Despite its status as the world’s largest humanitarian disaster, the international community has largely failed to respond in a meaningful way to the carnage. (Photo by Daniel LEAL / AFP) (Photo by DANIEL LEAL/AFP via Getty Images)
Russia’s assault on Ukraine and the sanctions that followed have sent shockwaves through the world energy market. Fuel and coal prices have soared and Moscow has threatened to sever vital natural gas supplies to Europe.
The crisis, which has hit in the midst of the global economy’s transition to renewables, has also forced some countries to fire up old coal plants, prompting concerns that the current energy crunch will set the world back in its pursuit of a greener future.
But some point out that shocks to the energy market such as the one dealt by Russia are growing pains, expected as the world weans itself off fossil fuels. And the crisis may even speed up global investment in renewables.
In a recent instalment of the energy shortage saga initiated by Russia’s offensive, the United Kingdom has reportedly plans to cut off gas supplies to Europe if it is hit by severe shortages. This comes as European countries face being disconnected from Russian gas, which flows through the Nord Stream 1 pipeline, sparking fears of blackouts in the impending winter months. As of January, about a quarter of the gas used in Europe came from Russia.
In a joint statement, the president of the European Commission, Ursula von der Leyen, and United States President Joe Biden said Russia was using natural gas “as a political and economic weapon”.
“Russia’s energy coercion has put pressure on energy markets, raised prices for consumers and threatened global energy security,” they added.
The situation prompted Germany and Netherlands to activate their emergency energy plans, restarting defunct coal plants. Prior to the crisis, both countries were well on track to phase out coal-fired power generation by 2030.
Germany’s move away from coal found impetus in the Covid-19 pandemic, which saw a huge drop in demand for fossil fuels, said energy economist Lungile Mashele.
The former electricity net exporter changed to a net importer and sought to generate a higher share of its electricity from renewables, using gas to supplement its energy requirements. Germany is Europe’s top buyer of Russian gas and the country’s high appetite for gas means it also buys from the Netherlands.
Staying flexible amid shocks
The Kremlin’s decision to spurn Europe looks to spell the return of coal. “There is definitely a shift. What we don’t know is if this will be a short-term shift or whether it will be longer term,” Mashele said.
Either way, the transition to more renewables isn’t in jeopardy. To steel themselves from geopolitical shocks such as the one underway in Russia — as well as the one that would be triggered if China invades Taiwan — many countries will be looking to maintain flexibility in their energy mix, Mashele said.
“I think there will still be a drive towards renewables, as there has been up to this point. I don’t see that stopping. However, I do feel there will be a greater focus on flexibility. And this will come in the form of gas. Some might be looking at hydro-storage.”
In June, Germany and the Netherlands announced they would jointly develop a new gas field in the North Sea.
Mashele noted that there is little talk of establishing new coal fired plants. This excludes China, which, despite its pledge to stop building coal-fired plants abroad, is planning on bringing on significant new capacity into the domestic market, with new builds approved in 2020, 2021 and 2022.
European countries are simply looking for a stop-gap to carry them through the current shock, Mashele added. “And that could be very short-term, for the winter, or it could be for a two-year period.”
The recently-released 2022 World Energy Investment report by the International Energy Agency (IEA) noted that, although investment in fossil fuels is on a rising trend, it is still almost 30% below where it was when the Paris Agreement was signed in 2015.
Price pressures
According to the report, “High fuel prices, inflationary pressures and supply chain bottlenecks, the urgent need to accelerate the energy sector’s transformation to net zero and the Russian invasion of Ukraine are creating a potent mix of pressures and incentives for energy investors.”
Some countries such as South Africa may be looking to plug the Russia-sized hole in the energy market. European countries may respond to the crisis by accelerating investment in renewables and other clean energy technologies, the report suggested.
Supply-chain shocks have also affected the price of clean energy technologies. The IEA report noted that after years of declines the costs of solar panels and wind turbines are up by between 10% and 20% since 2020. “Concerns about cost inflation are a brake on the willingness of companies to increase spending, despite the strong price signals.”
For South Africa, disruptions to the energy supply chain will probably cause the cost of renewable energy to rise, Mashele said. “If you look at Bid Window 5, there is a very real risk that those projects will not close. Because they closed at very low tariffs and the world has changed dramatically since then.”
Last October, Energy Minister Gwede Mantashe announced the 25 winning bids of Bid Window 5, which aimed to sign up 2 600 megawatts of power, including 1 600MW of wind and 1 000MW of solar.
‘An undignified transition’
Energy specialist Clyde Mallinson agreed that there will be a bump in the price of renewables. “The rate at which we can transition is now being dictated by logistics. Cost is important. The prices we saw in Bid Window 5 are probably not going to be repeated in Bid Window 6, but we could be back there by Bid Window 8.”
Mallinson called the current cost pressures “a blip” related to production lagging during the pandemic and accelerated investment in renewables by European countries. “I believe politically we should target the ever-reducing price of electricity … In the South African context, the faster we can transition to renewables, the better it will be for all of us — for health reasons, for climate reasons and for cost reasons.”
He noted that the transition to renewables was bound to be difficult, notwithstanding the geopolitical shocks the world has experienced in the last two and a half years.
“We’re slap bang in the biggest disruption to the energy sector that the world has seen in the last century. Because we need energy all the time, it is a bit like tarring a road when you still have traffic,” Mallinson said.
During the transition “you are going to get funny things happening. You’re going to get sudden spikes in the oil price, sudden spikes in the gas price.”
Ultimately, Mallinson said, the Russia crisis will speed up the transition. “Because the transition is reliant on infrastructure builds, it simply takes time. The world just does not have enough capacity to build wind and solar fast enough to allow the other one to die off,” he said.
“It’s almost an undignified transition. Because it has been foisted by the invasion of Ukraine and a particularly nasty winter coming up.”
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