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Europe's Energy Crisis: Understanding the Causes and Effects

Read about Europe's energy crisis and what measures are implemented by the EU to increase energy efficiency

The Energy Crisis in Europe

Supply disruptions, most notably the reduced supply of gas following the Russian invasion of Ukraine, have triggered a major energy crisis across all of Europe. The recent surge in energy prices offers a glimpse of a future where a transition to a low-carbon economy, that has not been properly managed, might produce recurrent market crunches and hinder the decarbonization trajectory.

The EU has implemented several measures to increase energy efficiency and reduce dependence on fossil fuels. Forecasts for Europe’s transition to clean energy have certainly been overturned by the region’s energy crisis. To combat this crisis, the EU has proposed the development of renewable energy sources, increased investment in energy-efficient technology, and the creation of a unified energy market.

Causes Of The Energy Crisis

The current energy crisis in Europe is caused by a combination of factors, including increasing demand for energy, insufficient energy supply, and an over-dependence on fossil fuels. The region has been heavily dependent on fossil fuels such as oil and gas for energy production, and these resources are becoming increasingly scarce.

The United States is Europe's largest supplier of natural gas and oil, providing around 40% of its natural gas needs. When the conflict, following Russia’s invasion of Ukraine, broke out, the EU imposed economic sanctions on Russia, leading to an energy crisis in Europe as the flow of Russian energy was disrupted. The crisis has been further exacerbated by the fact that Ukraine is an important transit country for Russian energy supplies to Europe. With the conflict in Ukraine, Russia has restricted or cut off energy supplies, meaning the transit of Russian energy to other European countries has been disrupted. This has put further pressure on European energy supplies.

The aging energy infrastructure in Europe has, also, contributed to the energy crisis. Much of the energy support in Europe was built in the second half of the 20th century and is now in need of significant repair and upgrade. This is particularly true of the continent's power grids, which are often outdated and inefficient. As a result of the lack of proper infrastructure, renewable energy transitions are slow and alternatives to Russian gas are limited.

Electrical pillars on sunset hours

How Is The EU Responding To The Energy Crisis?

Governments in Europe have been compelled by the energy crisis to enact a number of legislative measures to monitor energy prices and to strive for a quicker switch to renewable energy sources. In response to the Russian invasion of Ukraine, the European Commission has taken a number of measures to combat the energy crisis caused by the conflict.

  • Reducing the EU's energy dependence on imported gas from Russia. To do this, the Commission has supported the development of new sources of energy, such as renewables, nuclear power, and Liquified Natural Gas (LNG).
  • Increasing the EU's energy efficiency and security of supply by investing in energy infrastructure, such as pipelines and storage facilities.
  • Ensuring that member states are better prepared to cope with a potential gas supply disruption. This has included helping countries to diversify their energy sources, setting up emergency reserves of gas, and helping countries to develop their own energy networks.
  • Increasing the EU's energy security by strengthening the cooperation between member states in the areas of energy policy and energy security. This includes the establishment of a European Energy Union, which will work to ensure a secure, sustainable, and competitive energy supply for Europe.

According to the International Monetary Fund’s recent publication on how to beat the European energy crisis, Europe’s response focuses on mitigating the effects of higher energy prices, reducing wholesale prices, and ensuring energy security for the continent. The key role of natural gas in electricity generation and in bridging electricity supply deficits is also leading to an accompanying rise in wholesale electricity prices. Many counties choose to switch back to generation from coal which can help reduce the increase in wholesale electricity prices, but this is also controversial because of the concerns about the impact of global warming as opposed to our article on the Energy Transition Industry.

A pipeline which is transmitting energy supplies

Which Countries Are Most Affected?

It becomes apparent that the energy crisis caused by the Russian gas cuts has created a ripple effect across the globe, with some countries feeling the effects of the disruption more severely than others.

A total of 26 European countries have been affected so far by the global energy crisis. The principal reason is the reduced supply of gas from Russia, which has provided around one-half of European gas imports and one-quarter of gas consumption (consumption of around 500 billion cubic meters [bcm] for all European countries).

A further reason for an exceptionally large rise in energy prices in Europe is the key role of natural gas in electricity generation combined with supply disruption to other forms of electricity generation. Across Europe, fossil fuels are used for around 40% of electricity generation with about half of this from natural gas. Renewables are about one-third of electricity generation and nuclear is around one-quarter.

Germany’s Energy Dependency

Over the last 30 years, Germany has established a dependency on Russian natural gas for industrial and private uses. Before the war in Ukraine, Russian gas made up 55% of total imports in Germany. That number had fallen to 35% as of May 2022.

As Russia has reduced the amount of natural gas flowing through pipelines to Germany during the course of its war in Ukraine, German suppliers have been forced to make up for the failed deliveries by buying natural gas on the open market.

A dependency on gas poses a particular problem, in that the possibilities for transporting it are non-fungible. Natural gas cannot be moved by rail, road, or sea, unlike coal and oil, which can be loaded into various containers and transported along various routes. Instead, it must be transported via pipelines that allow for direct physical connections between exporters and importers.

The other option is to liquefy the gas – essentially cool it down to such an extent that it then exists in liquid form and can be transported via specially constructed ships. This requires purpose-built terminals that exist in many places in the world, but not in Germany. The country has been scrambling to construct these terminals on its northern coasts in the last months so that can receive liquified gas imports from the US and the Middle East in the future.

Europe’s Adjustment In The Future

Europe’s scope for adjustment to the global energy crisis is very limited, but there is still a lot for governments to do to simplify and speed up regulatory processes in order to mitigate the crisis.

The energy crisis in Europe is a serious problem that must be addressed if progress is to be made. In order to find a solution, governments, and energy providers must work together to create a sustainable energy system that considers the needs of the environment and the economy. Investing in renewable energy sources, such as solar and wind, is a key step in moving towards a more secure energy future. Ultimately, it is essential that all stakeholders come together to ensure that Europe has a secure, reliable, and affordable energy supply.

Small businesses can also take individual actions to adjust to the global energy crisis. Lumiform provides a range of energy audits and sustainable audits that can support those actions efficiently and intuitively.

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