European Commission President at the Bled Strategic Forum

European Commission President Ursula von der Leyen gave an interesting keynote speech at the Bled Strategic Forum on August 29, 2022. I’ll highlight a few key items of her speech and then briefly discuss the implications:

1. She doubled down on pushing back against Russian aggression, saying “…Putin cannot win this war. And Ukraine must win this war. This is absolutely clear.” “We will support Ukraine as long as it takes. We are doing it for Ukraine. We are doing this to uphold our European values.”
2. Despite the skyrocketing energy prices in Europe, she doubled down on the “green transition,” saying “Ultimately, the best way to get rid of Russian fossil fuels is of course to speed up our transition to green energy sources. Every kilowatt-hour of electricity that Europe generates from solar, from wind, from hydropower, from biomass, from geothermal or green hydrogen makes us less dependent on Russian fossil fuels. So invest in that. If you look at the facts, the evidence, today, the price of wind and solar energy is cheaper than polluting fossil fuels. That is why, with our REPowerEU initiative, we will invest together EUR 300 billion to accelerate the green transition.”
3. She announced they are working on reforming the electricity market in Europe, saying “The skyrocketing electricity prices are now exposing, for different reasons, the limitations of our current electricity market design. It was developed under completely different circumstances and for completely different purposes. It is no longer fit for purpose. That is why we, the Commission, are now working on an emergency intervention and a structural reform of the electricity market. We need a new market model for electricity that really functions and brings us back into balance
4. Lastly, she admitted the need for raw materials, saying “The green and digital transitions will massively increase our need for raw materials – take lithium for batteries, or silicon metal for chips, take rare earths – to produce magnets for electric vehicles and wind turbines. Demand for them may double by 2030.”

The primary takeaway for me is the EU sanctions on Russian coal are not getting reversed anytime soon. That’s a positive for thermal coal markets. Beyond that however, it’s remarkable how policy makers cannot see their own blunders which have led them into this energy crisis. Instead they are doubling down on failed policy. She is wrong when she states the price of wind and solar is cheaper than fossil fuels. The point source of those generation types might be cheaper the moment they are producing, but the cost to the entire system in order to backup their intermittency makes them orders of magnitude more costly relative to fossil fuels. They are in effect running two electricity grids, one for green initiatives and another to back up the green grid.

The structural reforms she mentioned are definitely warranted for the European electricity system. One of my favorite follows on Twitter, Shrubbery Capital, explained it quite well in a thread this morning:

There is just one major problem with structural reforms like the Shrub suggests in his thread, it would disincentivize wind and solar generation. So it will be interesting to see what they come up with.

Lastly, if policy makers want to double down on the costly “green transition,” it’s going to required metals and metallurgical coal in order to build the infrastructure, solar panels, wind turbines and battery systems. So resource investors will be able to make money either way you slice it.

You can read her speech and/or watch all the speakers address the forum in the link here, and below:

https://ec.europa.eu/commission/presscorner/detail/en/speech_22_5225