Albert Banal-Estañol,
Professor of the UPF Department of Economics and Business

The energy transition is everyone’s business. To prevent energy crises and stave off climate disaster – the first signs of which we have already, unfortunately, begun to sense – we have to stop using fossil fuels. But to achieve a 100% renewable model, everyone needs to pitch in, in terms of both energy production and consumption.

To this end:

(i) We need to distribute power generation, both geographically and in terms of ownership. If we rely on pharaonic electricity projects in the hands of the few, we will once again be generating power far from where it is consumed, with the ensuing transmission costs and losses. It will be expensive, too, because when a market is controlled by just a handful of players, prices will be high. People will need to invest in renewable energy, whether individually, with solar panels, or jointly through energy communities.

(ii) Additionally, as the Clean Energy Package says, renewable energies make extensive use of territory. If someone tries to take over the energy resource, territory and technology without the backing of its people, rejection is guaranteed. As recognized by the EU directives themselves, the support of local authorities and civil society is crucial.

(iii) We must also replace the flexibility afforded by gas- or coal-based generation with flexibility in the demand for electricity. In other words, we need to learn to reduce electricity demand when prices are high and increase it when they are low. We will also need to electrify energy consumption, investing in batteries and increasing energy efficiency.

Unfortunately, unlike km or kph, we were never taught in school what a kW or kWh is. As a result, it will take time for us to adapt to this new world that places people at the centre of the energy model. And during that time, we will also need regulation – which already plays a key role in the energy market – to protect consumers even further, especially, the most vulnerable. Regulation is the tool to prevent energy crises such as today’s.

Alas, for the time being, regulation has not worked, in several ways:

(i) In the current crisis, it has proved unable to prevent prices in the wholesale electricity market from soaring to staggeringly high levels across Europe. Obviously, this has had and continues to have an impact on businesses and households, hitting the most vulnerable households, i.e. those that spend the largest share of their income on energy, the hardest. Regulation and, in particular, the design of the wholesale market must make prices as a whole less dependent on petrol prices, for as long as we still need it.

(ii) Nor has regulation managed to make competition work in the retail market. There is plenty of evidence to show that consumers – especially, again, the most vulnerable – do not choose the most advantageous rates. The failure in this regard has been so great that even the United Kingdom, staunch advocate of competition that it is, has reintroduced regulation (basically, price caps) in the retail market.

(iii) In the case of Spain, regulation has also enabled an oversized, very expensive gas infrastructure for which we all must foot the bill and which may further delay the energy transition. We are paying quite dearly for failures such as the Castor project.

Regulation of the energy market will play an important role in a ‘net-zero’ world, i.e. a world in which we do not add more greenhouse gas emissions. But it will be even more important in the transition to that climate-neutral world, to prevent energy crises such as the one we have suffered and are continuing to suffer from affecting consumers, especially the most vulnerable households.