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New year, same energy crisis

2023 won’t be too much different from 2022. While summarising the year that just ended, we noticed some great accomplishments when it comes to energy diversification and to climate targets. 2023 will be the year in which we will find out if the lessons from the past (and current) crises have been learnt or not. However, some things are here to stay.

1. Electricity market reform: the top priority of 2023

Definitely, one of the things to focus on will be the reform of the electricity market, implemented at the European Union level and with impacts to all the Central and Eastern European Member States.

energy crisis

Already at the end of 2022, Pál Ságvári, Vice President for Strategic and International Affairs at the Hungarian Energy and Public Utility Regulatory Authority (MEKH) said that the revision of the electricity market model will be one of the most important energy regulation topics in 2023. However, he reminded us that the comprehensive transformation necessary to create a future-proof market model cannot be carried out in a forced manner. The goals must be well defined and all steps must be carefully worked out to avoid disruptions in the operation of the electricity system. Basically, Mr Ságvári highlighted three things to focus on: baseload generation, the availability of resources that ensure the flexibility of the system and the integration of renewable energy sources.

2. LNG: again making the headlines

Liquified Natural Gas (LNG) imports dominated the news in 2022 and the same goes for 2023. Outlining the key energy priorities of the EU in 2023, the President of the European Commission Ursula von der Leyen stressed that the first one is securing enough LNG supply. “This year, we had up to 130 billion cubic metres (bcm) of LNG. For this, we of course have to further intensify our outreach to our international partners”, she said.

In CEE we are looking forward to the Floating Storage and Regasification Unit (FSRU) in Alexandroupolis which is expected to operate by the end of the year, with a contracted regasification capacity already reaching up to 60 per cent of its technical capacity of 5.5 bcm per year.

Earlier in December, the gas pipeline connection built in Paldiski, for the new LNG terminal, by Estonia’s Transmission System Operator (TSO) Elering was ready to receive gas into its network. Therefore, we must also look closely at the developments of this new LNG terminal which will connect Finland and the Baltic States (together with the one in Germany and the potential expansion of the one in Klaipeda, Lithuania).

3. Greece vs Turkey: who will be the regional energy hub?

Two countries have emerged over the past months as important regional energy hubs and they will contend for this title in the coming year as well

Greece’s Prime Minister Kyriakos Mitsotakis believes that “Europe’s energy security will pass through Greece” as, thanks to the investments in the LNG and gas infrastructure, the country is now becoming “an exporter of LNG security to its neighbours.” Other than the above-mentioned Alexandroupolis LNG terminal, the one in Revithoussa is also an important energy asset for Greece and the region. Furthermore, the country’s pipeline infrastructure is expanding, thanks to, among others, the Trans Adriatic Pipeline (TAP) connecting the Caspian Sea to Italy and the Interconnector Greece-Bulgaria (ICGB). As underlined by the country’s gas TSO DESFA, the new pipelines are hydrogen-ready, as Greece is also interested to position itself as an important hydrogen hub.

At the same time, Turkey has just discovered an additional 58 bcm of natural gas in the Black Sea and President Recep Tayyip Erdoğan is already speaking of Turkey as the next regional energy hub. Looking to further diversify its supplies, Bulgaria is also interested in Turkey: at the end of 2022, Bulgaria’s Energy Minister Rosen Hristov underlined that thanks to the ongoing discussions “negotiations can start about a systematic supply of gas from Turkey.”

energy crisis

Earlier in October, Russian President Vladimir Putin proposed that Moscow could export more gas via Turkey and turn it into a new supply hub. In fact, since the start of the war in Ukraine, Russia has continued gas deliveries via the TurkStream gas pipeline, which has an annual capacity of 31.5 bcm. The question now is: can Turkey become Europe’s gas hub without relying on Russian supplies? If the answer is yes, it will be perfectly in line with the EU’s targets of diversifying from Russian sources.

4. No rest for the energy crisis

The Economist Intelligence Unit (EIU) expects the total energy consumption (across the 69 countries covered by EIU’s Industry service) to rise by just 1.3 per cent in 2023, the second consecutive year of sluggish consumption growth. A further reduction in energy supplies is also likely to come from OPEC+ members, which are willing to cut production to prevent oil prices from dropping too far.

Furthermore, a contraction in gas and oil supplies from Russia is to be expected as the EU embargo on Russian oil imports becomes fully effective, as well as price caps. The response already arrived at the end of December, when Russia said to ban oil sales to countries and companies that comply with a price cap agreed by Western nations. The consequences will be clear only after the presidential decree will enter into force on 1 February. Within the CEE region, the countries that will be affected the most will be Poland, Hungary, Czechia, Slovakia and Serbia (although not all of them are included in the sanctions and some exemptions have been made.)

5. Investments in clean energy sources should continue but they might be undermined by the crisis

Solar and wind energy consumption will surge by 11 per cent during 2023, predicts the EIU. However, also coal consumption will rise. On one hand, to cope with the supply disruptions caused by the current geopolitical situation. On the other hand, to respond to climate-related events such as the heatwaves and droughts that we experienced last summer and that negatively impacted also the CEE region, especially the areas along the Danube river. Hungary has already prolonged the Matra lignite power plant and it is relying even more on nuclear. The same goes in Czechia and in Poland where the shares of coal and nuclear in the energy mix are expected to rise.

However, we cannot forget that also the momentum for renewables is growing. We have already talked about the exponential growth of solar panel installations in Hungary or the potential of offshore wind in the Baltic and the Black Sea region. As stated at the beginning, flexibility will be key: a flexible and well interconnected and modern electricity system must be created in order to accommodate the growing demand for renewable energy sources.

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