The Economist Intelligence Unit predicts that global energy consumption will rise by 2.2 per cent in 2022, as economies recover from the impact of the pandemic. Even coal consumption, which was on the slide before the start of COVID-19, will grow next year. At the same time, businesses will also need to accelerate efforts to cut emissions especially after the new pledges made at COP26, last November in Glasgow. After summarising the most important events of last year in Central and Eastern Europe, let’s have a look at what to expect from the year that has just started.
1. Let’s get prepared for more price shocks
A stronger energy demand means also higher prices. The last quarter of 2021 was dominated by a global energy crisis with gas and power prices that reached unprecedentedly high levels due to, among others, a temporary supply-demand imbalance on the global natural gas markets. According to Boston Consulting Group, “we should rather get prepared for similar price shocks as this is going to become part of life, a consequence of climate change.” Indeed, the energy transition will increase the volatility of the market. Natural gas, at least in the short term, will be the dominant way to balance renewables, therefore if natural gas prices rise again (due to another cold winter, for instance), electricity prices will follow.
2. Nuclear and natural gas to help CEE reaching decarbonisation targets
And the role played by natural gas and nuclear in the short- and medium-term, is something to definitely look at. The European Commission started consultations with experts on a draft text to consider nuclear and natural gas as green. Great news for the CEE region as there are still countries like Poland and the Czech Republic which are heavily based on high carbon-emitting coal. For these States and others who represent the ten of Europe’s pro-nuclear countries, labelling nuclear and gas as sustainable translates into meeting the EU’s energy sector’s decarbonisation goals faster and without facing price volatility on the consumer end. Several politicians from the region have already called to include gas and nuclear as necessary to reach carbon neutrality. Last September, Poland’s former Climate Minister Michał Kurtyka emphasised the importance of nuclear in greening Poland’s power system and called the energy source “an opportunity for the Polish industry.” In an interview with CEENERGYNEWS in 2020, János Süli, Hungary’s Minister responsible for the design, construction and commissioning of two new nuclear reactors at Paks said to be “convinced that without nuclear energy, climate protection goals cannot be achieved neither in Hungary nor globally.”
3. New governments, new commitments
Of course, including natural gas and nuclear in the EU taxonomy cannot become an excuse for countries to delay their climate efforts. The recent elections in Germany and the Czech Republic could actually lead to some changes in what has been defined as Europe’s coal triangle (the above-mentioned countries plus Poland). Germany’s new Climate Change Act aims for a 65 per cent reduction of greenhouse gas emissions by 2030 and GHG-neutrality by 2045, which could serve as a close-to-home example for the countries of Central and Eastern Europe. To see also how the new Czech government will react to the threat posed by Poland’s Turów coal mine.
4. Nord Stream 2 pipeline to start operations
The Nord Stream 2 pipeline, which will transport natural gas over some 1,230 kilometres from the world’s largest gas reserves in Russia through the Baltic Sea, made the headlines in 2021 and it will also in 2022 as it is expected to start operations this year after getting the necessary approvals from Germany and the EU. At the end of 2021, the gas-in procedure for the second string of the pipeline started but, at the same time, the operator’s certification procedure was suspended by Germany’s Federal Network Agency (BNetzA). So the main question for this year is: will NS2 begin operation? And if yes, would it really mean that most European countries will increase their dependence on Russian gas, despite all the new supply routes opened last year (the Krk LNG terminal in Croatia, the Trans Adriatic Pipeline, the growing Lithuania’s Klaipeda LNG terminal and so on)?
5. CEE: Europe’s hydrogen corridor
Another trend that started in 2021 and will continue in 2022 will be hydrogen. In particular, can the CEE region create a hydrogen corridor connecting Eastern and Western countries? The infrastructure already exists, if we consider adapting the one in use for gas. Several new investments for solar power plants and wind farms are in the pipeline, with Poland leading the region, all preconditions for the production of green hydrogen. And, if natural gas and nuclear will be really labelled as green by the EU, also blue and pink hydrogen could become important sources in the next months.
6. Sustainable finance and the role of the Recovery Fund
Finally, all the investments and upgrades expected in 2022 must be financed somehow. Sustainable finance was a keyword in 2021 and it will continue to be in 2022 as well. The Recovery Fund has been approved and some of the money is already being allocated. As per rules, at least 37 per cent of the funds must target climate change-related issues and implement the green energy transition. Thus, let’s keep a close eye on how countries will spend this money when it comes to implementing renewables, upgrading the electricity infrastructure, tackling energy poverty and transforming the overall economy. For example, the Greek government just included 55 new projects in the Recovery and Resilience Facility worth 3.35 billion euros and all of them are focused on the green transition, digital transition, employment, skills, social cohesion, private investments and transformation of the economy.
Overall, 2022 is expected to be another important year for the energy industry, the second one in this crucial decade which will lead us to cut emissions by 55 per cent by 2030. New packages are expected to come from the European Commission, like a revision of the Farm to Fork Strategy or the Biodiversity Strategy. New cities, including within the CEE region, are joining the EBRD Green Cities initiative, showing the commitment of mayors and citizens to make a difference. It is also going to be a year full of elections, in Serbia, Slovenia, Hungary, Latvia and Bosnia and Herzegovina. A lot of changes that could really turn those words spoken at COP26 into concrete actions.