in most EU countries to prevent storages from running dry.
1/4
bruegel.org/2022/07/europe… Gazprom already reneged on most EU countries' gas supply contracts partially or fully.
2/4

NEW Bruegel Publication on Joint Gas Purchasing
[with great co-authors]

1. Focus on concrete tool for 2022/23
2. There are good reasons
3. Devil=detail
4. It can be done!
5. Keep borders open
🧵
bruegel.org/2022/06/how-to… 1. Focus : 2022/23

•COM and Council agree to develop an #EU_EnergyPlatform for gas purchase

•Expectations are high but mandate and setup are vague

•Getting gas to replace RU and filling all storages should be priority

Habemus embargo ("in principle")

1/4 The good news is political:
+ EU was able to engineer unanimity
+ DE substantially contributed (N Druzhba)
+ insurance and oil products included
+ an instrument to build on 2/4 The weaknesses I
- lack of price instrument (e.g., tariff) might initially overcompensate lost volumes by higher prices
- relatively long phase-in will allow RU to seek alternative buyers

bruegel.org/2022/05/a-phas…

The energy-food nexus is kicking brutally:
Thread – based on a conversation with a farmer I recently had (numbers are indicative) Fuel prices strongly drive cost of agriculture production:
- Natural-gas based fertilizer cost increased from 170€ to 1000€ per t
- it takes >100l Diesel for working a hectare – more if one cannot use sufficient fertilizer

In 2018 German power production from hard coal and lignite was about 65 TWh higher than in 2021.

[It would require about a quarter of NordStream1 gas flows to produce 65 TWh of electricity.]

We summarised some of the observations from our international #Covid19 electricity tracker in a new blogpost.
bruegel.org/2020/06/lesson… (1/4) Drop in electricity consumption (that is observable in real-time) correlates rather strongly with drop in industrial production (that is observable ~2 month later).
bruegel.org/2020/06/lesson… (2/4)