Montel Magazine 1 2022 - Uproar over green investm Montel Magazine 1 2022 - Uproar over green investm - Page 23

2021 – A look back at an unprecedented year

Montel reviews 2021 , analysing winners and losers in a year of rebounding demand , high volatility and soaring energy prices .
Anyone betting on rising energy and carbon prices in 2021 was a clear winner . On a rolling basis , the front-month contract at Europe ’ s main TTF gas hub jumped nearly four-fold in 2021 . The equivalent European coal contract ( API 2 ) climbed almost 70 %, while the German power and European carbon benchmarks advanced 140 % and 150 %, respectively . The benchmark Brent crude North Sea oil contract gained 55 %.
The price spikes in fuels altered the dynamics of their contribution in the electricity generation mix . The high cost of natural gas prompted many fossil-fuel generators to switch to coal , with the latter emitting about twice the CO2 emissions than the former when burned . Coal became the clear winner in 2021 , albeit to the dismay of proponents of the clean energy transition . Looking at the power mix in Germany , the EU ’ s biggest economy and with the most renewable energy capacity , hard coal ’ s share jumped from 7.4 % in 2020 to 9.4 % in 2021 .
The share of gas eased marginally from 11.9 % to 10.4 %, amid poor generation margins versus coal . Among the big renewable energy sources , wind ’ s slice of the mix fell from 27.4 % to 23.1 %, while solar grid feed-in was relatively steady at just over 9 %. Germany ’ s massive fleet of wind turbines had fallen victim to spells of wind lulls throughout the year , even though daily output reached a record high of 47.1 GW on 21 December . This volatility alone suggests a win for investors in energy storage . For nuclear , in which Germany plans to phase out by the end of 2022 , the share rose slightly from 12.7 % in 2020 to 13.3 % in 2021 . But in France , nuclear power accounted for nearly 70 % of the electricity mix in 2021 , with output rising 7.5 %.
While those bullish on wholesale prices enjoyed a win last year , many retailers and consumers – households and industries who are now facing inflated energy costs – were the apparent losers . Dozens of energy suppliers in the UK and elsewhere have gone bust since last summer , because they failed to anticipate the price spike in the wholesale market or were unable to pass on the costs to consumers or both . The threat of soaring energy bills jolted some governments and political parties to lash out against the wholesale markets with a call for intervention for the sake of allaying the concerns of their constituents . EU policymakers are currently reviewing the situation , although the proponents of the existing wholesale markets appear likely to win the fight against the interventionists .
Meanwhile , the high volatility and divergence of power prices across Europe last year also suggests a win for developers and transmission operators of new interconnectors . Indeed , the new 1.4 GW North Sea Link cable between Norway and the UK saw TSOs National Grid and Statnett earn EUR 56m during the first month of commercial trial operations alone , according to Montel estimates . Russia ’ s Gazprom completed its controversial Nord Stream 2 gas pipeline to Germany late last year , but flows have yet to start owing to outstanding certification issues – not to mention the geopolitical tensions with the build-up of Russian troops along the nation ’ s borders with Ukraine . With gas storage at historically low levels for this time of year , Europe needs more supply . It remains to be seen whether Nord Stream 2 starts flowing this year .
For this year , the coronavirus shows no signs of going away but its bite may be less severe as more people get vaccinated with boosters . Some large energy firms are now reporting record profits for the last quarter in 2021 , thanks to the surge in wholesale prices . The futures markets suggest energy prices are likely to remain high for at least the first quarter , although below the peaks reached in the final quarter of 2021 . All eyes are on diplomatic efforts to de-escalate tensions between Russia and Ukraine and the West . Nevertheless , a further correction in gas prices will likely alter the power mix as fossil-fuel generators shift away from coal . Renewable energy capacity will continue to rise as European nations work towards their 2030 climate commitments , meaning wholesale prices will remain volatile and demand for energy storage and balancing services will remain strong . Consumers and energy-intensive industries will surely welcome any sharp correction in prices , which may also temper the calls for intervention . The EU may agree this year to label some natural gas and nuclear as ‘ green ’ for sustainable investments , giving those sectors a boost , at least temporarily .
See overleaf for the views of market participants , who also forecast the year ahead .
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