The Energy Crunch

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Not since the early 1970s have skyrocketing oil prices caused such havoc. As the price of Brent crude reached a 10-year high of $34 per barrel, angry French truckers and farmers blocked more than 100 oil depots and put a chokehold on much of the nation's fuel supply. Service stations around the country were forced to put up "empty" signs, flights were canceled or rerouted at some airports, and fuel had to be requisitioned for essential services. Taxi and ambulance drivers snarled traffic with go-slow protests and boatmen in Paris jammed the Seine. By the end of the week, similar demonstrations had spread to Belgium, Britain, Italy and Spain.
What triggered the French snowballing protests was not just the rising price of crude — up 36% since the beginning of the year — but heavy taxes that comprise nearly three-quarters of the consumer price. Thus the main target of criticism was not the Organization of Petroleum Exporting Countries but the French government. "There are too many taxes," fumed trucker Jerôme Favre-Monnet at a service station south of Paris. "It's nothing to do with the prices charged by the producer countries. It's the state lining its own pockets."

The Socialist-led government of Prime Minister Lionel Jospin had unwittingly encouraged the latest protests by offering a generous compensation package to striking fisherman the week before. But this time, after truckers refused a government offer of a 15% cut in the tax on diesel, Jospin held firm and announced that there would be "no more negotiations." The defiant drivers reinforced their action, though there were signs over the weekend that both truckers and farmers were slowly beginning to lift some of the barricades.

With oil prices causing deep concern throughout the industrialized world, all eyes were on Sunday's meeting of opec oil ministers in Vienna. Prices eased slightly at week's end when Saudi Arabia's oil minister said he expected the cartel to increase production from 500-700,000 barrels per day. But with winter fast approaching in Europe and North America, and existing oil stocks at low levels, most analysts expected prices to remain high at least until the end of the year. And even if the cost of crude does settle down, many experts predicted a delayed-action slowdown of the world economy.

The flareup of oil prices has had another, potentially more significant effect: it suddenly put the subject of energy back on the front burner. The crisis was a sobering reminder of the volatility of oil prices, the exhaustibility of fossil fuels and the urgent need for long-range thinking about stable, reliable, non-polluting energy sources — not just for trucks, cars and boats, but for the electrical power that is the lifeblood of a modern industrial economy.

In France, the latest oil shock seemed to underscore the wisdom of relying heavily on nuclear power. "I am very happy that nuclear energy provides 75% of our electricity at a time when the cost of gasoline has doubled," Industry Minister Christian Pierret said last week. But France, typically, is the odd man out in a post-Chernobyl Europe that is steadily turning away from nuclear power.

Last June, German Chancellor Gerhard Schröder announced an accord that would phase out virtually all of the country's atomic plants by 2021. The decision was based on a 1998 election deal between Schröder's Social Democrats and their Green coalition partners. Yet it had far-reaching implications, not only for Germany but for most of its European neighbors as well. In promising to close down the 19 reactors that currently supply 35% of its energy needs, Germany joined Italy, Austria and Sweden in formally renouncing nuclear power. Most of Germany's other European Union partners have decided not to build new nuclear facilities when the current crop of reactors goes off-line over the next two decades. France alone remains firmly wedded to atomic energy.

Western Europe's energy future now looks increasingly non-nuclear. The problem is that there is no easy, affordable and environmentally sound way to replace the atomic plants that currently generate 23% of the E.U.'s electric power. With renewable sources like wind, water and solar energy limited to a fairly marginal role in most countries for the foreseeable future, the only large-scale alternatives are oil, gas and coal, all of which produce carbon dioxide that contributes to global warming. Yet the E.U. is committed by the 1997 Kyoto accord to reduce greenhouse gas emissions by 8% from 1990 levels between 2008 and 2012 — a goal that will be impossible to meet if there is a massive move from nuclear to fossil fuels. But while fossil fuels produce CO2, nuclear reactors generate large amounts of radioactive waste that can remain potentially lethal for hundreds of years. Current methods of reprocessing and stockpiling are no more than stopgap solutions, pending the development of some now-hypothetical technology that could actually get rid of the deadly detritus (click here for more).

Schröder's decision was based more on political horsetrading than serious energy policy. The government-industry accord of June 14 put a limit of 32 years on the working life of each of its 19 nuclear power stations. That means that the first plant should go off-line in 2002 and the last one around 2021. To meet energy needs once the nukes shut down, the government plans a three-pronged strategy calling for energy conservation, more use of renewable sources and the replacement of coal-burning plants (currently 51% of output) with modern gas-powered facilities that produce less than half as much CO2.

Meanwhile, the government is cutting off its subsidies for the European Pressurized Water Reactor (EPR), the next generation of nuclear power facilities that Germany's Siemens AG is jointly developing with France's Framatome. But the two companies vowed to continue working on the epr and in July announced the merging of their nuclear activities into a new company, Framatome ANP. Though the German phaseout deprives the new joint venture of a major customer for the epr, Siemens chief executive Heinrich von Pierer is confident the decision will be reversed. "The government's current policy will not be the last word about nuclear energy in Germany," he says. "There is no convincing answer to the question of how the electricity from nuclear power plants can be substituted."  MORE >>

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The German decision came as a major psychological blow to Paris — and could have important economic consequences as well. Not only is the epr project threatened by the loss of the German market; so is the state-owned COGEMA reprocessing plant at La Hague, which depends on Germany for 10% of its turnover. With Germany committed to ending waste shipments to La Hague by 2005, the French unit will be hard-pressed to find new customers in a world of declining nuclear industry.
Perhaps a greater threat to France's nuclear establishment is the deregulation of the European energy market. In this new liberalized landscape, most of Europe's power will be generated by anywhere from 50 to 150 private companies. Those firms will be much less likely than the old state monopolies to risk the huge investments involved in building new nuclear facilities. In July France's state planning commission delivered a 288-page report to Prime Minister Jospin that could signal an important reassessment of the country's energy strategy. Noting that "it will be hard for France to go it alone in a world that is opening up to competition," the report examined six scenarios, allowing for different levels of demand and varying fuel costs over the next half-century. The most plausible outcomes, it concluded, were the ones in which the share of nuclear energy falls to between 40% and 70% of French electricity production, with gas generation providing most of the remainder.

Most other West European countries have already sworn off nukes or seem headed toward a de facto decommissioning as their aging facilities wear out. Britain, for example, currently relies on nuclear energy for about 28% of its electricity, yet all but one of its reactors will have ceased functioning by 2020 and there is no plan to build new ones. Italy voted to abandon nuclear energy in 1987 and has turned largely to imported fossil fuels to meet its needs. But under the impetus of the Kyoto accords — and, more recently, the feverish rise of oil prices — the government is aiming to cut fossil fuel usage by 13% over the next 10 years, mainly through more efficient consumption, development of renewable sources and more use of methane gas, which is the main constituent of natural gas.

Twice as efficient and half as polluting as other fossil fuels, natural gas is widely considered the best alternative to nuclear power. Its attractiveness is enhanced by new combined-cycle technology in which hot gases that are burned to drive one turbine are recaptured and used to drive a second turbine. While conventional gas plants operated at only a 30% to 40% efficiency, the new piggyback method can boost that to nearly 60%. Says Christian Lescure, executive vice president for corporate planning and control for state-owned Gaz de France: "The German decision can only encourage the pronounced European trend to give gas an important role."

There is a downside to gas dependency, however: two of the three main producers, Russia (32% of the E.U.'s supplies) and Algeria (22%), are politically unstable. That means supplies could be interrupted and prices could soar. Warns Fatih Birol, head of economic analysis at the Paris-based International Energy Agency: "In the future, there could be gas crises just as there were oil crises in the '70s."

As for renewable sources, opinions differ on how much of the future energy burden they can bear. Some experts see their role limited to the 5% to 10% range, but others are more optimistic. A report published by Shell at the end of last year predicts that the share could increase to 50% by mid-century, and Italy's Environment Minister Willer Bordon is hoping for close to 100% clean energy by 2100. That may be wishful thinking, but if Europe and the rest of the industrialized world have any hope of developing a safe and reliable energy strategy in the long run, this is where they should focus their efforts.

Most forms of renewable energy are dependent on geographic and environmental factors that vary widely from place to place. Wind and solar energy are more feasible in Spain, for example, than in Austria, whose numerous rivers and mountains make it better suited to hydroelectric power. Most alternative sources, moreover, are costly. A nuclear reactor or a coal plant in Germany can produce one kilowatt-hour of electricity for about 1.5¢. Wind energy costs up to 10¢, water up to 20¢ and solar about $1. "People seem to think that fossil fuels are on the way out and that we are moving into a new era of sun, wind and waves," says Jan Murray, deputy secretary-general of the World Energy Council in London. "We've got a long way to go."  MORE >>

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Nonetheless, research is underway on all the renewable sources, and the results are encouraging in some cases. Spain's Energia Hidroelectrica de Navarra last year produced 418 megawatts of wind power and is planning to build 1,800 generators with a capacity of 1,400 megawatts — enough to meet the needs of a million families — over the next three years. France's EDF has built 84 wind turbines in Morocco and plans to be generating up to 500 megawatts in France by 2005. The downside of wind power is that it takes up a lot of valuable land and has met considerable resistance from local inhabitants, who object to the unsightliness and noise of wind farms. Perhaps the best bet is to build floating installations offshore.
Solar energy — both panels to heat water and photovoltaic cells to produce electricity — has considerable potential in countries in sunny climes. "Of all the renewable energy sources, photovoltaic is the one that shows the most promise in the medium term," says Marcello Garozzo, director of the renewable sources division at Italy's Institute for New Technology, Energy and the Environment (enea). The problem, he admits, is that it "currently costs too much, so we need to push on both supply and demand so the technology will advance and become competitive."

Biomass — including such fuels as straw, dung and sawdust — also has potential for local energy production. Britain's Energy Power Resources, a private utility, will soon launch the world's largest straw-fired power station in Cambridgeshire. Fueled by an annual 200,000 tons of straw collected from local farmers, it will provide 283,000 megawatt-hours a year. The company already has a power station in Fife, Scotland, that cranks out 79,000 megawatt-hours per annum. Its fuel source: 110,000 tons of chicken droppings and litter.

Perhaps the most exciting alternative energy source is hydrogen, which exists in practically limitless quantities and can be used in fuel cells to produce clean power through a process of reverse electrolysis. "Hydrogen is the long-term solution to the pollution problem," enthuses Raffaele Velone, director of advanced technology at enea. For now, most hydrogen research is focusing on vehicles. Later this year, Iceland will launch some hydrogen-powered buses developed by Shell, Daimler-Chrysler and Norway's Norsk Hydro. In California, carmakers and energy companies are working intensely on fuel-cell development, spurred by a state law that will require 10% of all new cars to produce zero emissions by 2004. France's Gaz de France is developing fuel cells that could eventually provide electric power for individual buildings. The main drawbacks: fuel cells, which contain platinum, remain very expensive, and most of the hydrogen must currently be derived from fossil fuels. Future technological advances could bring down the price and enable the large-scale extraction of hydrogen from water.

With the exception of hydroelectric power, which is already being used close to its full capacity in Europe, most renewables in the foreseeable future will continue to be scattered, small-scale, local power sources. That's not necessarily a disadvantage. "With open markets," says French economist Jean-Marie Chevalier, "the trend toward building bigger and bigger equipment is being reversed. We're going in the direction of decentralization and multiple sources of electricity, with a greater share for renewable sources."

Unfortunately, there is no simple, universal response to Europe's energy dilemmas. Nor can Brussels, which has no legal authority in this area, draw up an E.U.-wide plan. Ultimately, each country will have to work out its own policies according to its particular circumstances, geography and political imperatives. Austria and Norway, for example, will continue to rely heavily on water resources. France will remain largely nuclear. Germany and Britain will probably ease out of the atomic age and rely more heavily on gas. Spain, too, is giving up its nukes, but its climate and topography will allow wind and solar energy to pick up some of the slack. Few issues are less suited to a unified European solution. But the latest surge in oil prices may have done Europe a great service by focusing all eyes on the problem.

With reporting by Helen Gibson / London, Nicholas Le Quesne / Paris, Martin Penner / Rome, Ursula Sautter / Bonn and other bureaus

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