Energy, how will Europe become independent?

The crisis between Russia and Ukraine has exacerbated the energy crisis, making investments in clean energy that could help Europe reduce its dependence on fossil fuel imports even more urgent. Analysis by Jennifer Boscardin-Cheng, Product Specialist on the Thematic Equities team at Pictet Asset Management

The conflict in Ukraine has affected the whole world, and the enormous human suffering it has caused cannot, in fact, leave us indifferent. In addition, uncertainty about the future development of the crisis is weighing on the already volatile financial markets, with the increasing impact of geopolitical tensions on oil and gas prices. The sharp rise in the prices of energy raw materials has pushed energy costs to record levels in many regions, particularly in Europe.

As a result, issues such as energy security and price stability have come back to the fore and are high on the agenda of governments in the region. A context with a fairly significant structural impact on the issue of clean energy (an investment objective of the objective Pictet-Clean Energy strategy): Indeed, European authorities seemed more motivated to accelerate the transition to clean energy sources and to reduce dependence on fossil fuel imports.

Russia currently supplies more than 40% of the gas, 27% of oil, and 46% of the coal consumed in the European Union. In an effort to identify suppliers other than Russia and increase independence in the energy sector, the European Commission recently published a press release outlining updated and more ambitious measures (compared to the original Green Deal) to increase energy production. supply and avoid energy price shocks.

The main elements of the plan include:

  • Increasing investments in wind and solar energy and simplifying the procedures for obtaining licenses to expedite the implementation of projects in the field of renewable energy sources. In addition, a strategy to unlock the potential of rooftop solar panels in the European Union will be launched in June 2022;
  • Increased interest in energy efficiency, by doubling the projected number of heat pump installations in order to install 10 million units over the next five years and reach 30 million units by 2030;
  • Accelerate the development of green hydrogen with the aim of raising production targets to be achieved by 2030 from 5.6 million tons to 20 million tons;
  • Covering the remaining demand for gas through supplies from producers other than Russia.

A very important aspect of the report is the intent to present the deadline for achieving many goals from 2030 to the first half of the decade, i.e. in the next 3-4 years, as evidence of determination to act before that. Too late. At the same time, Germany has proposed new legislation aimed at bringing forward the goal of providing energy from 100% renewable sources until 2035, 15 years ahead of the original deadline.

It should be noted the last sentence of the report: “Given the developments in the energy markets in recent months, in particular the dramatic development of the (energy) security environment in recent weeks, it is necessary to sharply accelerate the transition to clean energy and increase energy independence in Europe “.

It is easy to imagine that independence and energy security will remain high on the list of priorities for governments, businesses and consumers going forward, along with the need to move forward with decarbonization without delay. In general, there will be a need for a large-scale energy transition, which will include not only energy supply (and thus renewables), but also transportation (electronic mobility), construction (energy efficiency of buildings and heat pumps) and industry (low-carbon production processes, automation and intelligence Artificial Intelligence, Internet of Things and Energy Storage). These are the investment sectors in Pictet-Clean Energy’s objective strategy, sectors that have strong support from fundamental drivers as well as inevitable long-term trends.

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