Societal Suicide Or Societal Collapse?
Energy Is In Short Supply From Europe To California
The other day I likened a recent protest by residents of Naples, Italy, who were burning their energy bills and refusing to pay them, as “societal suicide”—that the resulting chaos of such a boycott has the potential to fracture Italy.
More than one reader took the side of the Neopolitans:
The Neopolitans are quite right to refuse to pay. It's easy for us, who still can pay (for the moment) to pass judgment. Do you expect them to quietly into the night? The consequences will be what they will be.
The consequences will indeed be what they will be—and they will largely be the same consequences almost everywhere there is a shortfall in energy production relative to energy demand. Certainly, this is proving true in California, where energy prices are at near record levels.
Power prices at the Palo Verde hub in Arizona and SP-15 in Southern California rose to $850 and $505 per megawatt hour, respectively. That was their highest levels since hitting record highs of $1,311 in Palo Verde and $698 in SP-15 in August 2020 when the ISO last imposed rotating outages.
The one thing that is beyond doubt is that the residents of Naples have exactly ZERO to do with energy rates in California—and yet energy prices are skyrocketing there just as in Naples.
California Sun Has Become California Heat Wave
Just as China is baking under extreme heat, so, too, is California.
The California Independent System Operator (ISO) urged consumers to conserve energy on Tuesday for a seventh consecutive day as the heat puts even greater strain on the electrical grid and significantly increases the likelihood of rotating outages being introduced for the first time in two years.
California’s dilemma: despite surging prices, it does not have sufficient energy capacity to meet energy demand in the face of record summer temperatures, and the state has been compelled to encourage and even demand that residents conserve electricity and curtail energy consumption (and thus demand) wherever possible.
“We need a reduction in energy use that is two or three times greater than what we’ve seen so far as this historic heat wave continues to intensify,” said Elliot Mainzer, CEO of the ISO, said in a release.
Despite the exhortations to conserve, California’s power grids were projected to reach record levels of demand as the extreme heat continues to bake the state.
"Forecasted loads are currently very high today and tomorrow, with Tuesday showing peak demand at 51,145 megawatts (MW), which would set a new record from the previous high of 50,270 MW in 2006," California Independent System Operator (ISO) said in a statement.
If demand exceeded generation capacity, the ISO had a simple albeit draconian solution: energy rationing in the form of rolling blackouts—Californians could either trim their energy consumption or the utility companies could trim it for them.
Despite this, Californians’ demand for electricity continued to push the power grid to the brink, with rolling blackouts becoming an “immediate” risk by Tuesday afternoon.
California’s heat wave -- one of the worst in state history -- has entered day six, and while the state's badly strained power grid escaped rolling blackouts Monday, it will be tested like never before Tuesday, officials warned. They are asking the public to ramp up conservation efforts or face the prospects of losing power, with energy use on Tuesday anticipated to be at record levels. In parts of the San Francisco Bay Area, temperatures could reach 117 or even 118 degrees.
By late Tuesday, the ISO began calling for rolling blackouts.
The California grid operator, stressed by record-smashing demand, has called for rolling blackouts until 8 p.m. Tuesday evening.
At that point, energy demand was already at record levels for the California power grid.
According to the media, Californians then “blinked” and began conserving power, after a text message sent from the state’s Office of Emergency Services basically threatened immediate power disruptions if demand wasn’t trimmed—a message that Governor Newsom’s office rebroadcast over Twitter:
Californians immediately responded by trimming energy use significantly and thus ending the immediate crisis.
Of course, the same chart which shows the awesome might of the state’s text message also shows that power usage was already down from the record peak, even before the ISO raised the emergency level to its highest level.
By 8PM, the ISO ended the emergency, presumably without any rolling blackouts.
Despite “no loads being shed”, however, at least 75,000 Californians were without power Tuesday even before the ISO raised the emergency level to Level 3.
Effectively, California presented the reverse of the Neopolitan situation: even as Californians were paying their energy bills, California utilities were unable to deliver the energy, taking the power grid to the brink of collapse. Energy price inflation very nearly proved ruinous not just for California residents, but also for California power companies.
As In California, So Too In Europe Beyond Italy
While California’s immediate situation is driven by the ongoing heatwave across the Western US, the disruptive effects of energy price inflation are being felt everywhere—just as Naples residents are being pushed financially to the brink of desperation by rising energy costs, similar rises are expected to happen across Europe this coming winter and into 2023:
Energy affordability in Europe is reaching a “tipping point” that could peak next year, with total spending on bills across the continent growing by 2 trillion euros ($2 trillion), a Goldman Sachs research team, led by Alberto Gandolfi and Mafalda Pombeiro, said in a note published Sunday.
The immediate driver of rising European energy costs is, of course, ongoing sanctions against Russia over the Russo-Ukrainian War, and the resultant disruption and even termination of flows of Russian natural gas to Europe.
The Nord Stream pipeline linking Russia to Europe has been shut down since last week. Russian state-owned gas company Gazprom has cited technical issues as the reason behind the shutdown, although the European Union has retorted by saying the company is acting under “fallacious pretenses.” European officials have openly described this summer’s gas cutoffs as “politically motivated.”
On Monday, the Kremlin issued the clearest sign yet that Europe will likely continue having to deal with limited gas supplies from Russia for the foreseeable future, when a government spokesperson said the full resumption of operations along the Nord Stream pipeline was “undoubtedly” dependent on the West lifting its sanctions on Russia.
(Side note: are the reductions in Russian NatGas to Europe “politically motivated”? Unquestionably—just as are the sanctions which precipitated this game of energy tit for tat)
Yet while the ongoing crisis with Russia over Ukraine is the primary catalyst for current disruptions to Europe’s natural gas supplies, the energy crisis itself reflects a far deeper problem within Europe’s power grid: the lack of alternative capacity, for a variety of reasons.
Drought has undermined hydroelectric power from rivers and reservoirs. France’s fleet of 56 nuclear power plants is running at half-strength because of shutdowns over corrosion problems in key pipes and repairs, updating and safety checks. A heat wave limited use of river water for cooling power plants, and lower water levels on Germany’s Rhine River reduced supplies of coal to generators.
Just as in California, the spike in natural gas prices is adding to Europe’s power utilities financial woes, prompting utility bailouts across the continent alongside consumer subsidies.
National governments have approved a raft of measures: bailouts for utilities forced to pay exorbitant prices for Russian gas, cash for hard-hit households and tax breaks.
For example, Germany has approved a third support package with 65 billion euros ($64.3 billion) in aid for consumers. That kind of spending will add to national deficits but also soften the downturn that economists are predicting for the end of this year and beginning of next year.
The consumer aid comes on the heels of an additional German tax aimed at providing assistance to financially distressed energy companies paying dramatically higher prices for natural gas.
An association of gas pipeline operators on Monday set the level at 2.4 euro cents per kilowatt hour under legislation passed by the German parliament, which had an expected range of 1 to 5 cents. The tax on gas that is used to heat homes in winter and generate electricity is set to take effect in October and run through the beginning of April. It will not show up in utility bills until November or December.
This is the logic of government intervention against inflation: German utilities can’t afford to buy needed natural gas, so the German government steps in with support. German utilities then pass the increased cost of the natural gas on to German consumers, and so the German government steps in with support for them as well.
In the aftermath of the disruptions wrought by the same forces driving energy price inflation, Germany is in effect subsidizing both supply and demand. Germany is propping up the very energy prices Germany needs to see reduced. When utilities and consumers alike are given government bailouts over energy prices, the one certainty is that the too-high energy prices will be sustained by the policy.
Energy Price Inflation Correlates To Energy Infrastructure Deterioration
Whether the focus is on rolling blackouts in California as the power grid is unable to keep pace with demand or rising costs of energy supply in Europe leaving the power grid unable to support even conserved and reduced demand, we see a similar picture unfolding: as energy costs (and, therefore, energy prices) have risen, energy infrastructures have deteriorated.
Not only is this directly evident in California, where the infrastructure is proving to be simply inadequate, but it is becoming evident in Europe, for although the prevailing narrative puts the onus for rising energy costs in Europe squarely on Putin, the reality is that energy costs in Europe surged throughout 2021, long before the start Russia’s war in Ukraine, rising by over 28% (year-on-year) in January of this year alone.
While it cannot be said often enough that “correlation is not causation”, we must never lose sight of the reality that correlation is always connection. This is particularly true when addressing inflation, for while inflation inflicts economic damage by reducing the overall level of consumption, as both California and Europe demonstrate, energy price inflation is occurring alongside an overall degradation in energy infrastructures.
As a matter of basic economic theory, it would be irrational to argue that inflation is causing the degradation, for any price increase should both allow and incent suppliers to maintain the necessary infrastructure in order to sustain the market. However, it is not irrational to propose that the same forces which drive energy price inflation are also driving degradation of the energy infrastructure as well.
In Europe, for example, years of pushing for “green energy” alternatives have left the European power grid ill-adapted to a sudden shortage of natural gas. Even a year ago, rising natural gas prices were seen as presenting a threat to the EU policy of pursuing renewable energy production, as the rising natgas prices were allowing renewable prices to rise accordingly—meaning that renewables have not been able to fill the demand voice created by a surge in the price of natural gas.
The recent spike is already having a tangible impact. Spain, for instance, has announced emergency measures to limit the profits that energy companies can make from gas alternatives, including renewables. The government is also hoping to cap what consumers are paying for their electricity.
A similar devotion to a green energy agenda is argued by many as leading to California’s current energy woes. Indeed, this spring some pundits and commentators more or less predicted this past week’s threat of rolling blackouts (i.e., energy rationing) would descend on the state.
California’s headlong rush towards zero-carbon power will cost consumers through wildly expensive electricity rates and lower grid reliability. That’s a lose-lose for California families and businesses who want to avoid blackouts and avoid energy poverty.
Golden State politicians and Progressives – groups with an almost total overlap – live in dread fear of possible changes in weather decades in the future. Instead of planning for localized mitigations to deal with changing climate, they’ve decided to remake our entire energy sector, replacing affordable, dependable sources with their opposites.
Whatever merits and demerits one wishes to ascribe to renewables, there is no contesting the reality that California’s renewable energy production was inadequate to this past week’s energy demand, just as Europe’s renewable energy production has proven inadequate to European demand.
Energy price inflation today leads to energy insecurity tomorrow, with blackouts coming the day after.
This is the essence of why inflation is a danger: inflation leads to insecurity which leads to insufficiency.
We see this happening with food price inflation.
We see this happening with shelter price inflation.
We are seeing it with energy price inflation.
Where there is inflation, insecurity and insufficiency are not far behind. Where there is inflation, infrastructure degradation and eventual collapse are inevitable.
Left unchecked, the forces which drive inflation ultimately drive a society to one of two choices: societal suicide or societal collapse.
That is not an exaggeration.
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