Three ways the Russia Ukraine war is accelerating the move to renewables
The crisis in Ukraine has prompted a sharp re-evaluation of the way Europe generates and distributes its energy. Around 40% of the region’s oil and 30% of its gas had previously come from Russia1 , which has left it vulnerable as supplies have come under threat. Governments have recognised that the current system is difficult to sustain from an ethical standpoint, but also creates real insecurity. This has significant long-term implications for the renewables sector in three key ways.
Accelerated targets to renewables deployment
The crisis has prompted governments across Europe to extend their commitments to the development of renewables. The UK, for example, has said it will increase its targets for growing offshore wind capacity to 50 gigawatts by 2030, up from just over 10 gigawatts today2 . It also has an ambition to grow solar capacity by up to five times by 2035.
Germany has also accelerated the passage of the Renewable Energy Sources Act through parliament. Germany plans to rapidly accelerate the expansion of wind and solar power, bringing forward a target to generate almost all the country’s electricity from renewable sources by 15 years to 2035.
The EU has made similar commitments. As it stands, just over 20% of Europe’s energy comes from renewables3 . The REPowerEU plan, announced in March, outlines the drive to make Europe independent from Russian fossil fuels well before 2030, by ‘dashing into renewable energy at lightning speed’4 . The European parliament is also pushing for an amendment to the EU’s renewable energy directive to increase the current target of 40% renewables by 2030 to 45%5 .
These are significant commitments. Alongside direct investment in renewable energy generation, there will also need to be investment in the grid and energy distribution infrastructure, plus smart technology. However, these commitments are relatively painless for governments. Renewables are economically viable without subsidies. In many cases, corporates have the capital to make the necessary changes and their investors are supportive.
The EU has already committed to easing the bureaucracy around planning and connecting to the grid. It had been a slow and manual process. Ironing out those problems is cost-free for policymakers and should significantly ease the transition to cleaner fuels.
In general, there are beneficiaries from the wider transition to renewables. National Grid, for example, runs the transmission grid – the ‘motorway’ for transmitting energy round the system. The more energy needs to move from offshore windfarms in Scotland around the UK, the more investment is needed in that grid. Renewables plays including Vestas, SMA Solar and Iberdrola should also benefit.
Ramping up green hydrogen
Green hydrogen has drawn less attention than other renewables, but more hydrogen commitments are emerging. In the UK, for example, the 2030 target for the production capacity of low-carbon hydrogen has recently doubled to 10GW6 . ‘Grey’ hydrogen, which comes from natural gas, has historically been a lot cheaper, but rising natural gas prices have left green hydrogen looking more competitive. It is also a much more secure option for governments.
Hydrogen also has the greatest potential among renewable technologies for seasonal energy storage. This is vitally important if governments are going to rely on renewables for base load energy production. Renewable supply can be inconsistent, relying on wind to blow and the sun to shine. As such, developing technologies that can be reliably stored is vitally important.
The companies most likely to benefit from adoption of green hydrogen are the equipment supplies such as Ceres Power, which manufactures fuel cell technology from mass-market and widely available materials.
A recognition from policymakers the energy transition is non-negotiable
Policymakers now realise that they cannot back-pedal on the energy transition. There had been concerns that governments would move back into coal production to shore up their energy supplies in the short term. While there has been more coal-fired electricity dispatched, there remains a clear path to accelerating the transition to renewables rather than reviving legacy energy sources. Companies aren’t building new coal plants, for example.
There had been fears that the EU would look at the large profits made by energy and utilities companies as commodity prices have risen and impose windfall taxes. In general, this hasn’t happened, which seems to be a clear recognition that these companies are critical to the energy transition and need the space and financial stability to invest appropriately.
The Ukraine crisis has helped galvanise policymakers into the right decisions on the long-term sustainability of their energy supply. The result, ultimately, should be a more secure and reliable energy mix across Europe.
What is equity investing?
Equity investing offers the opportunity to share in the returns generated by companies around the world, whether they are established leaders or dynamic smaller companies.find out more
Have our latest insights delivered straight to your inboxSUBSCRIBE NOW