The geopolitical aftershocks from recent events in Crimea appear to have some way still to run, but in the longer term, one impact of the crisis may be to shift thinking in the European energy sector.
Russia currently provides around a quarter of the EU’s gas needs, rising to more than a third in Germany, three-fifths in Poland and 100% in the Baltics. Around half of this gas passes through Ukraine. Oil and gas exports account for more than half of Russia’s federal budget and Europe is its largest gas market. Cutting Europe off would be very painful for Russia.
So no doubt the politicians will come to some sort of mutually beneficial deal to keep the gas flowing to Europe, whether through Ukraine or around it.
The crisis has prompted European leaders to reconsider future energy sources. One possible outcome is a revived focus on renewables to reduce reliance on Russian energy and meet emissions targets. There may also be increased urgency around inter-country connections and regional smart grids. Countries that have maintained their nuclear energy commitment might be quietly applauding their decision. While Europe could turn to alternative gas sources from the Middle East and North Africa, it would face prices roughly double those of Russian gas.
The renewables sector needs a boost, as attitudes toward EU emissions and renewables targets are shifting due to rising pressure for lower prices. A UNEP/Bloomberg New Energy Finance report shows that investment in renewables declined by 14% in 2013, despite a decrease in technology costs. This led to a rise in renewables' share of the energy mix, from 7.8% in 2012 to 8.5%. The case for renewable investment is clear, with the IPCC urging the world to triple its renewable energy use to avoid dangerous global warming levels.
Our most recent IBR study was undertaken before the Ukraine situation flared up, but the results show a renewables sector under pressure in Europe. Just 32% of EU cleantech businesses expect to raise profits over the next 12 months, compared to 47% of sector peers globally. Similarly, 39% expect to invest in plant and machinery in the year ahead, below the global sector average of 53%.
The situation in Ukraine is complex and disturbing; but if it provides the kick needed for European policymakers to focus on energy security then some good may have come of it. New clean energy investment rose 14% globally in Q1 from a year earlier which is positive. In an uncertain world, making locally generated renewables a larger share of the energy mix is simply common sense.