Record high energy prices are stoking political crises across Europe as consumers struggle with massive rises to living costs.
Just this week, the UK government raised its energy price cap by a record 54% due to rising price of natural gas. Over the past year, India and China have experienced mass blackouts and the Biden administration has been compelled to release 50 million barrels of oil from America’s Strategic Petroleum Reserve. Evidence grows that we are experiencing a global energy crisis.
For governments coming off the back of COP26, this presents a dilemma. Efforts to move away from cheaper fossil fuels have played a part in lower supply leading to price hikes. The reality is that renewable energy sources, while essential for the longevity of our planet, are not ready to meet the highest levels of global energy demand
In some ways, energy transition has never been a tougher sell for governments. However, the current crisis has also emphasised the urgent need to diversify our energy mix. European Commission’s president Ursula von der Leyen has warned that Europe is “too reliant on gas” which has left many nations vulnerable, signalling the importance of moving accelerating the energy transition rather than giving up.
And when it comes to sustainable investors, there is a newfound consensus that urgent investment and support is needed from corporates and governments if we are to successfully shift from fossil fuels to affordable and reliable green energy.
One such investor, Timur Tillyaev, says stepping up public and private investment in renewable energy should be a priority. “This investment can help on three fronts: improve efficiency and increase output of existing technologies, and help develop new technologies. For green alternatives to coal to become more economically viable, especially, for poorer countries, we need more supply and lower costs.”
Writing in Euractiv, Tillyaev warns that investments must still be carefully considered. “Governments and companies need to engage more closely for the right solutions to be found”, he says, if we are to effectively accelerate the energy transition and avoid wasteful investments.
Evidence suggests Timur Tillyaev is not alone in his focus on sustainable investment. Research from Nordic investment bank SEB predicts that the global energy crunch will see a 25 per cent increase in global renewables investment in 2022.
Meanwhile, analysts at Schroders, one of the world’s largest asset managers, suggest the crisis could be a crucial catalyst for increased investment in climate infrastructure and renewables: “Soaring fossil fuel commodity prices and related power generation costs are providing a critical lesson that the price of fossil fuel energy is inherently unstable and volatile. Renewable energy, by contrast, when combined with energy storage for reliability, is a much more stable priced form of energy,” said lead portfolio manager Simon Webber.
One might have thought that the current crisis would have reduced confidence among those who have been outspoken on the need for a rapid transition from fossil fuels. But in fact, many have doubled down their efforts to finance climate change alternatives and encourage swift political action.
Nigel Green, CEO of the leading global financial consultancy deVere Group, echoed this sentiment, stating that the current energy crisis “will bring into sharp focus that rather than staying with fossil fuels, the longer-term answer to this and future energy crunches is ESG investing.”
While the window of opportunity for a smooth transition from fossil fuels to renewables may be closing, the appetite among leading investors, experts and policymakers remains strong. As Timur Tillyaev says, “There is clearly a growing will across the globe to drive energy transition and bring about real change.” With this consensus there is hope that the world will provide the solutions needed to overcome the energy crisis.
