Europe's Energy Follies Reveal the Dual Cartel Running the Area's 'Energy Market™'

Once you understand how 'the system™' is rigged at both the top and the bottom, I suspect you're going to join me sporting pitchforks and the like

Today, we must, however briefly, follow-up on the issue of energy security in Europe, which we discussed in more detail last week.

Basically, because of electricity system cross-border integration, if there’s a huge increase of demand in one area that exceeds production (generation), neighbouring areas are hard-pressed to sell electricity (at top dollars), which makes utility rates soar. This is what happened last week in Germany, which suffered from intermittency problems associated with so-called ‘renewable™’ energy production from solar and wind:

The Lights are Going out Over Europe

At the root here is the so-called Energiewende, or energy transition, postulated by Angela Merkel’s gov’t in the wake of the tsunami/Fukushima nuclear power plant incident 2011. Declaring the era of fossil fuels over, Germany went and poured about a trillion dollars into this scheme, which also shape-shifted over the years:

• there was, e.g., a huge development project called ‘Desertec’, which actually preceded the Energiewende and envisioned the construction of huge solar arrays in the Sahara desert of North Africa that would supply Europe with cheap electricity (it foundered on reality)

• then there’s the mad dash to build solar and wind ‘farms’ (both, incidentally, gobble up actual farmland, massively contaminate the environment during ‘normal™’ operations, and don’t contribute to what’s called the base load (i.e., stable electricity supply)

• then there’s the issue of the grid, which needs significant upgrading to deal with both intermittency and the structurally increasing fluctuations of base load vs. peak use additions (typically, the latter are gas-powered plants that can be flipped on/off at a moment’s notice), and that’s before we consider the notion that if a large share of people switched to EVs, this will drastically place additional strains on the grid…

There’s a ton of other things, but the main take-away by way of an introduction is: virtually all European countries are tied together via the pooled/shared power grid, which is both good as short-term discrepancies between generation and demand (which must always be balanced) can be resolved by importing from abroad.

The bad thing is—if this becomes a structural feature, which it surely looks like due to the catastrophic decisions taken by all German gov’ts since 2011, the problems for everyone will worsen over time. And the chief culprit here is a gigantic policy failure (the Energiewende), which only ever could work once a hierarchically integrated, highly centralised system was put in place. And now the problems created by that policy decision demand—yet more centralisation.

This will fail, if only because any problem cannot, virtually by definition, be resolved by resorting to the same mindset that created the issue in the first place.

The EU and its ‘Energy Market™’

Do remember that the main problem here isn’t the EU per se (for once) but the European Union’s ‘Energy Market™’ scheme, in particular it’s so-called ‘merit-order’ component. Here is the de facto official™ definition, courtesy of Wikipedia (emphases mine):

The merit order is a way of ranking available sources of energy, especially electrical generation, based on ascending order of price (which may reflect the order of their short-run marginal costs of production) and sometimes pollution, together with amount of energy that will be generated. In a centralized management scheme, the ranking is such that those with the lowest marginal costs are the first sources to be brought online to meet demand, and the plants with the highest marginal costs are the last to be brought on line. Dispatching power generation in this way, known as economic dispatch, minimizes the cost of production of electricity. Sometimes generating units must be started out of merit order, due to transmission congestion, system reliability or other reasons.

I’ve highlighted the key aspects here:

• ‘ranking available sources of energy’ (i.e., it’s not supply/demand-driven)

• ‘a centralized management scheme’ (i.e., control of access/price)

• ‘sometimes…units must be started out of merit order’ (i.e., rules for thee, but not for me, which is decided upon by ‘centralized management’

Basically, if you understand these three aspects, you know why ‘Europe’ is in trouble: technocrats write regulation at the request of politicos™, cheered on by journos™, and if you don’t fall in line, you get smeared.

Case in point, in that above-linked piece from last week, I mentioned that the generation zones of southern Norway and Sweden are getting hammered by sky-high, almost Germany-like utility rates.

Ebba Busch, Sweden’s Energy Minister, said she was ‘mad’ at Germany.

The Oslo gov’t was considering not to replace two of the 17 export cables tying Norway to Denmark and Germany; the small communist faction (Rødt) was even launching a motion in parliament calling for bigger subsidies for consumers.

Most of what you can read in legacy media is bunk, also on this issue. Take, e.g., Bloomberg’s ‘reporting™’ about ‘surging power prices reignite Norwegian energy nationalism’ is about as silly and stupid as they come (there are many more such pieces).

My favourite piece of BS, though, comes to us courtesy of one

Robert Bryce

who wrote a Substack piece that was, curiously, picked up by Wattsupwiththat:

Another wind drought has led to soaring electricity prices across Europe. Norway, which exports power to its European neighbors, has seen enough…

Norwegian politicians are promising to dismantle the undersea power cables that connect Norway’s grid to mainland Europe to protect Norwegians from Europe’s tumultuous electricity market. Electricity prices in Norway, which gets 90% of its power from hydro, hit record prices this week despite having full hydro reservoirs.

You see, the issue isn’t how full the reservoirs are—but where the electricity goes to, and it typically gets used near where it’s produced first, i.e., in southern Norway. But since there are export options and German (and Danish) importers are willing to pay top dollar for electricity—which they then pass on to consumers (with a surcharge)—rates explode there.

This is totally unrelated to the amount of water in the reservoirs.

Then there’s the notion of ‘energy nationalism’, said to be ‘surging’—nope. Norway’s left/far-left gov’t instituted price controls for electricity in response to skyrocketing utility rates in 2022 (because…high prices for power are bad when you’re trying to win elections, if you can believe it); Norwegian-based customers don’t pay ‘market rates’, and the discrepancy between these rates and the maximum prices is picked up by—the gov’t using taxpayer money.

This, too, is totally unrelated to what is claimed by legacy media.

Note that these subsidies don’t apply to second/holiday homes or for businesses, which explains how loved™ the left/far-left gov’t is among small and medium-sized entrepreneurs (which kinda ‘splains’ the piss-poor pooling numbers for the gov’t, by the way, high prices for power are bad when you’re trying to win elections, if you can believe it). This is from a NRK piece discussing these matters:

Electricity prices in southern and south-west Norway, 12 Dec. 2024

The light blue line is the ‘spot price’, the grey line is the consumption subsidy (strømstøtte), and the turquoise line with the quadrangles is what consumers actually pay.

The left-hand caption shows price per kWh/Norwegian crowns, with the exchange rate being approx. 10-11 crowns = US$1.

The above gov’t intervention (manipulation) of the EU’s ‘Energy Market™’ was not good enough for the Communists (Rødt) who demanded a full-scale consumption subsidy.

None of this has anything to do with ‘energy nationalism’ (lol), nor with solving the problem as Norway’s energy industry is already highly centralised and a de facto command economy.

As an aside, I find these considerations of ‘energy nationalism’ hilarious beyond the boundaries of stupidity as the Communists’ demands for ‘nationalisation’ is more like full-scale socialistic policy aims (albeit of the Stalinist ‘Socialism in One Country’ mould) that Globalist elite media, such as Bloomberg, labels ‘nationalism’.

Yet, you can’t cure stupid, it seems, and I suppose that’s basically all that is required to understand this kind of gaslighting.

Oh, lest I forget, two more things here:

• As mentioned before, there are currently 17 export cables tying Norway to seven countries; why, then, would the hard-pressed left/far-left gov’t say they are ‘considering not to replace two’ of them (which are, by the way, to be decommissioned due to their end of life in 2026 anyways)? It’s easy—politics. The Communists call for more ‘energy nationalism’ (sorry, couldn’t resist), so the left/far-left gov’t plays this game, too. No worries, though, as virtually nothing the gov’t says will be done, if only for two reasons: the investment, licensing, regulatory approval, etc. for replacing these two export cables (they were built in the early 1970s, by the way) is already underway; and there’s a national election in autumn 2025, hence these two things should explain this ‘uproar™’.

• And then there’s the damage to neighbourly relations with the rest of the EU/EEC, and this is where the rubber hits the road: neither Norway nor Sweden can actually afford to do anything—as the EU will simply draw up some ‘breach of contract’, get a temporary injunction vs. this or that thing that’s highly relevant for either country, and blackmail whoever runs (sic) the gov’t in Oslo or Stockholm into compliance. Hence, it won’t surprise you to learn that Sweden’s Energy Minister Ebba Bush yesterday walked back her comments with respect to her anger at Germany (source):

  The Labour Party and the Centre Party have decided to scrap two international cables to Denmark when they expire in 2026.

  ‘This would be negative for the whole of Europe,’ says Swedish Energy Minister Ebba Busch:

  ‘It will be a complete disaster. It will affect Sweden, Denmark, Norway and Poland and have ripple effects across the entire energy system in Europe’, Busch told NTB.

  Busch points out that the energy systems between Norway and Sweden are currently so intertwined that what one does today will affect the other tomorrow.

Do you see what I mean?

Norway: Fees to Rise Sharply

And then there’s the additional downside for regular people, as reported by VG earlier today:

Fears of a Grid Fee Revolt

Homeowners fear a revolt among Norwegian electricity customers if grid fees continue to rise. The Consumer Council [Forbrukerrådet] is also concerned about who will foot the bill for the expansion of the grid.

• Homeowners fear rebellion among electricity customers if grid fees increase while companies take large dividends.

• Households pay twice as much in grid fees as industry, and grid fees will increase by an average of 25% by 2030.

• Both the Homeowners’ Association and the Consumer Council are calling for a debate on the distribution of the burden for electricity customers in connection with the ‘Green Shift’.

• The government has no plans to change the current grid fee model now.

Basically, what the current, soon-outgoing gov’t is saying about export cables is one thing while further price increases are already on the books, with the next hike coming on 1 Jan. 2025 (I’m pissed, by the way, because if I consider my utility bills, grid fees frequently exceed the cost of energy consumption).

As the households’ share of demand goes down, industry, IT data centres, and esp. the lucrative export business ‘demand’ more and more generation capacities, with power companies passing the costs to consumers via grid fees, said to be ‘in connection with the “Green Shift”’.

Oh, lest I forget, even if one deems this all ‘unfair’ or the like, reality is what it is:

Last year, households' grid fees were twice as high as industry’s. We paid a record-high 35.6 øre/KWH, while ordinary, non-power-consuming industry had to pay 17.7 øre. In the third quarter, household grid fees increased to 40.1 øre.

Sounds bad, evil, and then some, but keep in mind that what that piece omits is that manufacturers don’t receive consumption subsidies (strømstøtte), i.e., VG compares things that cannot be compared: you can either demand consumption subsidies for everyone (incl. manufacturing), which is both ludicrously expensive and illegal under Norway’s EEC treaties with the EU. Alternatively, you can decrease grid fees for regular consumers down to industry levels but then the consumption subsidies would have to go, too, isn’t it?

Damned if you do, damned if you don’t.

I don’t envy the politicos™, but they kinda applied for the job.

Mr. Market Has Left a Long Time Ago

Finally, mention shall be made of another curious aspect of European energy systems, and that’s the little-known, if very dirty, secret:

We’ve already established that the EU/EEC’s ‘Energy Market™’ is, by way of its ‘merit-order principle’, in fact ‘a centralized management scheme’ with technocrats and bureaucrats working in cahoots to benefit power companies and fleece consumers.

The final puzzle piece to understand the totally f***** up nature of things as they are, however, is that the problem isn’t ‘just’ the ‘centralized management scheme’ at the top of the ‘system’—but that the EU/EEC’s ‘Energy Market™’ basically consists of similarly constituted ‘national energy markets™’, which, in all honesty, should be called out for what it is: a mafia-like cartel.

This is, at long last, actually confirmed by this VG piece:

Recent figures show that grid companies paid NOK 1.2 billion [divide by 10 to arrive at US$ figures] in dividends last year and NOK 1 billion in group contributions, while NOK 3.2 billion remained in the companies. The Norwegian Water Resources and Energy Directorate (NVE) [this is the regulatory agency enforcing the cartel in Norway] emphasises that how much the owners choose to take in dividends/group contributions does not affect customers’ grid rent.

The amount of dividends companies can take out is strictly regulated since they have a monopoly [do you see it now?], but large investments also lead to increased dividends because grid companies must have a certain return on the money they invest [ever read that in an Econ 101 textbook?]. How much is determined by the authorities [told you so].

And thus the charade is revealed:

• utility companies ‘have a monopoly’

• if said utility companies make ‘large investments’ (spending), they ‘must have a certain return’, which is nonsensical as free enterprises may only ‘have a certain return’ on their investments if they actually make a profit

• yet in Norway, the amount of said ‘increased dividends…is determined by the authorities’, i.e., the Norwegian Water Resources and Energy Directorate

Basically, the sham works like this: the Norwegian Water Resources and Energy Directorate (NVE) tells the utility companies to make ‘large investments’ for policy reasons (note, as an aside, the the NVE is a ‘Directorate’—in US lingo, that’s a ‘Federal Commission’, such as the SEC or the EPA—whose heads take gigantic decisions that typically outweigh any cabinet-level officials’ but, unlike the latter, are not responsible to parliament).

Because of spending (no matter how irrationally, un-economically, or stupid), utility companies then ‘must have a certain return’ on said spending, which is approved by the same authority (sic) that told the utility companies to make these ‘large investments’ in the first place, the Norwegian Water Resources and Energy Directorate.

Bottom Lines: A Tale of Two Cartels

How on God’s green earth isn’t this a mob-like cartel?

Of course it is a mafia-like cartel, with the head of the Norwegian Water Resources and Energy Directorate being the capo or godfather (think: Marlon Brando as Vito Corleone).

None of this has anything to do with accountability, democracy, or even economics.

And once you understand that the European ‘Energy Market™’ is a two-fold sham that consists of ‘a centralized management scheme’ at the top (the EU level) and at the bottom (whatever goes on in the various members of said ‘Energy Market™’), you can, I’d argue, clearly see what is going on:

Both top and bottom systems are authoritarian, cloaked in feel-good lingo about this (‘Green New Deal’) or that (‘Sustainability’), and don’t adhere to anything even closely related to market principles.

They don’t have to as neither the top (the EU’s ‘Energy Market™’) nor the bottom (national ‘systems’, here exemplarily discussed using Norway as an example) must make money; both feast on someone else’s contribution, the former on EU/EEC payments by member-states and the latter on gov’t appropriations.

Guess who has neither a say in policy decisions nor is permitted to demand accountability?

You knew it, didn’t you? It’s the likes of you and me, dear readers, and we’re getting fleeced at every step of that particular highway to hell:

• We pay taxes on property

• We pay taxes on income

• We pay taxes for health and social security

• Every item we buy has so-called VAT (sales or ‘value-added tax’) slapped on it (the ‘value-added’ is for the enforcers of the cartel, by the way), and we pay for it with money that has already been taxed several times

Yet, I’d also argue that, courtesy to a few pieces of reporting that, taken individually, all omit the key to understanding this entire mess, but once put together, we could all see what is going on:

‘The state’ constructs a cartel, pools it with other state-level cartels at the EU/EEC regional level, and both top and bottom ends of this particular abomination plunder the population who is told, ‘Mr. Market™ here knows best’ when, in reality, its a dual cartel.

And this, dear readers, is how you and me are fleeced, skinned, and eaten alive while we frantically try to stay at least one step ahead of the politicians robbers promising whatever.