An inflection point
Two weeks ago I wrote this in an email I sent on European energy interdependence:
Outsized reliance on fossil fuels is an outsized weakness for the countries that import them.
Let’s take a step back and look at what’s happening in energy in Europe since then (really since Russia brazenly invaded Ukraine last Thursday):
Germany is thinking of extending the life of some of their nuclear power plants. Germany has been on a relentless march to shutter all of its NPPs since Fukushima. A month ago, this headline would have shocked me.
Nord Stream 2, a planned natural gas pipeline from Russia to Germany, is almost completely dead after key investors pulled out and German Chancellor Olaf Scholz delayed its certification. A month ago, this was still being couched as a “privatwirtschaftliches unternehmen,” or a ‘private business matter.’ Now the Germans have conceded what most of us could see all along, namely that this was about two nation states transacting in natural gas.
It took Russian aggression going from warm to hot for Western European countries to get very serious about de-Russifying their energy sources. It’s important that the trend reaches beyond just diversifying where countries get their natural gas however. Seeing as climate change hasn’t proved sufficiently concerning to elicit action, we probably won’t get as good a catalyst to reevaluate energy mixes again anytime soon. More investment in renewables and climate tech should be the answer; it’s critical that countries take this moment of clarity to decarbonize, not just to produce and source fossil fuels from other places.
NOT SO FAST
The West buys more than $500M of energy assets every day from Russia. Even with the incredible scale of financial sanctions against Russia… oil and gas are still flowing. As you read this, countries in Western Europe are getting natural gas from Russia, which flows through Ukrainian pipelines. Probably the last thing Ukrainians and Russians are cooperating on. Another case in point? While greenlighting Nord Stream 2 finally became unconscionable, Nord Stream 1 is still fully operational, with German energy firms resisting calls to shutter it as part of sanctions.
Take a step back and appreciate what that tells us for a second. Energy interdependence runs even deeper than financial interdependence; it’s easier to impose suffocating financial sanctions than it is to shut off the flow of energy assets from Russia to the rest of the world.
The Ukrainian Foreign Affairs minister has been calling for a full embargo on Russian oil & gas, but it simply wouldn’t be possible without rolling blackouts and a deep global recession.
To combat dependence on Russia, in the short term, many countries will have to ramp up use of fossil fuels like coal. Looking ahead, they should strive to emulate more of a Ukrainian or Swedish model.
Ukraine produces ~half of its electricity from nuclear power; setting aside any qualms you may have about nuclear power for a second, this war would look very different if Ukraine were as dependent on Russian energy assets as other European countries are.
Sweden is perhaps the best example, producing more than 50% of all of its energy from renewables. Just as countries like Finland are rushing to join NATO to protect themselves from Russia, they should be looking at their energy mix.
All of these points should be a boon for renewables and nuclear power. From a public sector perspective, candidly, I wish I were more optimistic. There’s lots of talk about how this is the window for countries to ramp up renewables, but with the recent EU decision to include natural gas as a ‘sustainable investment’, I think it will be far too easy for countries to double down on it in their energy production.
Why? Because cards are already on the table. Besides for discussing keeping their last NPPs open longer, all of Germany’s immediate energy responses to Russia’s invasion so far focus on building more natural gas storage as well as new domestic LNG import plans. As a quick refresher / heuristic, while natural gas is less emissions intensive than coal, it still comes with roughly 50% of the emissions.
I do think that all of this will be a valuable feather in the cap of climate tech investment in the private sector. All kinds of tailwinds have already assembled nicely to give the sector more momentum than ever. Add another one that’s distinctly different from those already at work?
To close with another quote from our email two weeks ago:
Could the electrification narrative achieve more success if presented in the lens of energy resilience…? 2022 should be a good case study.
I’d say we don’t need to wait for the year to be over: The answer is yes. Here’s to hoping the war in Ukraine resolves imminently; the takeaways are already clear.