State regulation in European energy markets, energy transition, and the new dynamics in fossil fuels
State regulation in European energy markets, energy transition, and the new dynamics in fossil fuels
Global Power and Renewables Research Highlights, November 2022: State regulation in European energy markets, energy transition, and the new dynamics in fossil fuels
The following provides a brief overview of selected reports in the Global Power and Renewables service from October 2022. Learn more about our Global Power and Renewables Service and the reports featured in this post.
As the conflict in Ukraine extends, energy markets around the world continue to ratchet up emissions reduction targets, not only to mitigate climate change but also to improve energy supply security. Despite the recent drop in European gas prices, policymakers continue to face a delicate balancing act of bolstering supply security, mitigating price volatility, and attracting new investment while strained supply chains loom. Amid the complex set of near-term challenges, power sector stakeholders continue forward with the energy transition and seek ways to utilize low-carbon fossil fuels to strengthen the reliability and flexibility of power systems.
The following reports showcase various governments' responses to the energy crisis, global energy transition policies and clean energy investment efforts, and fossil fuels' new roles in decarbonization.
State intervention in Europe's energy crisis and decarbonization
While recent events surrounding the Russia-Ukraine war have pushed spot coal and gas prices to record highs, state regulation and planning has been in place to protect both residential and industrial consumers.
The IHS Markit Client Event European Gas, Power, and Clean Energy virtual Energy Briefing, October 2022—Europe's energy crisis: The state steps into energy markets as winter looms! offers a short-term outlook of the European energy market (accessible to clients only). The European energy crisis has dramatically accelerated a shift in EU energy policy away from traded markets and toward state intervention, lasting beyond winter 2022/23. While a natural gas price cap did not make it into the 30 September 30 package, the governmental intervention in gas markets will have long-term impacts on the global demand for gas.
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The recent softened gas prices were also reviewed during the Energy Briefing. We believe that the recent falls are a sign of the lack of flexibility to absorb excess supply when demand outturns lower than expected. At times of weak demand, gas prices could fall to oil switching levels (€120/MWh), but they are expected to remain above a firm floor of coal switching (€60-75/MWh) in the core winter months and stay above historical levels in the long run. Power prices will remain strongly influenced by gas prices and stay at historical highs until the middle of the 2020s.
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