Perspectives: Energy & War


The energy crisis and the invisible hand of the market

This past February, during an extremely heavy winter, the State of Texas experienced a brief but very impactful energy crisis. The low temperatures damaged the natural gas infrastructures and the electricity power plants, at the very time of the year that due to the cold, the need for electricity was greater in order for people to heat their houses. The laws of supply and demand led prices to rise from 90$/MWh to 9000$/MWh thus pushing many households to bankruptcy.

Today, Europe and Greece are experiencing their own energy crisis, that doesn’t last only as long as a cold wave, but has been going on for more than 9 months. Said energy crisis was triggered by the decrease in natural gas flows from Russia to the EU that was part of an extended energy and geopolitical antagonism that was finally condensed in Russia’s invasion of Ukraine in February. At this moment, the crisis is fuelled by the possibility of a wider-scale tension and the instability caused by the economic sanctions’ imposed.

A typical natural gas rate used to be 15-20€/MWh 1 and has now increased to 110€. An average rate for electricity was 50-70€/MWh and today has raised to 240€. The increased rates intensify energy poverty, make it increasingly difficult for domestic consumers and businesses to pay their energy bills and lead to an inflation spike (even before the Russian invasion in the Ukraine, inflation was already reaching 7.2%).

The war begins

Table 1: Average daily rate in wholesale electricity market (system marginal price) [GR] 2

The extent and the duration shown in this image raise questions regarding the planning and operation of energy systems. Even though the most crucial issue is the escalation of geopolitical antagonism, it is also worth assessing how the energy sector responded to this lurch, what sort of defences it displayed and whether it softened the impact of the external instability or it inflated it.

This issue involves two main levels. The first is the long-term planning and the political interventions of the past decade that shape the arsenal of all the reserves (political and technical) that can be used in a crisis. The second is its operation during a crisis situation.

The organisation of the energy sector

Regarding the organisation of the energy sector’s operation in Europe and in Greece, the leading tendency during the past decades has been the reinforcement of the energy markets and the mediation of any relevant policies through them. The main consensus was that the markets (through the appropriate economic signals) can (self)regulate and ensure not just the safe and reliable energy supply but also the energy transition’s success.

When it came to the energy mix, other than the policies to boost renewable energy sources, natural gas was chosen as the bridge fuel mineral and its supply was relying increasingly on Energy Exchanges. Notions such as security of supply, diversification of energy sources and energy dependence may be common keywords nowadays, but in the past few years they were all downplayed in order to avoid market distortions.

In Greece, this policy was specified in an extremely rapid phase-out from lignite from its energy mix, essentially by 2023. 3 Given the fact that therms’ existence will be necessary (their share in energy production is estimated to decrease to 30% by 2030), 4 this choice renders natural gas as the only mineral fuel in the Greek energy system for the coming decades. As a result, energy rates are exposed to the shifts in natural gas rates and there isn’t an obvious alternative to natural gas energy production.

Table 2: Share per energy production technology – Greece

The second aspect was the further deregulation of the electricity market. Setting aside the energy exchange and the privatisation of electricity companies and electricity network management companies, there have been significant changes in the energy supply sector (in the retail market) where there was absolutely no regulation that would protect consumers. The market opening was made by fully transferring the risk of an increase in wholesale rates to the final consumer through the indexation clause, thus protecting the supplying companies and creating the conditions for the burden of any rates’ increase to fall automatically to the final consumers.

Still, the most important event concerning the deregulation process was the transformation of DEI (Hellenic Public Power Corporation) from a state-controlled S.A. to a private company that only aims to produce profits for its stakeholders. The process was accentuated in November 2021, during the crisis, with the State’s withdrawal from having decisive monitoring control that resulted from it owning 51% of the company’s shares. This move’s significance lies in the fact that the largest energy company’s commercial policy greatly determines both the wholesale as well as the retail energy rates, especially given the fact that there’s only a handful of big players in the energy field and everyone knows that the rates don’t reflect the production costs. The fact that DEI is no longer a State-run corporation means that it is no longer possible for the State to intervene and moderate the electricity rate’s increase. As a result, the State had to resort to subsidising those very increased energy rates and, therefore, the company’s excess profits. In fact, Greece has had one of the highest wholesale rates in the EU during most of this crisis.

Table 3: Average system marginal prices in Europe in 2022

The markets’ reaction

The energy crisis in Greece started in July 2021, almost 8 months before the Russian invasion in the Ukraine, when the average wholesale electricity rate increased to over 110€ and since then it’s been spiking like never before. Also in Europe, the natural gas rate (TTF) reached record highs in July, and in August it increased to over 50€/MWh. Ever since there has been a great variability in terms of the rates 5 and this was several months before the Russian invasion in the Ukraine.

Table 4: Natural Gas Rate (TTF)[8] €/ΜWh

Even though it’s rather hard to fully estimate how the market has been working during the crisis, the outlines are starting to become clear through the public discourse and the suggested measures.

In terms of the public discourse, a typical sample would be what Ursula von der Leyen, President of the European Commission, stated on October 21st 2021 regarding how we should end the speculation of the energy and CO2 markets thus campaigning for an intervention in the markets. By now, it is universally accepted that the way the electricity market operates in the EU creates conditions that favour windfall profits; profits that the IEA (International Energy Agency) estimates could reach 200 billion euros in 2022. Setting aside the structural problems of the electricity market pricing, there’s a wider problem that is becoming more and more apparent. An example would be that on March 13th 2022, the Greek Prime Minister stated that the European gas market (as a whole) is no longer functioning but is rather a field for speculation. The first harsh denouncements regarding the Greek market were made as early as September 2021 by UNICEN (Hellenic Union of Industrial Consumers of Energy) and since then most of the political spectrum has followed their example.

Regarding the second side, it is really interesting (if not typical) to see the discussion concerning the suggested measures on a European level aiming to moderate the energy footprint of the energy crisis. The first measure discussed is a common supply of natural gas with long-term contracts and agreements between the EU and the supplying states. The second is to set a cap to the electricity and/or natural gas markets. A third measure would be to legislate a corporately set profit margin for energy companies based on the electricity production technology they use, as well as the extraordinary taxation of energy companies that have excessive profits.

Lastly, it seems like there will be a strictly defined operation framework for natural gas storage facilities. It is indicative that a few days prior to the French presidential election, Macron stated that he intends to nationalise some of EDF’s assets. Not long ago, such a discussion would be unthinkable and would be criticised as non-liberal and outdated.

As a conclusion, looking at the public discourse as well as at the measures that are being discussed, one could say that the markets’ operation is seen as being a part of the problem rather than the solution, even by its proper architects. It should also be noted how slow or hesitant all parties are when it comes to the realisation of interventions that would control the markets as opposed to the almost instant decision to impose economic sanctions against Russia.

On the other hand, it is true that the practices of those previous months are not that different to the typical stock exchange practices and behaviours everywhere. A projected shortage of certain goods creates profit margins and opportunities that all the stock exchange markets rush to exploit, regardless of the broader social and economic impact; a practice that in a way reminds us of the tale of the scorpio that killed the frog while the frog was helping it to cross the river. Even CO2 costs that should act as a trigger to boost investments in renewable energy sources are used as a stockbroking product and are exposed to the relevant process. As a result, its rate has more than doubled in a year, which has increased energy costs even more, without any reinforcement at the same time of renewable energy sources.

The comeback of politics (?)

The question that rises through this whole process, is whether the energy systems’ planning eventually works in favour of the societies. It seems like the coveted resilience of the energy system, which is part of its plan’s core goals, was absent. The most central institution probably intensified the crisis and created windfall profits at the expense of the rest of the economic sectors and against citizens themselves. On the other hand, the constant limitation of the states’ ability to intervene, as part of the deregulation process, created circumstances that render it really difficult to exercise politics and impede even the most reasonable interventions.

On those grounds, the boosted role of stock exchanges in the energy markets has been criticised to an unprecedented extent by institutional bodies and voices within the EU, thus opening a conversation regarding reregulation, meaning an increase of the states’ and regulatory authorities’ role. This reflects the interests of social forces that are suffering damages due to the current management of the situation and the pressure caused by the three main challenges of the immediate future.

Firstly, it is clear that stabilisation and the reach of the set goals regarding the disentangling from Russian mineral fuels isn’t going to be achieved any time soon (at least not in terms of basic normality). Therefore, the increased rates will most likely be maintained for a few years. The second challenge is that the geopolitical landscape seems to be rather fluid and unstable. This is probably what the new reality looks like and it demands energy systems that possess reserves and can handle rate and primary energy sources availability jolts.The third shock is the ongoing energy transition in order to fight climate change, that shouldn’t be halted. Every transition has its challenges and this one is no exception. It demands significant investments (in the EU said investments are estimated to amount to 380 bn per year until 2030) in energy works, networks, infrastructure and leads to a general increase in energy costs, 6  compared to pre-crisis levels. In other words, everything points to the shaping of a condition of great uncertainty, with an extremely high risk of energy poverty and expensiveness and all of their counter effects.

Under the given circumstances, it has already become clear that a policy that is limited to the Social Residential Tariff (even if extended to allow for more beneficiaries), meaning a subsidy of the market’s increased rates, will not be enough to address the existing issues. Now is the time to rethink who should be the one to guarantee and therefore possess the means to ensure a secure energy supply and combat energy poverty. We should rethink if the fundamental withdrawal of the state from the planning and the operation of the energy sector adds risks or benefits and for whom. These are the major political questions and while we choose to ignore reality, any solution that would benefit the social majority, seems to remain distant.


  1. Thermal []
  2. ENTSOe Transparency Platform []
  3. All lignite plants are scheduled to shut down by 2023, except one that is under construction and will function until 2025, when it is scheduled to be converted to a natural gas unit. []
  4. ENCP 2019 []
  5. Indicatively between 10-12/12 the natural gas rate increased from 105€/MWh to 182€/MWh. During the same period, the average system marginal price in the Greek stock exchange increased from 231€/MWh to 416€/MWh. []
  6. Without factoring in the cost of the climate change effects. []
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