The energy crisis requires thinking outside the market-based box

The last few years have seen us moving from a crisis to a crisis, with the Covid crisis being essentially replaced by the Ukraine crisis and the Ukraine crisis leading to and being concurrent with the current European electricity crisis.

Finland might be currently getting hit by volatile energy prices less than many countries in Europe to the south of us, but it’s getting hit, nevertheless. We have not been *quite* as dependent on Russian power as Central European countries. Russian gas was only 5 % of the energy supply, Russians cut the flow already back in May, and in general Russian electricity imports have formed 10 % of the Finnish electricity supply.

Nevertheless, the prices are expected to rise to new heights in the winter. District heating and, lately, geothermal heating have grown in popularity, both for single homes and blocks of flats, and an increasing number of air-source heat pumps have been installed. Still, there's still a lot of reliance on direct electric heating, which currently translates to "pay up the nose". Such detached houses might well see electric bills hitting well over a thousand a month. Wood-burning stoves and fireplaces all around the country are suddenly finding new use.

Complicating factors

There has existed a back-up power reserve including, among others, Finland's last electricity-generation-oriented coal plant (other coal plants are mainly used for heat generation). It's a good bet that if it comes to firing up the power reserve or rolling blackouts, at least some part of the power reserve is going to be fired up. That’s the general intent of reserves, after all.

There are calls to do this already at this point, even before the winter has come. Apparently, however, there are difficulties related to this, such as the fact that the said coal plant would need some heavy maintenance to bring back to use, as there have been uncertainties related to whether a coal plant should even continue as a part of the reserve.

Worst of the crisis might be avoided if the Olkiluoto 3 (“OL3”) nuclear generator goes fully online before the schedule, or if at least there are no further delays. Finland is a pro-nuclear country, but still, few would deny that OL3 has been the white whale of nuclear projects for years now, an incredibly delayed and costly project that is now in test use, with those tests also frequently facing unplanned downtimes.

The current estimate for OL3 starting commercial use is December 2022. We'll see. Having OL3 being online and working without issues would greatly increase our security and stability, as there would be less need to worry about whether the winter's particularly cold and how windy/sunny it is for renewables.

The environmental aspects of nuclear and renewables form a major local culture war issue. The opponents of the green policies say that, well, of course when you do things to drive up the costs of polluting, it will also drive up the prices of electricity (which cannot really be produced in any way without *some* pollution). The extent of the contribution is unclear, but still, something is always something.

However, in the medium-to-long term, trying to solve the crisis by tearing down the green measures would be likely to be counterproductive. A common comparison is to Great Britain, where the junking of "green crap" led to end to insulation efforts, or to countries that have been more dependent on fossil fuels than us. “Pissing one’s pants to warm up in the winter” is a frequent metaphor.

Few would suggest trying to solve the crisis by appealing to Russia, as the entire Finnish society continues to be broadly pro-Ukrainian. It would be difficult to do that by our lonesome anyway as a part of the Western block, and the Russians might well tell us to pound sand in any case. At the heart of it, reducing energy dependence on Russia, as well as other external, geopolitically unreliable sources, will be an inevitability.

The world is turning. Much of the price rise has been caused by the issues of markets being unable to adjust fast to these turns. Finland is a part of the European electric grid and thus being affected by the larger issues of the other countries, like Germany. Even if the German energy prices might not quite reach the predicted heights of the worst scenarios, the sheer uncertainty of the situation will still hike up the electricity futures.

For instance, Nordic electricity generation is generally reliant on waterpower, and though the Nordic countries haven't seen droughts on the Central European level, the summer’s climate situation has still affected them. Finland has imported electricity from Norway, and now the Norwegians are mulling restricting electricity exports.

Of course, Norwegians will still endeavor to continue exports – they’re bringing in money, after all – but if the exports are restricted or cables to Europe cut off, there's just going to be a domino effect with it being easier and easier for other nations to do the same when needs must. It's hard to see these sorts of crises as anything other than further evidence in the breakdown of globalization.

The Finnish government attempts to mitigate the crisis

As often with crises of markets, the responsibility for finding a solution falls to the state. The Finnish government has announced measures to alleviate the crisis. These include a measure for a tax rebate on the largest electricity bills and a cut on the electricity VAT, as well as some less defined measure to help the poorest families and some throw-ins like doubled child benefits.

To me, this seems counterproductive - like tailor-made for helping the most energy-consumptive housing and the least-well off but leaving large urban middle classes living in flats or in less-consumptive detached housing with only the VAT benefit. While these offer some relief for families struggling with electricity costs, some throw-ins are counterproductive. For instance, the VAT for public transportation will be lowered, which is good, but at the same time this affects internal airline traffic, going directly against climate goals.

If there's measures that don't directly impact the sum to be paid by the majority in the electricity bill, once the bills start getting high enough, the natural reaction is just going to be can't pay, won't pay. If there's one or two such cases, the provider can consider it the payer’s problem and wait, but if there's a whole organized movement of them, and that is probably indeed what we'll see this winter in many places, then it becomes the provider's problem, and eventually inevitably the state's problem.

On the other hand, just driving down the consumer prices is going to lead to consumption that wouldn’t have happened otherwise, and we’re back to the starting point. If we want to avoid rolling blackouts, and unless there's some measures that will lead to a lot of new electricity fast, we need to find some ways to reduce electricity use while ensuring that this won't break family budgets. That might mean models like guaranteeing a certain fixed price for electricity under some price ceiling and leaving market prices in force above that.

Market-based solutions aren’t enough

Even this, however, still happens within the “normal” market logic, when the current and ongoing crisis calls for something more. Europe lives in crisis conditions (one might say ‘wartime conditions’, but the war is hardly the only crisis affecting our situation), and such conditions generally are hardly solved without direct state intervention, bypassing the vagaries of the market.

Of course, state participation in the electric sector is not a new thing. Indeed, when it comes to things like the massive building of new nuclear energy, certainly one commonly offered solution to defossilization and the need of energy even if it cannot offer an immediate solution to this particular situation, it has always needed the heavy hand of the state to be actualized.

There is a majority-state-owned electric company in Finland, Fortum, but using it as an example of the benefits of state-owned companies would certainly lead to a fair amount of scorn, due to its issues with Uniper, a German gas-importing giant that is currently struggling due to the gas conflict with Russia. Of course, state-owned or not, it’s another example of the difficulties related to the previous assumptions on the course of globalization and whether such purchases are a safe affair.

Nevertheless, moving on to the increasingly uncertain future will need increased state management of the commanding heights of the economy, whether it’s directly through SOEs, or national-champion businesses, should that be more palatable a model in some cases. There will inevitably be inefficiencies, but the idea that we can pass through the coming times only based on market-based adjustments is increasingly evident for an ideology of a past era, clung on by those still mentally living in that era.

At the same time, there by necessity needs to be a transition to flexible small-scale production of energy, as well as many other goods, by diverse actors, including private individuals, farms, companies, cooperatives, and local authorities. Likewise, a large-scale project is needed for transitioning homes and industries to energy efficiency, going beyond the current loans schemes and handouts.

A general societal effort, bringing the whole society together for a common project, is needed to keep a semblance of the welfare state and normalcy going through the coming crises. As far as public policy goes, this, really, would the most realistic, even utopian, goal possible now.

Image: https://commons.m.wikimedia.org/wiki/File:Electric_lines_at_Sep%C3%A4nm%C3%A4ki_in_Sotunki,_Vantaa,_Finland,_2021_April.jpg