Stress-testing the EU energy system: Modeling resilience without Russian gas

Area of Science:

• Energy Systems Analysis
• Economics
• Climate Science

Background:

• Europe's energy markets are interconnected, increasing vulnerability to supply and demand shocks, especially after reduced Russian pipeline gas imports.
• The loss of Russian gas highlights the need to assess the resilience of Europe's integrated gas and electricity systems.

Purpose of the Study:

• To evaluate Europe's capacity to maintain physical energy supply under severe stress scenarios.
• To identify key vulnerabilities and stabilizing factors within the European gas and electricity markets.
• To assess the impact of various factors, including renewables and LNG, on price stability.

Main Methods:

• Utilized a global coupled gas-electricity partial-equilibrium model.
• Incorporated liquefied natural gas (LNG) trade, gas storage, demand-side response, and diverse weather scenarios.
• Conducted system-wide stress testing to analyze market vulnerabilities.

Main Results:

• Europe can generally sustain physical energy supply even under significant stress.
• The primary risk is not shortages but sharp, asymmetric price spikes, particularly during cold winters or constrained LNG supply.
• LNG import capacity, gas storage, hydropower, and power sector fuel switching are crucial stabilizers.
• Network bottlenecks remain a challenge in Eastern and Southern Europe.
• Accelerated renewables deployment significantly reduces exposure to gas price volatility, while additional Russian LNG has a minimal price impact.

Conclusions:

• System-wide stress testing is essential for understanding energy market vulnerabilities.
• Targeted infrastructure investment is needed to address network bottlenecks and enhance stability.
• Reducing natural gas's role as the marginal price setter in electricity markets is crucial for mitigating price volatility.