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The extremely high prices of electricity and gas – why does the energy sector struggle so much, and what solutions are there for those affected

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Europe is struggling to cope with a record-breaking rise in energy prices that threatens to derail the post-pandemic economic recovery, squeeze household incomes and even challenge the incipient green transition.

Natural gas is an essential part of the Continent’s energy mix. Natural gas and coal supply for more than 35% of total EU output, with gas representing more than a fifth.

This dependence is a significant problem in most countries as prices skyrocket. Electricity and gas prices rose by 30%, 40%, or even 60% in a single day. Carbon emissions are also continuing to set new records. And all this before the winter has arrived and electricity and gas consumption haven’t increased significantly. Many market geographic and political factors have brewed into a perfect storm that does not seem to be letting up as the Continent enters the fall season, temperatures gradually fall, and heating becomes necessary.

Why has the price of electricity and gas in Europe reached record highs?

There is no single answer to this question due to the complex nature of the energy sector in itself. But we are going to outline some the main factors influencing the situation. There are two types of factors:

  • Global
  • Local (European)

Global factors

Analysts are already warning that the crisis, exacerbated by a mix of temporary and structural issues, will last longer, and the worst is yet to come.

The problems began in the last winter which was colder and longer than expected, when temperatures led to a higher demand for electricity to heat buildings (the remote working adding up to this increased demand). This led to a significant drop in gas reserves, reaching a worrying 30% by March (the lowest in 10 years) and having shorter time to replenish by the summer

However, as the vaccination campaign picked up steam across the Continent, and also globally, in the spring, business activity began to intensify rapidly and we experienced a very fast economic rebound. Businesses, offices, restaurants, and other establishments reopened their doors, and consumers flocked to spend their savings from the shutdown period.

The economic boom triggered a new wave of energy demand, which grew even more in the summer as sweltering temperatures drove people to use air conditioners and cooling systems. East Asian countries joined Europe in seeking energy to revive their COVID-stricken economies. However, growing demand didn’t meet the increasing supply.

Heavily depending on Russian gas supplies, Europe has also been affected by Moscow’s decision to cut gas supplies through Ukraine (it has no capacity booked in Ukrainian pipelines for October). As a result of the lower supplies, European gas reserves, which serve as a stockpile for the winter, are much lower than usual.

As to the LNG (liquified natural gas) Asian prices have been higher than the European and so, the providers have directed their supplies to the far East.

Local factors

The EU’s Emissions Trading System (ETS) has received a lot of the blame. The main goal of this system is to encourage the transition to clean energy by increasing the price of carbon energy. The gas supply shortage has lead to a higher demand of carbon intensive energy and, naturally, this has led to price increase this energy too.

Renewables’ share in the energy mix has also been lower during 2021 (precisely wind output), worsening the situation in countries like Germany and UK, for example.

How do electricity and gas prices affect business and the economy?

The energy crisis is already affecting a number of sectors of the economy and growing concerns about rising inflation. While electricity, gas, and heat account for slightly less than 6% of the consumer price basket in the eurozone in 2021, the risk is that rising energy costs will spread across the entire economy, spreading the impact of prices to other sectors.

The entire European industry – from the production and processing of metals through glassworks to automobiles and the food industry – is affected by extremely high electricity and gas prices.

Several enterprises important for the Bulgarian economy limited their production capacities or stopped working for ten days in August when the price of electricity exceeded BGN 330 / MWh. The Stara Zagora enterprise “Progress,” the forging plant “Preskov,” KCM Plovdiv, and many others.

In the production of cement, ceramics, glass, and paper, energy is a large part of the cost, which can put serious price pressure on the supply chain.

Food processing is also very energy-intensive, creating other possible pressure points for higher electricity and gas costs to affect consumer prices. This, in turn, creates inflationary pressure on any additional price.

Is this the future, and how to prevent future losses?

Although the European Union is gradually reducing its longstanding dependence on fossil fuels – renewable energy became the bloc’s main source of electricity for the first time in 2020 – the transition has not been fast or widespread enough to contain the fallout.

The current crises is a good opportunity, though. The EU can act in two ways – adding more and more renewables and technologies but also working on the energy efficiency projects. Industries – small and medium, public and private enterprises need a fast and reliable solution that will help them optimize their energy costs and prevent future shocks in case of a sharp price increase. A starting and critical point is the accurate measuring and quality monitoring of electricity consumption, enabling adequate future consumption planning.

ADD Bulgaria has both the solutions and the expertise to adequately address the energy measuring, monitoring and planning activities of small and medium enterprises. Here are the main technologies that we offer to our customers and partners. Their application is versatile.

Intelligent electricity meters for control measurement of production machines

Интелигентни измервателни уреди

Using smart meters to measure and control the consumption of production machines is a great way to optimize the power consumption of these machines. This control measurement shows us when it makes the most sense to use the machine to use the lowest tariff set by the supplier.

The benefits of using smart meters are many. One of the most basic is that they provide information about the consumption of electricity faster. Smart electricity meters provide more detailed and accurate measurement data. The measured data is sent at regular intervals to ARISTA CMS software by which we can map consumption peaks and gain insights. This can monitor power quality, enhance the power flow, improve service, and intervene faster in case of issues such as outages.

Electrical infrastructure monitoring by ADD Bulgaria – optimization, digitalization, and effective prevention

ARISTA EIM (Electrical Infrastructure Monitoring) is a cutting-edge technology that allows you to monitor power supply and control electrical switchboards remotely and in real-time.

The advantage of ARISTA EIM is that it does not require a significant upfront investment, unlike other expensive solutions. The solution manages to take maintenance operations to the next level of digitalization and automation. These are just some of the benefits:

  • Continuous, real-time monitoring – Using smart technology means you have a continuous overview of energy usage in your building. Data collected from sensors is relayed to a central dashboard, giving you an overview of energy use in your building or business at any given time without having to wait for energy bills.
  • The ability to make immediate changes allows for greater cost savings – Because you can see everything that’s happening in one central display, you can react immediately and make changes to reduce energy consumption. This can range from simple things like closing blinds in areas that get too hot at certain times of the day and turning off machines that are running at inappropriate times to more complicated things like identifying outdated equipment that is no longer working as well as it should.
  • Helps ensure a consistent, reliable power supply – By monitoring the energy flowing into and out of machines, you can identify potential problems before they arise, such as demand fluctuations at certain times, and put plans in place to change them. This can help you avoid sudden fluctuations in demand and power spikes and ensure you always have power when you need it most.
  • Helps you plan for the future – By monitoring trends in power consumption, you can develop realistic goals for future energy management. The detailed data allows you to look at specific machines, rooms, or offices and develop action plans to save energy. The data can also be helpful to implement a successful energy management strategy.

Technology is the future

The last few months related to COVID-19 have shown us that our time is extremely tied to technology. And not only in our daily lives but also in our official duties and very much in production.

Our present and current events clearly show us that the future is just that – more and more automated productions, more advanced solutions to optimize energy consumption, and more precise planning based on big information and data streams.

ADD offers intelligent systems for remote control, measurement, and management in the energy and industrial sectors. We have already installed almost 1.5 million smart meters in Bulgaria and Northern Macedonia, and we are constantly developing our solutions to provide efficiency to our users.